- The Washington Times - Saturday, October 28, 2006

Special Report

These are flush times for some of America’s most determined adversaries.

Exploiting tight global energy markets and soaring gas prices in recent years, leading energy producers around the globe are using their export windfalls to challenge U.S. interests, intimidate U.S. allies and, in some cases, bankroll terrorist and insurgent groups fighting U.S. forces.

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Major producers such as Venezuela, Russia and Iran have teamed up with emerging energy consumers — notably China — in an “axis of oil” to frustrate U.S. foreign-policy objectives, according to Flynt Leverett, a former top Middle East adviser in the Bush administration, and Pierre Noel, a research fellow with the French Institute of International Relations.

“The political consequences of recent changes in global energy markets are posing the most profound challenge to American hegemony since the end of the Cold War,” the two concluded in a recent survey in the journal National Interest.

Even Secretary of State Condoleezza Rice, a veteran of both Bush administrations and a longtime foreign-policy scholar, conceded earlier this year she underestimated the ways the “energy question” distorted international relations.

“I can tell you that nothing has really taken me aback more as secretary of state than the way the politics of energy is — I will use the word ‘warping’ — diplomacy around the world,” she told the Senate Foreign Relations Committee in April.

“It has given extraordinary power to some states that are using that power in not very good ways for the international system, states that would have otherwise have very little power,” she said.

Andrei Illarianov, top economic adviser to Russian President Vladimir Putin before resigning last year in protest at the government’s anti-democratic policies, said reform at home and cooperation with the West both declined sharply as the Kremlin seized control of the country’s biggest energy companies.

“The correlation was very direct,” said Mr. Illarianov, now a research fellow at the Cato Institute, a Washington-based libertarian think tank.

While oil prices have retreated from the mid-July record of $78 a barrel, the current $57-a-barrel price remains far above the levels of just a few years ago.

The result: hundreds of billions of dollars swelling the coffers of regimes hostile to the United States.

Mr. Noel, in a talk last week, said the idea of a direct link between terrorism and oil is “simplistic,” saying it was not likely that a different U.S. energy policy and drastic reductions in American energy imports from the Middle East would make a dent in terrorist-financing networks.

Iran aside, he added, none of the countries that have most recently obtained nuclear weapons, from India and Israel to North Korea, relied on oil money to fund their research programs.

Still, some of the main problem countries on the U.S. diplomatic horizon all have one thing in common: deep energy pockets.

• Iran’s Islamist regime, sitting on the world’s third-largest known oil reserves and second-largest natural-gas reserves, so far has dismissed U.S.-led efforts to sanction and isolate its economy over its suspected nuclear-weapons programs.

Even before this year’s surge in prices, Iran was earning $30 billion more annually from its oil exports alone compared with a decade ago, according to the D.C.-based Institute for International Economics.

The windfall has not only allowed hard-line President Mahmoud Ahmadinejad to boost social spending at home, but to finance groups considered terrorist by the State Department, such as Hezbollah in southern Lebanon and Hamas and Islamic Jihad in the Palestinian territories.

GlobalSecurity.org, which tracks international terrorist groups, said Hezbollah was founded by Iranian agents in the early 1980s and the group “receives substantial amounts of financial, training, weapons, explosives, political, diplomatic and organizational aid” from both Iran and Syria, putting Tehran’s annual assistance at between $25 million and $50 million.

Iran is also widely thought to be the source of the wads of cash Hezbollah leaders were distributing to followers in the aftermath of this summer’s 34-day war with Israel.

• Analysts also see oil as the lubricant enabling Venezuelan President Hugo Chavez to conduct an outspokenly anti-American foreign policy as head of the world’s fifth-largest oil exporter.

Planning Minister Jorge Giordani said last week that oil revenues for the state-owned energy company have soared from $9.84 billion in 2003 to $33.5 billion so far in 2006, with transfer payments from the oil sector to the government up 65 percent in the past two years.

The flamboyant Mr. Chavez has used the petrodollars to finance a foreign policy sharply at odds with Washington — even though the United States is Venezuela’s single biggest oil-export market.

He has openly promoted leftist political allies in Bolivia and other Latin American countries, subsidized the ailing economy of Cuban dictator Fidel Castro and recently conducted an expensive global lobbying campaign in a failed bid to win a seat on the U.N. Security Council.

The State Department’s annual global terrorism survey concluded it was “unclear” whether any of Venezuela’s oil wealth had made its way to leftist guerrilla groups fighting the U.S.-backed government in neighboring Colombia. But the report found Caracas’ cooperation in the global war on terror “negligible.”

Mr. Chavez “persisted in public criticism of U.S. counterterrorism efforts, publicly championed Iraqi terrorists, deepened Venezuelan collaboration with state sponsors of terrorism such as Cuba and Iran, and was unwilling to deny safe haven to members of Colombian terrorist groups,” the State Department report found.

