For more than 20 months gas companies in the US were worried because on February 2005 Saudi Arabia may not extend the Quincy Agreement.
In 1945 King Saud and F.D. Roosevelt signed the Quincy agreement (named after the boat aboard which the agreement was signed). Under said agreement Aramco had the rights to run the Saudi oil for the following 60 years. And Washington got the energy supply for 6 decades in exchange for the protection of Saudi Arabia against any possible foreign attack.
This agreement was very important for the US since it is today the biggest oil consumer in the world. For years it was the biggest producer, but since the 50’s its production went continuously down reaching its lowest point in the 70’s. And since then US has had no other choice but to import. With only the 15% of the population the US consumes nearly 26% of the oil while they only produce 11%, and their reserves are only 2%
Moreover, the daily consumption was of 19 million barrels per day in 2000 but it is estimated to grow up to 27 million for the year 2020. This is a substantial fact because it gives you an idea of why there is a long tradition, coming as far as Roosevelt and Truman and reflected in the Carter doctrine, that asserts how assuring the security for oil supply is the principal strategic objective of the United States, and that the Middle East is a key zone because it generates 30% of the world oil production with 2 thirds of the total world oil under their soils.
Therefore, according to this doctrine, the US has spent all that was necessary to protect their interests in the Persian Gulf, keeping their navy, military bases, air force and intelligence with the objective of assuring oil supply.
While the Quincy agreement is in effect the US will not have major supply problems because Saudi Arabia –with their 26% of the global oil reserves, world first producer and strategic reserve- can easily satisfy the country’s energetic needs for a long time.
The problem is that this agreement goes ineffective in February 2005. And it needs to be renewed. And the US know, same as they knew one year ago when the Iraq war started, that the Saudi authorities are not willing to renew it at all costs. Not only that: given the advanced state of King Fahd’s illness, and knowing that his heir (Prince Abdullah) has a fame for being very intolerant, wahhabi and anti-American, the forecast is not very optimistic.
Therefore you could think that not only the Saudi oil supply to Washington is at stake, but also the American presence in Saudi Arabia which throughout the years has been of nearly 10,000 soldiers and another 15,000 in the navy.
Under these circumstances it is much more understandable the strategic interest of the United States on Iraq, from the energy and military point of view. Apart from having the second biggest reserves in the world, Iraq has very cheap virgin oil deposits of high quality with extraction costs that vary from 0.7 cents to $2 per barrel (Venezuela’s oil, for instance, costs between 7 and 10 dollars per barrel), and it is the world leader in the reserves-production relation, with more than 100 years of supplies guaranteed. That’s why it is one of the few countries than in a short period of time (4 or 5 years) can change the present balance in the oil market. And probably, with a vast part of the country yet to be inspected, the figures could go even higher.
When the war in Iraq started, the most optimistic analysts said that with a fast intervention and an effective control of the country –as it actually happened- there would be a waterfall of foreign investments into the Iraqi oil industry, so that the 3.5 million barrels a day that Iraq was producing before the war with Iran would be reached fast, and in 4 or 5 years it could grow up to 5 million barrels per day, which could modify the present scenery and lower the oil prices down to 10 or 15 dollars per barrel.
Things have not gone that well since the price of the barrel is around 40 dollars even though from the moment American troops stepped on Iraq it was clear the only interest they had was to control the Oil Ministry – which was not dissolved as the rest- and the refineries, which started producing quite quickly.
What we didn’t know then is that the Quincy Agreement with Saudi Arabia expires this February and that by then the US needs to either renew it or to find a substitute because otherwise they could be in difficulty. So in what relates to the war in Iraq the real problem was not the weapons of mass destruction, or Al Qaeda, or Saddam. The problem was the oil.
