The Quest: Energy, Security, and the Remaking of the Modern World Read online

  In the December 1998 presidential election, with just a 35 percent turnout, the deep economic and social distress that came with the oil price collapse gave Hugo Chávez, who had been released from prison only four years earlier, a 56 percent victory. In his victory speech that night, Chávez denounced Luis Giusti as the devil who had sold the soul of Venezuela to the imperialists.

  The next month, standing next to Chávez at the inauguration, was the outgoing president, Rafael Caldera, who had amnestied the lieutenant colonel in 1994. Caldera looked nothing so much as stunned. “Nobody thought that Mr. Chávez had even the remotest chance of becoming president of the republic,” he later said. As for Luis Giusti, he made a point to resign as president of PDVSA before Chávez could fire him. 14

  CHÁVEZ IN POWER

  But how would the forty-two-year-old lieutenant colonel govern? Was he a democrat or an authoritarian? His initial comments were not clear: “If you try to assess me by traditional canons of analysis, you’ll never emerge from the confusion,” he said. “If you are attempting to determine whether Chávez is of the left, right or center, if he’s a socialist, Communist or capitalist, well, I am none of those, but I have a bit of all of those.” At another time he added, “I absolutely refuse, and will refuse to my grave, to let myself be labeled or boxed in. I cannot accept the notion that politics or ideology are geometric. To me, right and left are relative terms. I am inclusive, and my thinking has a little bit of everything.”

  Whatever the ideology, Chávez moved swiftly to consolidate all power in his hands, keeping the formal institutions of the state—“worm-eaten” though he called them—but depriving them of any independent role. He quickly pushed through a new constitution, which eliminated the upper house of the congress. He turned the remaining chamber into a rubber stamp. He increased the number of Supreme Court judges from twenty to thirty-two, packing it with revolucionistas. He took direct control of the National Electoral Council, ensuring that his personal political machine would count the ballots in future elections. He removed any congressional oversight of the army and then proceeded to set up a second parallel military force of urban reservists. And he rechristened Venezuela as the Bolivarian Republic.

  He made a triumphant visit to Cuba, where he declared, “Venezuela is traveling toward the same sea as the Cuban people, a sea of happiness and real social justice and peace.” He also played ball with Fidel Castro—in this case, baseball. Although Chávez did the pitching for the Venezuelan team, the Cubans won, 5-4. The Cubans won something else as well—a Venezuelan subsidy. With the end of Soviet communism, Russia no longer had any ideological bonds with Cuba and had stopped providing cheap oil. Chávez stepped in to become Castro’s oil banker, delivering petroleum at a steep discount.15

  In turn, Cuba provided advisers of many different kinds—health workers, teachers, gymnastic instructors, and a wide variety of security personnel operating under various guises. For Cuba, this was a return to Venezuela, for it had provided aid to guerrillas during the “violent years” of the 1960s. Castro had relished Venezuela’s oil wealth, and he had repeatedly tried to open a beachhead. Indeed, one attempt to insert Cuban military into Venezuela in 1967 had led to the death of Castro’s personal chief of security. This time, however, Cuba was there to bolster the government—Chávez’s government. Chávez also adopted the Cuban system of local neighborhood control. And in case it was still not clear where he stood, Chávez clarified matters. “There is only revolution and counterrevolution,” he declared, “and we are going to annihilate the counterrevolution.” When Roman Catholic bishops urged him to be less confrontational, he dismissed them as “devils in vestments.”16

  Castro was a role model in many ways. As the Cuban president specialized in speeches that went five or six hours, Chávez adopted a variant with his Sundayafternoon television broadcast, Alo Presidente. Over the course of four hours or more, in a weekly demonstration of his manic energy, he would joke, sing revolutionary songs, tell anecdotes from his boyhood, and talk about baseball. He would also denounce his opponents as the corruptos and position himself as the leader of the revolutionary vanguard opposing the United States or what he calls the “North American empire . . . the biggest menace on our planet.” At one and the same time, he wrapped himself in the cloak of the nineteenth-century liberator Simón Bolívar and propounded his new theory of “socialism for the twenty-first century.”

