Security: Energy Meeting the Growing
Challenge of National Oil Companies
by Matthew E. Chen and Amy Myers Jaffe
L
ast February, Hugo Chavez decreed a staged nationalization in a drive to take
over large segments of the Venezuelan economy as part of his revolutionary vision
for the country. Specifically, the Chavez government set its sights on the oil industry,
giving notice to foreign oil companiesincluding US firmsthat they had until June
26 to reduce their ownership in Venezuelan Orinoco Belt heavy oil field projects so
that the state could take at least a 60 percent share. This year alone, the Venezuelan
government has already formed the Venezuelan Electricity Corporation, comprised
of all state electricity utilities, to ensure state control of the electricity sector. It has
also initiated the takeover of CANTV, the countrys biggest telecommunications
operator. Chavez also has threatened to nationalize Venezuelas banking sector unless
banks give priority to financing [the countrys] industrial sectors.1 Commenting on
his drive for 21st century socialism, the president said that Im not deceiving
anyone. Im only governing the country, and the country has elected me various
times. ...All of those who voted for me backed socialism, and that is where we are
heading.2
Venezuelan Oil Minister Rafael Ramirez threatened in early May that US oil giant
ConocoPhillips would be kicked out of Venezuela altogether if it tried to drive a
hard bargain for turning over shares in its fields in the Orinoco Belt. The official US
reaction has been muted. On May 1, 2007, US State Department spokesman Sean
McCormack said Venezuelas negotiations with oil companies will proceed as they
will, but that Chavezs broader actions, including withdrawing from the World Bank
and International Monetary Fund, were digging a hole for the Venezuelan people.3
The US has a long tradition of circumspect responses to the moves of national
oil companies. The US has responded tepidly to many moves since the 1930s when
Mexico nationalized the oil field holdings of US oil companies. In the case of
Mexico, the US had other foreign policy priorities at the time of these
nationalizations, first the fight against Nazism and then the struggle to keep
communism out of the hemisphere. Thus, despite lodging diplomatic protests and
rebuking Mexico with mild economic penalties, the US did not allow the incident to
Matthew E. Chen is a research associate at the James A. Baker III Institute for Public Policy.
Amy Myers Jaffe is the Wallace S. Wilson Fellow in Energy Studies at the Baker Institute and the
director of its Energy Forum.
9
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damage bilateral relations in the face of greater strategic challenges.4 Similarly, the US
government did not interfere with Venezuelas 1976 nationalization, for which the
international oil companies received compensation.5 The United States was even
passive as recently as the 1980s, when Saudi Arabia implemented the gradual
nationalization of the American oil company stakes in the Aramco Oil concession.
US-Saudi relations were relatively strong in the 1980s and into the 1990s, and the US
government made no objections whatsoever to Saudi Arabias nationalization of
Aramcos oil assets.6
Some US officials have been vocal that the government should be doing more
to punish Hugo Chavez for his oil campaign against US interests. Presidential
candidate Rudolph Giuliani, for example, said Chavez is dangerous to US interests,
and in one recent speech, he called on the US to develop alternative energy sources
and domestic production. Antagonistic leaders from oil states such as Chavez would
be left with little power if the US could stop buying oil from them.7
National oil companies now command close to 80 percent
of the worlds remaining oil reserves and will
overwhelmingly dominate world oil production and
pricing in the coming decades.
The recent developments in Venezuela highlight how crucial energy security has
become to US foreign policy. In this case, the traditional US responsea more
cautious, calculating approach to Chavezis probably the right one at this juncture,
but this does not hold true for US energy policy as a whole. Because Caracas has
failed to identify any serious alternative, commercially profitable, customers, the vast
majority of Venezuelan oil is still coming to the United States. Moreover, the US still
holds many cards because the Venezuelan government owns substantial collateral
assets in the US, including Citgo Petroleum, the Venezuelan government-owned
refining and marketing company, based in Houston.
