More on the oil motive for NATO's intervention in Libya

The difference between the Gaddafi government’s oil policies and those that oil importing governments (such as NATO countries) and companies based in them would prefer are one of the main motives for NATO’s military intervention in Libya – and certainly more of a real motive than protection of civilians.

(A previous post covered some of this and the parallels between US intervention in Libya and in Iran and Venezuela – all primarily due to disputes over oil profits and control of production levels.)

Libya experts like Geoff Simons and Ronald Bruce St. John have described the Gaddafi government’s oil policy as one of playing foreign oil companies off against one another to ensure the best returns for Libya, in deals that get the country the investment and expertise it requires for oil exploration and production. From the beginning Gaddafi’s government used the threat of possible nationalisation in negotiations – a threat that has remained credible as they have sometimes carried it out (e.g in September 1973). (1) – (2).

St. John wrote that ‘In retrospect it seems obvious that the RCC [Revolutionary Command Council including Gaddafi] was determined from the start to reduce oil production to conserve supplies, increase oil revenues by maximising the price, develop upstream and downstream capabilities, and use oil revenues to diversify the economy’ (3).

(‘Upstream’ refers to exploration to find oil and production (i.e extraction) , ‘downstream’ usually means storage, refining e.g oil into petrol, distribution and sale.)

While the details of Gaddafi’s policy have varied, the key aims have remained the same. These aims have often conflicted with the aims of oil importing countries (including all NATO countries) and the oil companies based in them. In his book ‘Fuel on the Fire’ Greg Muttit quotes a report by the US Center for Strategic and International Studies, written by former members of the CIA, US government and American oil companies in 2000. They concluded that, with the increase in demand from developing economies like China, India and Brazil, the ideal scenario from the point of view of oil importers and oil companies based in them would be a 50% increase in production by 2020 to allow oil companies to profit fully from the growing demand and to maintain oil prices at a level low enough to allow continued economic growth in oil importing countries (4).

It’s also likely that Libya developing it’s own refineries (and it’s acquisition of the European oil refining firm Tamoil in 1986 (5)) cut into profits the oil companies could make from refining oil and selling the more valuable final products such as petrol back to Libya, as they do in some oil rich countries (e.g Nigeria ) (6).

The three countries who the CSIS report said would have to maximise production to achieve the 50% increase were Iraq, Iran and Libya – whose production levels were all limited by US government and/or UN sanctions (7). Lifting these sanctions without getting governments who had defied the US either replaced or made to make big concessions would result in huge loss of face and influence for the US government. So the US and it’s allies invaded Iraq and got contracts with their oil companies negotiated while the occupation and insurgency continued, forcing the Iraqi government to negotiate from a position of weakness. They’ve imposed sanctions on Iran and continue to threaten possible military action against it; and they’ve imposed Iraq style sanctions on and carried out air strikes in Libya.

The overthrow of Saddam Hussein failed to promote democracy in the Arab world, but it certainly promoted the interests of US and British oil companies. They got contracts on very favourable terms with the government of Iraq, while hundreds of thousands of their troops and mercenaries were still there (8) – (9). A week after Saddam Hussein was captured by US forces Gaddafi agreed to inspections of it’s nuclear facilities which would be accompanied by the return of US oil companies to Libya, later followed by BP (10) – (12).

While Gaddafi had allowed western oil companies contracts in Libya before the current fighting he was also haggling for a higher share of oil profits from them and hinting at the possibility of nationalisation if they refused. American oil companies became worried he might kick them out (13) – (14).

Oil profits, prices and supplies are one of the real motives for NATO’s intervention in Libya.

(1) = Ronald Bruce St. John (2008) ‘Libya From Colony to Independence’,  Oneworld Paperback/Oxford, especially Chapter 8, p145 -148; Chapter 7, p174 – 177;Chapter 9, p250-254, p 260

(2) = Geoff Simons (1996) ‘Libya the struggle for survival’ 2^nd edition, MacMillan, London, 1996, paperback

(3) = St. John (see 1 above), Chapter 6, page 145

(4) = Center for Strategic International Studies  (2000) ‘The geopolitics of energy into the 21st century’ cited by Gregg Muttitt (2011) ‘Fuel on the fire’, The Bodley Head, London, 2011; chapter 3, pages 35 and 370