  And then there was oil, the soul of the Venezuelan state. The economic engine was PDVSA and Chávez quickly asserted his control. He was much influenced by a German-born energy economist, Bernard Mommer, who made the case for a highly nationalistic oil policy and argued that Venezuela had fallen prey to “liberal policies” that urgently needed to be reversed. Chavez attacked PDVSA as “a state within a state” and then proceeded to subordinate it to his state, politicizing what had been the professionally run company. PDVSA’s treasury became the cash box of the state, and Chávez moved financial control of the company into the central government, giving him direct control over its vast revenues. There was no accountability or transparency. He could use the money as he wanted, shifting investment from the oil industry to whatever purposes he thought best, whether social spending and subsidies for favored groups at home or pursuit of his political objectives within the country and abroad. More than ever before, Venezuela was truly a petro-state. 17

  THE RECOVERY OF OIL

  Chávez made a decisive policy change that would reverberate throughout the world. Venezuela would no longer pursue a strategy of increasing revenues by increasing outputs. Indeed, it now became the strongest advocate in OPEC for cutting back on production and observing quotas.

  As prices started to recover, Chávez left no doubt of his explanation: “The increase in the oil price has not been the result of a war or the full moon,” he said. “No. It is the result of an agreed strategy, a change of 180 degrees in the policy of previous governments and of Petróleos de Venezuela . . . Now the world knows that there is a serious government in Venezuela.”18

  Chávez had moved OPEC to the center of Venezuelan oil policy, but in fact, Venezuela had already started to cut back on production before Chávez was elected, beginning in Riyadh in March 1998. Also, Venezuela was one element in a larger tableau. For faced with plummeting revenues, all the OPEC countries—and some non-OPEC countries—had gotten religion about quotas and restraint.

  Moreover, the overall picture was certainly changing. While OPEC was reining in production, Asia started to recover. Demand started to snap back. And so did prices. This particular oil crisis—the crisis of the producers—was ending.

  The exporters, who before had been dismally staring at $10 a barrel or less, were now talking more confidently about a $22-to-$28 “price band” as their target. But by the autumn of 2000, spurred by economic recovery in Asia and OPEC’s new policy, the price of oil had surged over the band, above $30 a barrel, a threefold-plus increase from where it had been just two years previously. The big increase in demand—a surge of 2.5 million barrels per day between 1998 and 2000—was having a decided impact on the oil market.

  The “soaring oil prices,” as they were described in the press, were setting off alarms in consuming countries, which had rather quickly become accustomed to lower prices. Now they feared a “brewing energy crisis.” Such was the alarm that the rising prices—and the gasoline and home-heating oil prices they drove—were becoming a contentious issue in the hotly contested 2000 U.S. presidential battle between George W. Bush and Al Gore. On September 22, 2000, two days after prices spiked to what seemed a shocking $37 a barrel and in the midst if the campaign, the Clinton administration released some oil from the Strategic Petroleum Reserve, aimed at blunting price increases in the weeks before the arrival of winter.19

  By that point Hugo Chávez had already established himself as a force in world oil and in the Western Hemisphere. Yet without the oil price collapse of 1997–98, it is not at all clear that he would have had the chance,
just seven years after his coup attempt had landed him in jail, to act on what he had written in his diary decades before, while a cadet in the military academy, and take “responsibility” for Venezuela. Now, like the dictator General Cipriano Castro a century earlier, he aimed for his Bolivarian project to extend beyond Venezuela’s borders, to the rest of Latin America. But unlike that general, he was seeking global reach as well. And the rising price of oil would give him the wherewithal to try.

  6

  AGGREGATE DISRUPTION

  As the twenty-first century opened, except for the brief price spike, oil had faded away as a policy issue. Moreover, the resolution of the 1990–91 Gulf crisis appeared to have taken energy security off the table.