Chavez has not formally kicked any American companies out of Venezuelas oil
industry. On the contrary, he has pushed only as far as it takes to grab a larger share
of the profits, while allowing US oil companies to maintain their activities. Some
industry analysts even argue that Venezuelas request for a larger piece of the pie is
a reasonable response to the huge jump in oil prices experienced since the 1990s,
when Venezuela first signed the oil-field deals with Western firms. At that time, the
risks remained that oil prices could tumble back below $20 into the teens, as they did
in 1998, which required Venezuela to offer foreign investors a sweet deal and larger
take to offset the possibility of losses if prices fell over the course of the investment
arrangements. Now, with oil prices tens-of-dollars a barrel higher than expected and
showing no prospects of falling, companies do not need such attractive terms to
render the Venezuelan operations profitable; hence the US State Department
statement that renegotiations between American firms and Venezuela will proceed
as they will.
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ENERGY SECURITY AND NATIONAL OIL COMPANIES
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Because his options at this juncture appear limited, giving Chavez too much
attention might prove counterproductive by forcing a more extreme scenario. The
rhetorical benefit aside, Chavez is probably aware that kicking out the foreign oil
companies completely might be more damaging to his future than keeping them
there. That is because Venezuelas own state industry lacks the funds and expertise
to replace the foreign firms. Oil production in the areas that were already 100 percent
controlled by state Venezuelan oil monopoly Petrleos de Venezuela (PDVSA) has
been falling dramatically since Chavez took control in 1999, and it is likely to
continue to decline, given poor maintenance and the aging nature of the fields.
Venezuelas oil production capacity has already fallen from 3.7 million barrels a day
in 1997 to 2.4 million barrels a day currently. During this same period, privately
controlled fields operated by foreign firmsnow returning to PDVSA control
added 550,000 barrels a day to oil production, offsetting what would have been even
larger losses in productive ability by Venezuela and related export revenue. If foreign
investors pull out or are kicked out of Venezuela, it will greatly restrict Caracas
ability to boost its output. Private investors were slated to provide up to a third of
the $77 billion needed to repair and expand Venezuelas oil fields between now and
2012.8
The United States, by avoiding an escalating public confrontation with Chavez,
permits his hypocritical reliance on foreign oil firms, though just enough to keep the
oil flowing. A stronger US position would almost certainly lead Chavez to push back,
either by fully nationalizing his industry or placing an embargo on the US in order to
prove his revolutionary gusto, to the detriment of oil market stability and the future
of the Venezuelan people. While such an extreme scenario might give Chavez the
rope to hang himself, in the long term, it is unclear if the threat he currently poses
to US and regional security is large and serious enough to sacrifice the normal supply
of Venezuelan oil to the global marketplace.
But the lesson of cautious restraint against Chavez doesnt mean the US should
always have a passive or neutral policy towards national oil companies. As we move
forward, questions are being raised about whether neutralism will remain the correct
approach.
The fact that national oil companies will increasingly pose a strategic challenge
to the United States and its allies is not in doubt. National oil companies (NOCs)
now command close to 80 percent of the worlds remaining oil reserves and will
overwhelmingly dominate world oil production and pricing in the coming decades.
Increasingly, these national oil behemoths are flexing their geopolitical muscles.
Russian state-owned Gazproms cut off of energy supply to Ukraine in a pricing
dispute is a case in point. Economic justifications aside, Gazproms move effectively
shifted internal politics and rearranged elective coalitions in Kiev, which led to a turn
from an anti-Russian candidate toward a governing coalition more to the Kremlins
liking. The oil acquisition campaign of Chinese NOCs is also having the side effect
of bringing Beijing into the geopolitics of regions where it was previously
uninvolved, including Africa, the Persian Gulf, and now even Latin America.
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The multifaceted nature of NOCs strategic challenge presents the United States
with a number of geopolitical and economic dilemmas. While the rise of NOCs
from both consuming and producing countries does not constitute an immediate
threat to US national security, the growing economic power and strategic influence
of NOCs on global energy markets pose long term problems for global security, as
well as the economic and geopolitical interests of Organization of Economic
Cooperation and Development (OECD) countries.