(5) = St. John (see 1 above), Chapter7, page 176

(6) = BBC News 6 Jul 2010 ‘China to build $8bn oil refinery in Nigeria’, http://www.bbc.co.uk/news/10527308

(7) = See (4) above

(8) = Gregg Muttitt (2011) ‘Fuel on the fire’, The Bodley Head, London, 2011

(9) = AP 1 Jul 2009 ‘Iraqi government approves BP oil field offer’, http://www.independent.co.uk/news/business/news/iraqi-government-approves-bp-oil-field-offer-1727287.html

(10) = Jordan Times 23 Dec 2003 ‘Libya could provide intelligence bonanza’,http://www.aljazeerah.info/News%20archives/2003%20News%20archives/December/23n/Libya%20could%20provide%20intelligence%20bonanza.htm

(11) = See sources (55) to (59) on this link

(12) = CNN Fortune 28 Jun 2004 ‘Libya's Black Gold Rush With sanctions lifted, Big Oil is lining up to do business with Qaddafi’, http://money.cnn.com/magazines/fortune/fortune_archive/2004/06/28/374397/index.htm

(13) = CNBC 03 Mar 2009 ‘Libya Wants Greater Share of Its Oil Revenue’, http://www.cnbc.com/id/29494495

(14) = Forbes Magazine 01 Jan 2009 ‘Is Libya Going To Boot U.S. Oil Companies?’,http://www.forbes.com/2009/01/22/libya-gaddafi-oil-biz-energy-cx_ch_0122libya.html

Cuts to welfare and public sector jobs ballooning out of control in Britain

The housing benefit cap and public sector sackings are unfair, un-necessary and risk increasing our national debt, unemployment and homelessness

George Osborne claims welfare spending had to be cut because it has “ballooned” and this is presumably his justification for cutting housing benefit, despite the fact that homelessness charities such as Shelter Scotland say this will increase homelessness.

Welfare spending has certainly increased over the years, but so has spending on everything else, because the economy has over-all grown a great deal over the decades and there’s also been inflation.

The website ukpublicspending.co.uk has compiled tables based on figures released by the government from 2009 on, covering the entire period from 1950 to the present.

These show annual public spending, annual GDP (the output of the economy) and how much was spent on each area of public spending.

Welfare spending as a proportion of public spending fell from 20% in 1997 to 15% by from 2005 to 2009. Compared to the 1970s and 1980s it’s actually fallen significantly from levels of 20 to 30% of annual government spending.Since there has been a recession since the 2008 credit crisis the fact that welfare spending didn't increase in 2009 suggests that, if anything, people made unemployed by the recession are not getting the benefits they need, further depressing demand in the economy and hampering a recovery.

The government’s budget is supposed to be about spreading the cost of cuts fairly, according to ability to bear them. That makes it hard to understand why housing benefit should be capped.

There is certainly waste in the housing benefit budget, but that has been created by Conservative and New Labour governments’ selling off of council housing without building or buying nearly as much new public housing. This has resulted, in a significant minority of cases, to the government paying large amounts out to private landlords, which is the fault of government, not of people who can’t afford to buy or rent their own housing. It could be solved by a mixture of buying and building more council housing and regulating private sector rent levels, rather than capping housing benefit and throwing people onto the street as a result.

Are large scale public sector job cuts necessary and are they wise?

That’s apart from the fact that public sector job cuts on this scale aren’t necessary and aren't wise. What determines the future of government revenues is mostly the performance of the economy, not whether the government is in debt. While it’s not advisable for governments to take on debts that don’t help the economy or prevent severe poverty or suffering for large numbers of people, they can operate with considerable levels of debt. (Look at the US for instance, with decades of a bloated and ever increasing defence budget leading to a vast national debt).

As many economists (and Labour MPs) have warned, sacking large numbers of public sector employees to reduce the budget deficit may actually increase it in the long run by reducing tax revenues, increasing unemployment benefit payments, reducing demand in the economy (i.e sacked public sector workers will buy less goods and services as they won’t be able to afford what they need) and making private sector employees unemployed as the reduced demand means reduced sales for private firms.