  Instead attention was riveted on new things and in particular on “new new things.” That meant the revolution in information technology and in how people communicated with one another in a world that was now continually interconnected twenty-four hours a day. And it meant, more than anything else, the Internet. Silicon Valley and cyberspace—those were the places to be. All this, along with the end of the Cold War and rapidly growing world trade, inaugurated a new self-confident era of globalization. “Distance” was disappearing, along with borders, as both finance and supply chains tied production and commerce together around the planet. It was an increasingly open world, freely communicating, freely trading, freely traveling—and, as it turned out very definitely, “visa-lite.” It was a world of rising living standards and ever-wider possibilities. It was an optimistic time.

  THE DAY THAT CHANGED EVERYTHING

  On September 11, 2001, two jets hijacked by Al Qaeda operatives slammed into the twin towers of the World Trade Center, and a third into the Pentagon. The fourth, aimed at the Capitol, was brought down by passengers in a cornfield in Pennsylvania. For the first time since the Japanese air raid on Pearl Harbor, December 7, 1941, which had taken the United States into World War II, America had been directly attacked, and with a greater loss than on that unsuspecting Sunday morning in Hawaii.

  In retrospect, the warnings had been there with a series of attacks—initially on the World Trade Center in 1993; then on the embassies in Kenya and Tanzania in 1998, where hundreds perished; and on the U.S. destroyer Cole in a port in Yemen in 2000—along with an attempt to blow up Los Angeles International Airport on New Year’s Eve 2000 that had been aborted by an alert guard at the Canadian border. And there were also all the pieces of intelligence that were not connected—ranging from the CIA and FBI databases that did not talk to each other, to the Arab students at flying schools in the United States who were interested in learning only how to take off but not how to land.

  That morning transformed international relations. Security now became the central preoccupation. Borders and barriers went up. The world was no longer so open a place. In the autumn of 2001, in what became known as the “war on terror,” the United States and its allies counterattacked in Afghanistan, the base from which Al Qaeda operated. They pushed the Taliban, Al Qaeda’s ally, from power, and in just a matter of weeks achieved a decisive victory. Or so it seemed at the time.

  Globalization suddenly looked different. The world might be much more interconnected, but new vulnerabilities arose out of the much-denser network of trade and communication lines on which this interconnected world relied. “Homeland security” went from being a title for think-tank reports to the name of a massive new U.S. cabinet agency. September 11 revealed a dark underside to globalization. Empowered with the tools of globalization, shadowy groups with militant ideologies could take advantage of the openness—easy travel, easy movement, cheap cellular communication, and easy Internet access—to disrupt globalization and seek to undermine the more open world.

  Petroleum had, since the beginning of the twentieth century, been entwined with security and the power and position of nations. But 9/11 led to a new emphasis on oil’s risks, including the fact that the world’s biggest oil region, the Middle East, was also the region from which Al Qaeda had emerged. One of Al Qaeda’s original grievances, in addition to the impact of modernity on the region, was the presence in Saudi Arabia of U.S. troops, which had remained after the 1991 Gulf War to help contain Saddam Hussein. The militant messages and sermons in some of the Mideast mosques were very similar to those of Al Qaeda, and recruits and money came from that region. Some fifteen of the nineteen suicide hijackers on 9/11 had been Saudi Arabian nationals.

  The “special relationship” between the United States and Saudi Arabia went back to the meeting between President Franklin Roosevelt and King Ibn Saud on the Great Bitter Lake, in the Suez Canal, in February 1945. From Harry Truman onward, U.S. presidents had made the security of Middle East, and in particular Saudi Arabia and its oil, a fundamental national interest. Jimmy Carter made the commitment much more explicit in response to the Christmas Eve 1979 Soviet invasion of Afghanistan, which was seen as a possible “stepping stone” for the Soviet Union to try to gain control over the Persian Gulf and “much of the world’s oil supplies.”