The key concerns are threefold:
First, numerous NOCs from countries like China, Malaysia, and India are
investing and operating in some of the worlds most troubled regimes,
noted for hostility to the US and to democratic, free-market values. The
close bilateral connections fostered by this investment, in turn, are
obscuring efforts on a strategic level to resolve international conflicts in
places like Iran, Sudan, and Burma, and also dilute tactical efforts to
promote good corporate governance and international norms for trade and
finance. National oil companies from emerging economies have become
entangled in host countries domestic political and human rights problems
in countries across Africa and Asia, much as their international oil company
(IOC) counterparts before them. China National Petroleum Corporation
(CNPC), Indias Oil and Natural Gas Corporation (ONGC), and Malaysias
Petronas, among others, have come under scrutiny from OECD
governments and non-governmental organizations for their political
influence and operational impacts in conflict zones. If undertaken without
regard to nascent global norms regarding legitimate business behavior,
NOCs foreign investments in failed or rogue states could exacerbate
local grievances while empowering governments hostile to United States
strategic interests.
Second, NOCs are expected to control a greater portion of future oil
production over the next two decades, compared with the last thirty years.
As the world becomes more dependent on NOCs for future oil supplies,
major oil consuming countries are questioning the ability of these firms to
bring on line new oil in a timely manner and in the volumes that will be
needed, stimulating new debate about long term energy security.
The list of NOCs whose oil production has been falling or stagnant in
recent years due to civil unrest, government interference, corruption &
inefficiency, and the diversion of corporate NOC capital to social welfare is
long, and includes Indonesia, Iran, Iraq, Mexico, Russia, and Venezuela. To
the extent that NOCs must meet national socio-economic obligations, such
as income redistribution, over-employment, fuel price subsidization, and
industrial development, NOCs have fewer incentives or resources for
reinvestment, reserve replacement, and sustained exploration & production
activity. This raises the question of whether timely development of the vast
resources under the control of national oil companies can take place, given
the constraints imposed by domestic political influences and geopolitical
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factors. In sum, future oil supply may simply fail to materialize in the
volumes that are needed, leaving major oil consuming nations scarce of
fuel.
Third, many NOCs have significant diplomatic and financial support from
home governments that offer leverage in international trade and commerce,
which IOCs simply do not have. NOCs have been accused of overbidding
for assets, offering soft loans for infrastructure development that negate the
accountability measures in World Bank or IMF financing, and undermining
internationally-recognized standards of transparency and global investment
& trade. While not imminently threatening to US national security, the rising
influence of NOCs still presents important long term challenges to US
geopolitical goals, American economic power, and the efficacy of
international standards concerning basic human rights, good corporate
governance, and global investment & fair trading practices.
The growing role of the NOCs in global oil markets has important policy
implications for oil importing nations like the United States. The US may need to
adjust its national energy strategy to reduce vulnerability to changes or instability in
NOC reinvestment rates. The US should also reinvigorate its trade diplomacy to
promote free trade and to utilize multilateral frameworks, such as the WTO and
Energy Charter, to press NOCs to adopt institutional structures that will enhance
their efficiency, promote market competition, and curb interference in commercial
investment decisions by their national governments.
The case of Norways Statoil is instructive on this point. For Norway to join the
European Economic Area (EEA), in which Norway would receive access to the
common market, it was forced to follow common competition directives. Before the
EEA entered into force, Norwegian oil and gas companies constituted a monopoly
sales organization that regulated marketing and sales of Norwegian gas into the
continent. This meant that Statoil, as the controlling party, was able to act as a
monopoly, setting natural gas prices for all long-term sales of gas from the
Norwegian Continental Shelf. With entry into force of the EEA, this scenario
changed as Norway had to mirror the European Commissions rules in the fields of
competition, state aid and public procurement.9 The European Unions (EU)
insistence that Norway join the EEA without making an exception for its national oil
company ensured that Statoil promoted transparent and competitive practices,
permitting the firm to make efficient investments in future production capacity and
forcing it to give up its monopoly power of gas sales to the EU.
NOCS AND GLOBAL SECURITY
Most national oil companies portray their foreign oil and gas investment
activities as commercial businesses indistinguishable from private investors, but
the reality is more grey, as many NOCs wind up serving the geopolitical interests of
the main shareholder, the home government. In some cases, the tail can wag the dog,
as the interests of the NOCs influence foreign policy formulation.
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In recent years, several NOCs from Asian governments have invested, and now
operate, in a number of states that are troubled by widespread civil strife, pursue
strategic goals antithetical to US interests, or suffer from faltering governance.