• Sudan began exporting oil only seven years ago, but energy riches have left it largely indifferent to outside critics of its brutal campaign against rebel groups in the country’s western region of Darfur, a campaign the U.S. government has formally labeled a “genocide.”

Despite a decade of U.S. sanctions and pressure on investment by international energy companies, Sudan’s economy grew by 8 percent in 2005 and is expected to expand by 12 percent this year — almost entirely because of oil exports. Sudan is now sub-Saharan Africa’s third-largest oil producer, trailing only Nigeria and Angola.

Khartoum has had no difficulty financing its army and Arab militias known as the “Janjaweed” in the Darfur conflict. Former Finance Minister Abda Yahia el-Mahdi recently told the New York Times that 70 percent of the government’s oil revenues are devoted to defense and to arms manufacture.

Mr. Leverett and Mr. Noel say the Iran and Sudan cases illustrate another way the “axis of oil” distorts global politics and frustrates U.S. foreign-policy goals.

Major energy importers such as China, they say, shield hostile governments from U.S. pressure.

With a veto as a permanent member of the U.N. Security Council, China has acted as a brake on U.S. plans for tough action against Iran and Sudan. China’s state energy companies are busy locking up supplier deals and joint oil-field development projects.

“China’s search for oil is making it a new competitor to the United States for influence, especially in the Middle East, Central Asia and Africa,” the analysts say.

A report from a Council on Foreign Relations task force on U.S. energy policy chaired by former Energy Secretary James R. Schlesinger and former CIA chief John M. Deutch concluded earlier this month that competition among major importers will only increase, harming U.S. influence.

“Large oil consumers have tended to become especially focused on securing supply and ignore the effects of their investments on corruption and mismanagement,” the task force found. “In Sudan, for example, despite civil war and widespread human rights abuses, the Chinese government and its oil enterprises are funding extensive oil supply and infrastructure projects.”

Energy clout is even playing a growing role in the sectarian tensions dividing Iraq and the Middle East. Plans for greater autonomy for Iraq’s warring regions have foundered over the basic fact that most of the country’s oil wealth is found in provinces dominated by Iraq’s Kurds and Shi’ite Muslim Arabs — leaving Sunni Arabs out in the cold.

Mamoun Fandy, an influential Arab newspaper columnist and a professor of Middle East Studies at the National Defense University, said the region’s leading Sunni governments fear a loss of major oil-producing assets with the rise of Shi’ite political movements linked to Iran.

Even in strictly Sunni Saudi Arabia, many of the country’s most productive fields are found in the eastern part of the country inhabited by the country’s small Shi’ite minority.

“It sometimes seems that every place you find an oil well, there is a Shi’ite standing by it,” he said.

Accentuating the trend of mixing oil and politics is the increasing clout of state-owned national oil companies, or NOCs, most under close supervision of their parent governments, in global energy markets.

NOCs hold nearly three-quarters of the world’s proven oil reserves.

The largest private firm on the list of oil-reserve giants — ExxonMobil — now ranks only 12th in the world in known reserves, far behind the state-owned oil companies of Saudi Arabia, Russia, Mexico, Venezuela, Iraq and Iran.

The transforming power of oil and natural gas can be seen clearly in the evolving foreign policy of Russia.

In the 1990s, when global oil prices plummeted, the near-bankrupt government of then-President Boris Yeltsin posed few challenges to U.S. and Western European foreign-policy goals, including the expansion of NATO to Russia’s doorstep and the bombing campaign against Serbia, Moscow’s ally, in the 1999 Kosovo war.

After 2000, the Kremlin under President Vladimir Putin first moved to bring Russian energy firms such as Yukos under its direct control, and used the money and market clout to revitalize Russian foreign policy.

In talks with the European Union and the countries on its border that are dependent on Russian oil and natural gas, Moscow has not been shy about advertising its new clout.

“It is the ultimate weapon they can use against us,” said Nikoloz Rurua, deputy chairman of the committee on defense and security in Georgia’s parliament.

Add Mr. Leverett and Mr. Noel: “Moscow is using its market power to push back against the United States in arenas where it perceives U.S. infringement on its interests.”

Just last week, Russian newspapers reported that Ukraine — target of a brief cutoff by Moscow last winter — was being asked to make political concessions in return for a new natural-gas supply deal with Russia.

The concessions included slowing Ukraine’s drive to join NATO and linking Ukraine’s bid to join the World Trade Organization to Russia’s own stalled application.

“I would say quite openly that we need to synchronize the negotiation process of our countries on WTO,” Russian Prime Minister Mikhail Fradkov said after a meeting Wednesday to conclude the deal with his Ukrainian counterpart, Viktor Yanukovych.

But Ukrainian opposition leader Yulia Tymoshenko denounced the natural-gas deal as “treason” and warned Ukraine was losing its independence from Russia.

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