The Conservatives claim that large and immediate budget cuts are necessary in order to avoid a crisis like Greece’s, where a rise in interest rates demanded by creditors, combined with speculation by currency traders selling the euro, left the Greek government unable to pay the interest on its debts and the euro falling. Only a bail-out package from other EU members prevented this crisis spreading to the rest of the euro-zone countries.

However Britain’s debt is only 53% of it’s GDP, compared to Greece’s debt of over 110% of it’s GDP, so Greece’s public debt relative to the output of its economy is more than twice as big as Britain’s relative to it’s economy. France and Germany both have government debts of over 70% of their GDP, while Italy's, like Greece's is over 110 of it's GDP.

Osborne's claim in his budget statement that we have the highest deficit in the EU in absolute terms may be true, because we are the largest economy among those with a government deficit, but as a percentage of GDP it's not true.

This is distinct from the annual deficits – the amount being added each year to the debt due to the gap between tax revenues and public spending, – at a bit over 13.6% of GDP in Greece’s case and 11.5% in the case of the UK – i.e the debt of the UK and Greece grew at a similar rate relative to the size of their economies over the last year. However Britain came out of recession this quarter for the first time since the financial crisis of 2008. Governments routinely rack up debts during recessions and by doing so get their economies out of recession, resulting in growth, increased revenues and so the ability to pay off some or all of their debt.

What’s more, while there has certainly been a lot of wasteful spending and we did have a considerable public debt before the credit crisis, Britain’s debt is only as large as it is because of the financial crisis which was caused by a combination of deregulation of the financial sector on both sides of the Atlantic by both ‘left’ and ‘right’ wing governments in the UK and liberals and conservatives in the US.

A ‘third way’ plan by the Clinton administration to make banks and other lending companies give mortgages to people who couldn’t afford to re-pay them also played a role. This was an alternative to building more public housing, which was seen as unacceptably anti-market or socialist.

The British government bailed out the banks for hundreds of billions, took on their debts and suffered reduced tax revenues due to the recession caused by the financial crisis. While they were partly to blame for deregulating banking there was no criticism of deregulation of banking from the Conservative party in the 1990s – they supported it right up the financial crisis.

Osborne plans to cut spending further and faster than any country in the last 50 years; and to do so by sacking 500,000 public sector employees and freezing the pay of the rest, while continuing to fund a pointless war and vast taxpayer subsidies for private arms companies, PFI consortia and privatised rail firms . This looks more like the ideological opposition to public services than hard-headed realism

Other ways to reduce our debts

Of course if it’s possible we should gradually eliminate our annual deficit and start reducing our total amount of debt and annual interest payments on it. It certainly doesn’t make sense to be paying interest on debt for decades if it’s avoidable; and we don't want a continuing deficit leading to ever larger debts and interest payments on them.

However there are lots of ways we could do that without hurting the poorest or in fact anyone but the very richest.

Bringing our troops home from Afghanistan would save a lot of money and a lot of lives. Scrapping or renegotiating private finance initiatives or ‘public private partnerships’ would reduce massive annual costs that aren’t even put on the books, due to an accounting fiddle. Ending public subsidies to privatised rail companies would save even more. If they really are investing in the railways, let them do it from the profits from their fares, which have risen at well above the rate of inflation. Ending export credit guarantees for arms companies like British aerospace would also save money, as would ending military aid to governments which are either dictatorships or whose governments and militaries are involved in the drug trades and death squads (e.g Colombia).

Building more council housing would also reduce the government’s annual housing benefit costs, as maintaining a council house is much cheaper than the rents paid to many private landlords.

Cracking down on tax evasion and tax avoidance by international co-operation with the EU and the OECD to close down tax havens (and even cracking down ourselves on the Channel Islands and the Bahamas) would bring in far more revenues than cracking down on benefit fraud ever has.

Given all that putting caps – and very low caps – on housing benefit, seems downright mean, unfair; like the increase in VAT which is paid at the same rate by everyone, whatever their income.

There are a few fair and progressive elements in the budget – like raising the level of income at which people pay any income tax at all, taking 900,000 of the lowest earners out of tax; and making big cuts in the corporation tax paid by small firms. Unfortunately the housing benefit cap and the VAT rise more than cancel them out.

We’re also developing another problem – that maintaining an environment that humans can survive in reasonably well is not possible in an economic system which demands maximum profit in the short term from every company – and constant, infinite economic growth.