Foremost among these states are Burma, Iran, and Sudan. But even states such as
Nigeria and Indonesia have seen a rise in activity by disaffected localized militant
groups, creating challenges in the areas of human rights, terrorism, and sustainable
development. NOCs efforts to secure energy supplies in failed states have
complicated international efforts to create a more effective architecture to mitigate
humanitarian crises and resolve international conflict over energy resources.
While not imminently threatening to US national security,
the rising influence of NOCs still presents important long
term challenges to US geopolitical goals, American
economic power, and the efficacy of international
standards concerning basic human rights, good corporate
governance, and global investment & fair trading
practices.
Both the current governments of Burma and Sudan have presided over years of
stagnant political reform, combined with widespread abuses of basic human rights,
while earning millions in revenue from the energy sector. Violence in each country
has compelled thousands to flee to refugee camps, while inadequate international
action suggests that Burma and Sudans ongoing political problems will continue
without lasting resolution. The once reclusive Burmese military regime has grown
rich from welcoming investment from select sources, including NOCs. Between
2005 and 2006, Burmas junta earned an estimated $35 million from Indian and Thai
energy investments.10 In Sudan, ending the grievous conflict in Darfur has proven
maddeningly elusivein large part because of the political cover afforded Khartoum
by countries with major stakes in Sudanese oil. China, in particular, long obstructed
the passage of robust UN measures to sanction Sudan. While China has lately
moderated its stance to deflect international criticism, perhaps out of sensitivity to
the upcoming 2008 Olympic Games,11 its recent trumpeting of Khartoums
grudging acceptance of a greater UN role in Darfur should be credited only if
Darfurs civilians and aid workers finally receive the protection they need. The
diplomatic support that the parent countries of NOCs provide for failed states has
had a deleterious effect on the will of the international community to act in a timely
way to curtail mass atrocities; it has also hindered diplomatic and economic initiatives
to encourage gradual democratic development without empowering dangerous
regimes.12
Meanwhile, in the Near East, investment by national oil companies and other
businesses has provided a revenue stream for the nuclear ambitions of the Iranian
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government, while simultaneously driving a wedge between UN Security Council
members. As a recent American Enterprise Institute study points out, since 2000,
nearly 3 dozen countries have concluded $153 billion in business deals with Iran,
mostly in the energy sector.13 While the Iranian oil sector remains enfeebled, isolating
Iran diplomatically has still proven more difficult due to the eagerness of NOCs
from China, Russia, and elsewhere to invest there.
Finally, in Nigeria, the failure of oil wealth to be administered for the benefit of
the country as a whole, and the Niger Delta in particular, threatens to perpetuate the
lawlessness, poverty, and violence, which characterize the countrys energy sector. In
2006, militant attacks and bunkering cut production by 25 percent. To date, efforts
ranging from military action to community assistance divorced from local grievances
have not managed to quell violence in the oil-rich Delta. If not handled more deftly,
the entry of NOCs into foreign exploration and production in areas marked by
governance failures and humanitarian crises, let alone hostility to the US, could fuel
more internecine violence and international disputes, while also destabilizing oil-rich
areas needed for increasing global supply.14
NOCS AND EFFICIENCY
NOCs represent the top oil reserve holders internationally. In 2005, globallyproven oil reserves were 1,148 billion barrels, with national oil companies in control
of 77 percent of the total (886 billion barrels) allowing no equity participation by
foreign oil companies, and with partially or fully privatized Russian oil companies in
control of another 6 percent (an additional 69 billion barrels). By comparison,
Western international oil companies (IOCs) that once dominated the oil scene in the
20th century now control less than 10 percent of the worlds oil and gas resource
base.15
The ownership of reserves also has some bearing on shares of world oil
production. In contrast to years past, when privately-held with IOCs publicly listed
shares, such as ExxonMobil, BP, Royal Dutch Shell, and Chevron, represented the
largest oil and gas producers worldwide, NOCs now dominate global production.