  “An attempt by any outside force to gain control of the Persian Gulf region,” said the Carter Doctrine, “will be regarded as an assault on the vital interests of the United States, and such an assault will be repelled by any means necessary, including military force.” Saudi Arabia, in turn, had tied its long-term security to the United States. There were many other ties as well. During the late 1970s, the Saudi cabinet was said to have more members with American Ph.D.s. than the U.S. cabinet.1

  The Carter Doctrine was pointedly directed at an “outside force,” the Soviet Union. But what about “inside forces” within the Gulf region? Here, with the attack of September 11, was evidence that some part of the population in Arab countries was outrightly, indeed violently, hostile to the United States and the rest of the industrial world. No one knew the actual proportions. Yet in the aftermath of 9/11, some in Saudi Arabia initially denied that fifteen of the hijackers were even Saudi. This added to the tension between the United States and Saudi Arabia that strained the energy and security relationship. The rift did not fully end until May 2003, when Al Qaeda–linked operatives launched terrorist attacks in the Saudi capital of Riyadh, followed within a year by other attacks, including one on a police headquarters in the capital city. Saudi Arabia recognized that it was a prime target and that Al Qaeda was its dangerous enemy.

  From an energy perspective, the lasting impact of 9/11 in the United States was a renewed conviction that oil consumption and oil imports in particular were a security risk. At the time, Mideast oil represented about 23 percent of imports and 14 percent of total U.S. oil consumption. But it had become symbolic of “dependence” and the dangers thereof. Many Americans thought that all U.S. imports came from the Mideast. And thus the mantra of “energy independence,” which had been a fixture of American politics since the 1973 oil embargo, took on new urgency.

  September 11 itself did not have much impact on oil price. (In the months that immediately followed, oil prices actually fell below $20 a barrel and did not get back over $20 until March 2002.) Even into 2004, the widespread expectation was that market conditions would ensure that prices remain in that “moderate” range. Yet over four years, between 2004 and 2008, prices would shoot up, reaching a historic high of $147.27, with far-reaching impact on the world economy. They would redistribute global economic and political power, and shake people’s confidence and raise anxiety about the future. The extraordinary increase both reemphasized the centrality of oil and at the same time gave new impetus to move beyond oil.

  As with most great developments in human affairs, there is not a single explanation for the massive leap in prices. It was driven first by supply and demand, and huge but largely unanticipated change in the world economy. Disruptions and a return to resource nationalism were critical elements. But then more and more momentum was provided by forces and innovations coming out of the financial market. The story of what happened to price is also a narrative about profound changes
both in the oil industry and in the wider world.

  September 11 disrupted security and international affairs and altered thinking about oil and dependence and the uses that could be made with oil revenues. But 9/11 did not interrupt supply. In the autumn of 2002, more than a year after 9/11, there was little hint that supply problems would begin to take a toll on the flow of oil. Indeed, anything but. “Oil Prices Fall as Global Supplies Soar” headlined an industry trade publication. But that would very shortly change .2

  A series of crises in three major exporting countries would spur supply losses, compounded by the the forces of Mother Nature. None was large enough on its own to upset the balance in the oil market. Yet when tallied together, they would constitute a significant loss of supply, what added up to an “aggregate disruption” that would have notable impacts over the next half decade, reducing supplies that would have otherwise been available to a growing world economy.

  “ALO PRESIDENTE”—VENEZUELA

  Reelected president of Venezuela in 2000, Hugo Chávez moved to further consolidate power in his hands. As he did so, opposition became more vocal. Parents protested the Ministry of Education’s plans to revise history textbooks in a way that would demonize Venezuela’s first forty years of democracy—“Cubanizing” the textbooks, it was said. In the face of parental opposition, the government retreated, temporarily. The government also established local militias called Bolivarian circles, modeled on Cuba’s Committees for the Defense of the Revolution, in order, as Chávez announced, to create “a great human network” to defend the revolution. New controls on the media included a ruling that the press could be punished for spreading “false news” or “half truths.” But particularly alarming was a package of 49 laws that greatly extended state power and that was put into effect without approval by the National Assembly. At the same time, Chávez extended his control over Petróleos de Venezuela—PDVSA—the state oil company. The continuing politicization of PDVSA was eroding the effectiveness and professionalism for which the company had developed a worldwide reputation.