According to Petroleum Intelligence Weekly (PIW), of the top 20 oil producers
worldwide, 14 are NOCs or newly privatized NOCs; the international majors have
been relegated to second tier status in terms of controlling the worlds oil
production. PIWs ranking shows that Saudi Aramco, Russias Gazprom, Irans
NIOC, Pemex of Mexico, Algerias Sonatrach, INOC of Iraq, PetroChina, Kuwait
Petroleum Corp., Brazils Petrobras, Malaysias Petronas, Rosneft of Russia, ADNOC
of Abu Dhabi, Russias Lukoil, PDVSA of Venezuela, and Nigerian National
Petroleum Corporation (NNPC) are among the most important oil and gas
producing companies in the world.16
The International Energy Agency (IEA) projects that investments of over $2.2
trillion will be needed over the next thirty years to meet rapidly growing world oil
demand. But the major national oil companies who will be responsible for
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implementing this investment over the coming years face bureaucratic,
organizational, and political challenges that may thwart them from expanding their
oil production and export levels.
As concluded in a recent in-depth, two year study on national oil companies by
the James A. Baker III Institute for Public Policy, many governments use NOCs as
a tool to achieve wider socio-economic policy objectives, including income
redistribution and industrial development.17 At home, NOCs compete for capital
budgets that might otherwise be allocated to more core oil industry, commerciallyoriented activities such as reserve replacement and oil production enhancement.
According to the Baker Institute research, these non-core, non-commercial
obligations have imposed costs upon the NOC, and in some cases, have diluted the
incentive to maximize profits, hindering the NOCs ability to raise internal or
external capital and to compete at international standards. In addition, many of these
emerging NOCs have close and interlocking relationships with their national
governments. The result has been stagnation in capacity growth and an inability to
maintain or grow the countries oil production capacity. The absence of explicit
pressure to earn a return on capital, often coupled with inadequate financial
transparency, has in many cases resulted in the inefficient or wasteful allocation of
already scarce investment resources. For example, many NOCs are asked to provide
fuel to the home market at heavily subsidized prices, stimulating a large growth in
demand and reducing the net amount of oil available for export.
Many NOCs lack adequate financial transparency as well, limiting their access to
external capital that could be used to maintain or expand capacity, according to the
Baker Institute study. These trends are partly responsible for the slow pace of
resource development relative to the rapid rise in global demand, and could mean
that new production will not materialize to meet rising oil requirements in the future.
NOCS AND TRADE
The United States, as the worlds sole superpower, has the responsibility to
protect the routine operation of global trade and commerce. Since the Second World
War, the US has taken the lead in many rounds of international negotiations to
reduce tariffs, open markets to unrestricted capital flows, and establish rules for
protecting investments and intellectual property. At times, the US has relied on
multilateral negotiations; at others, when multilateral talks were not promising, it has
utilized multi-track frameworks.18 This liberalized system of global trade and
investment, like any system of law and order, thrives because the overwhelming
majority of participants agree to behave according to a certain set of rules and act
in the belief that other participants will also uphold those rules. This system is
currently supported in large measure by the international community, and the United
States, as the worlds military superpower, backs up the operation of this global
marketplace by policing the seas and international commerce from attack by hostile
nations or non-state actors, and by promoting international institutions to defend the
rules and obligations of the system.
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The United States, as a world power and primary energy consumer, favors an
open, transparent, and competitive global market for oil in which no seller or group
of sellers can dominate the market and thereby threaten the access by the US or its
allies to purchase the supplies of oil needed to conduct normal everyday consumer,
business, and military operations.19 However, in the past year or two, several oil and
gas producing countries, through the actions of their national oil companies, have
exercised their market power to the detriment of the United States and its allies.
Gazproms trade disputes with several key energy transit countries in Eastern Europe
have raised questions about the security of Russian energy supply to Europe.
Furthermore, Hugo Chavezs moves to renationalize the oil field holdings of
Western investors more broadly threatens the sanctity of international contracts in
the oil exploration arena.
In the past year or two, several oil and gas producing
countries, through the actions of their national oil
companies, have exercised their market power to the
detriment of the United States and its allies.
Some national oil companies from consuming countries, such as Chinas CNPC
and Indias ONGC, have access to the deep pockets, strategic clout, and economic
might of their home governments, and their activities are providing a challenge to
the US-dominated global system of energy trade and investment. These NOCs have
given soft loans to governments in return for oil deals, leaving host countries able to
bypass the more stringent conditions posed by international financial institutions like
the World Bank and IMF. In 2005, when the IMF sought to conclude a loan with
Angola that included transparency measures, the Angolan government did a volte-face
and accepted a Chinese loan that conspicuously lacked any of the IMFs stipulations.
Chinas offer included a $2 billion loan with an interest repayment rate of 1.5 percent
over 17 years, tied to future oil production and infrastructure projects.20
The lack of transparency and accountability in soft loans contributes to
worsening inequality and authoritarianism in oil rich countries. The real benefits to
this form of financing frequently accrue to the governing elite, rather than the whole
population, increasing the chances of corruption and oppression. While American
and European privately-held public corporations are bound by foreign corrupt
practices restrictions and run the risk of state prosecution for violating such laws,
governments may be more reluctant to blow the whistle on government-run national
oil companies. In 2006, Norways Statoil was investigated by the US Department of
Justice for paying $5.2 million in bribes to influence officials in Iran to obtain a
contract for the development of the Iranian South Pars gas field. The national oil
company made a settlement agreement with US authorities and paid fines to the
Securities and Exchange Commission (SEC), but its executives, though fined, were
never prosecuted in Norway. The case came to light in the United States because of
the companys presence in US capital markets.21
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Over the longer term, NOC to NOC crony financing may prove unsustainable
if the majority of the local populace does not begin to see tangible benefits from oil
development, and if leading countries themselves question this form of international
finance; the latter is particularly true in African states. While the IFIs heavily
conditional approach to international finance may require some revision, the
pernicious character of overbidding and soft lending by NOCs stands to decrease
the influence of the US and EU at a time when more Western firms are being cajoled
into adopting nascent norms of corporate citizenship and responsible behavior,
exemplified in initiatives such as the UN Global Compact and the Extractive
Industries Transparency Initiative (EITI).
THE RISE OF NOCS: POLICY RECOMMENDATIONS
As we have argued in this article, the rise of national oil companies within
international energy markets poses a long-term challenge to American strategic
interests and economic power. The NOC phenomenon also, if not properly
addressed, could reduce the efficacy of international standards concerning basic
human rights and good corporate governance.
Therefore, the United States should adopt a more proactive and long-term
policy framework to meet the challenges posed by national oil companies
geopolitical influence and economic power. Given the complexity inherent in global
energy markets, no single set of solutions will be adequate for this task. Rather, the
US should seek, where feasible, to cooperate with NOCs and their governments,
while at the same time responsibly lobbying for the kind of global trade rules and
international economic architecture that will constrain the freedom of movement of
NOCs to bypass the global system of trade and investment rules. The US needs to
promote best practices for national oil companies, through mechanisms like the
World Trade Organization, the Energy Charter, and the North American Free Trade
Agreement. These agreements currently limit uncompetitive energy subsidies and
barriers to open investment in energy projects. Moreover, the US should also
consider deploying targeted foreign aid to supplement investments by American oil
companies where social and economic development assistance is desired.
It is crucial that the US diplomatically engage other, major consuming countries
with NOCs, like China and India, to seek common solutions to international
conflicts where access to or investment in oil resources plays a material role. The
imperative remains for the industrialized consuming countries of the US, Europe
and Northeast Asia [to] convince an ambitious, energy-hungry China that secure
supply for all requires a cooperative foreign policy.22 Cooperative frameworks such
as the International Energy Agency, the European Energy Charter, and other
multilateral frameworks serve as a good vehicle for promoting cooperative action
during oil market disruptions and guaranteeing open access for investment in energy
resources to meet rising global energy demand.
Equally, the US and other consuming countries stand to benefit from developing
joint policies and practices to support long-term stabilitythrough better
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governance and peaceful dispute resolutionin oil-rich areas plagued by corruption,
poverty, and violence, such as the Niger Delta. As a report from the Center for
International Policy observes, increasing militarization of the region by the
United States does nothing to address the systemic problems in the Niger Delta and
can only exacerbate an already tense situation in Nigeria.23 The creation by the US
military of an African command makes strategic sense, but non-military efforts to
combat corruption, increase transparency, and promote good governance are just as
salient for energy security.24
Results-oriented consultations convened by the UN, or the International Energy
Agency, are needed to renew multilateral backing for these methods. All stakeholders
in the energy sector have incentives to discuss and devise practical ways in which
energy can more often function as a catalyst for global security. Furthermore, it is
time that policymakers expand their conceptual horizons to see that human security
is part of energy security.
While country-to-country dialogue remains essential, the US should also use its
diplomatic access to encourage governments to press their NOCs to join the
international discussion on corporate citizenship. NOCs need to be as active as the
large international oil companies in joining the various industry associations, public
forums, and multilateral initiatives that carry this conversation forward. Initiatives
like the UN Global Compact, EITI, and others provide excellent resources to
companies seeking improved public standing. Beyond political risk analysis,
companies in the extractive industries can utilize, as many already have, the
managerial, operational, and financial tools created to guide business leaders as they
consider and implement project plans in politically troubled or economically
underdeveloped locations. Over time, if more NOCs tap Western capital markets,
market forces may have a greater impact. As noted in a May issue of The Economist,
however much those who run companies hate it, the role that business plays in the
developing world is going to come under growing public scrutiny, especially when
the firm has shareholders in rich countries.25 Finally, while in an embryonic stage,
the development of soft law to guide transnational corporate conduct may signal
the distant but conceivable prospect of adjudicating liable business behavior before
a competent international tribunal.26 In the meantime, as described by UN Business
and Human Rights Envoy John Ruggie, the concept of shared responsibility and
joint governance among different stakeholders offers a theoretical point of
consensus for advancing the movement for corporate social responsibility.27
Finally, the United States needs to recognize that, given the bureaucratic
inefficiencies and domestic political interference in the operations of national oil
companies, future oil resources might simply not materialize in the volumes we
expect and need. This possible shortfall means that any energy strategy that only
tinkers at the marginssuch as investing heavily in biofuelswill fall dangerously
short of what is required. An effective and broad-based American effort to reduce
oil use by adopting more efficient transportation technologies or shifting to non-oil
fuels would be extremely effective in not only limiting the monopoly power of any
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imaginable alliance of NOCs, but also in ensuring that any shortfall of oil that may
result from ineffective NOC investment in resources can be countered by
supplementary alternative energy supplies. A greater political effort to create a more
comprehensive domestic energy policy would increase US energy security and it
would enhance US credibility on the world scene, limiting the future challenge posed
by NOCs to the US and its allies.
Notes
1 Fabiola Sanchez, Chavez Threat to Nationalize Banks Prompts Venezuela Stock Fall, Associated Press, May
5, 2007.
2 Jorge Rueda, Venezuelas Chavez Threatens to Nationalize Banks, Largest Steel Producer, Associated Press
Financial Wire, May 3, 2007.
3 Natalie Obiko Pearson,Venezuela Seizes Last Private Oil Fields Associated Press Online, May 2, 2007.
4 Major US oil companies, whose oil assets had been expropriated, enacted an embargo against Mexican oil
and the US government suspended direct purchases of Mexican silver that provided important revenue for
the Mexican government. However, these and other measures proved short-lived, especially as President
Franklin Roosevelt and US Treasury and military officials sought stable bilateral relations in the pre-war
period of the late 1930s. For more see: Catherine Jayne, Oil, War and Anglo-American Relations: American and
British Reactions to Mexicos Expropriation of Foreign Oil Properties, 19371941 (Westport, CT: Greenwood
Publishing, 2001); Jonathan C. Brown and Alan Knight, The Mexican Petroleum Industry in the Twentieth Century
(Austin, TX: University of Texas Press, 1992); Daniel Yergin, The Prize: The Epic Quest for Oil, Money & Power
(New York: Free Press, 1991); and J. Richard Powell, The Mexican Petroleum Industry, 19381950 (Berkeley:
University of California Press, 1956).
5 Mira Wilkins, review of The Road to OPEC: United States Relations with Venezuela, 19191976 by Stephen G.
Rabe, The Americas 39, no. 4, (1983): 586589.
6 Rachel Bronson, Thicker Than Oil: Americas Uneasy Partnership with Saudi Arabia, (Oxford, UK: Oxford
University Press, 2006)
7 Liz Sidoti, Rudy Giuliani Assails Venezuelas Chavez, Associated Press Online, May 2, 2007.
8 The Changing Role of National Oil Companies in International Energy Markets, March 2007, Baker Institute Study.
Available at: <www.rice.edu/energy> (accessed May 21, 2007).
9 Richard Gordon and Thomas Stenvoll, Statoil: A Study in Political Entrepreneurship, in The Changing Role
of National Oil Companies in International Energy Markets, March 2007, Baker Institute Study, 46. Available at:
<www.rice.edu/energy> (accessed May 21, 2007).
10 Foreign Investment in Myanmar Hits Record High Due to Thai-funded Dam Project, Associated Press
Worldstream, October 17, 2006; Myanmar Absorbs 33 Million in USD Foreign Investment in First Half of
200607, Xinhua General News Service, April 6, 2007.
11 Edward Cody, Chinese to Deploy Soldiers to Darfur; Engineers to Bolster Peacekeeping Force,
Washington Post, May 9, 2007.
12 Amy Myers Jaffe and Steven W. Lewis, Beijings Oil Diplomacy, Survival 44, no. 1 (2002), 115134; Ian
Taylor, Chinas Oil Diplomacy in Africa, International Affairs 82, no. 5 ( September 2006): 947; Matthew E.
Chen, Chinese National Oil Companies and Human Rights, Orbis 51, no. 1 (Winter 2007), 4154.
13 Carol Giacomo, US Think-Tank Details Global Investment in Iran, Reuters, May 7, 2007. Available at:
<http://www.reuters.com/article/bondsNews/idUSN0731224120070507> (accessed May 21, 2007).
14 John J. Fialka, Search for Crude Comes with New Dangers; US Strategic and Diplomatic Thinking
Adjusts to Handle Hot Spots with Oil Potential, Wall Street Journal, Apr 11, 2005.
15 The Changing Role of National Oil Companies in International Energy Markets, Baker Institute Study.
16 The most recent rankings are available on the web at: <www.energyintel.com>.
17 The Changing Role of National Oil Companies in International Energy Markets, Baker Institute Study.
18 Robert Gilpin, The Challenge of Global Capitalism, (Princeton, NJ: Princeton University Press, 2000),
227264; and Robert Gilpin, The Rise of American Hegemony, in Two Hegemonies: Britain 18461914 and
the United States 19412001, edited by Patrick Karl OBrien and Armand Clesse (Aldershot: Ashgate
Publishing, 2002), 165182: In response to the ballooning American trade deficit, intensifying fears of
deindustrialization, and rising protectionist pressures, the Reagan Administration in the mid-1980s
significantly modified Americas postwar commitment to multilateralism. The Administration began to pursue
a multitrack trade policy that has not only de-emphasized multilateral negotiations, but also increased
unilateralism and bilateralism (especially managed trade with Japan) and economic regionalism as well (in the
North American Free Trade Agreement with Canada and Mexico).
The Whitehead Journal of Diplomacy and International Relations
ENERGY SECURITY AND NATIONAL OIL COMPANIES
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19 Ronald Soligo and Amy Myers Jaffe, The Militarization of Energy Security in Militarization of Energy, ed.
James Russell, Center for Contemporary Conflict, Naval Postgraduate School, forthcoming.
20 Taylor, Chinas Oil Diplomacy in Africa, 947.
21 Matthew Chen, National Oil Companies and Corporate Citizenship, The Changing Role of National Oil
Companies in International Energy Markets, March 2007, Baker Institute Study. Available at:
<www.rice.edu/energy> (accessed May 21, 2007).
22 Jaffe and Lewis, Beijings Oil Diplomacy, 1.
23 Mark Pabst, Guns, Not Butter, Petroleum Africa, April 2007, 6667.
24 Frederick Kempe, Africa Emerges as Strategic Battleground, Wall Street Journal, April 25, 2006.
25 Genocide in the Boardroom: A Moral Dilemma Interrupts Warren Buffets Love-In, The Economist, May
8, 2007.
26 Matthew E. Chen, National Oil Companies and Corporate Citizenship.
27 John G. Ruggie, Remarks at International Chamber of CommerceCommission on Business in Society,
Paris, April 27, 2007. Available at:
<www.businesshumanrights.org/Gettingstarted/UNSpecialRepresentative> (accessed May 21, 2007).
www.journalofdiplomacy.org
Summer/Fall 2007