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Special Report- Oil-Oil; Fri., Feb. 13, 1998

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RE: Special Background Advisory: Geopolitics and Oil -- A Bigger Picture:

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* Note: This report is now dated but serves as a springboard for further analysis of the geopolitics of oil as SIRIUS goes forward.

* Iāve been tracking oil for 23 years and my father did for over 25 years before that. Most of what follows is easily retreivable in Lexus-Nexus. More and more, the sides in the UN Security Council are shaping up over a larger, global game for control of major Asian oil fields, a game played with ruthless determination by Russia and China, and by France to a more discrete degree. I now have to view the diplomatic game with that, as well as the Israeli-Palestinian impasse, in mind.

* Chinese Premier Li Peng is to visit Moscow on Feb. 17-18 to meet with Yeltsin, which is why I expect the final deadline from the US to be coming in those days; together, Yeltsin and Li Peng can issue a stern joint-communique. It will not be surprising to see a senior French government official join the Moscow meeting to express collective disapproval and issue a joint threat.

* In this high stakes game, Saddam is one of several pawns, including Azerbaijan, Georgia, Kazakhstan, Armenia, Chechnya and Iran. Malaysia --an Islamic State-- in that its national oil company is playing in these fields, is also both a pawn and a junior player. China has recently outmaneuvered US companies to develop or redevelop large fields onshore and offshore in Kazakhstan --Tengiz and others (sources on file and include observations of other oil & banking experts).

* In this case, as long as Saddam remains, France and Russia have the inside track to these very large new oilfields as well as his existing output. Were Saddam to disappear and a pro-West government to be installed, these players would be cut out by the British and Americans teamed with the Saudis and native Iraqis. In this analysis, the sanest thing the US can do is to play this confrontation into a trap for Saddam where we are prepared to walk into Iraq to support a popular rising against Saddam --itās about time we put an end to this distractive and increasingly destabilizing game.

* To be clear, though this is a geopolitical oil game from the view of the Russians, Chinese and French, the US oil industry is not involved in these manipulative politics (nor are the Brits) and has plenty of supply outside this zone of interest. But it appears the French companies (Elf Acquitane, Total) are, and even Royal Dutch Shell is to some extent--as with Brazzaville, and which may explain the Dutch vacillation on support of the US-led mission. To the US supply is not an issue, but protection of the Gulf fields assures continued economic growth for the West and its friends. On Thursday, as a back-swipe at France, she revealed a new review of sanctions on the French oil company, Total, for its Iran involvement (AP: 2-12; C Giacomo).

* To China, Russia and France though, their game represents the key to Global power and they have let the US maneuver itself out of Iran, out of Iraq, and have managed to keep the US largely out of Azerbaijan and Kazakhstan by sabotaging deals there at the last moment through bribery and other chicanery. Additionally, to Franceās socialist government, control of oil represents a means of easing its high unemployment while funding its excessive welfare state costs and commitments without having to reform its benefit politics. The same can be said of Russia --easy money to rebuild their support base: money is power and oil is money. This search for easy revenue is endless and is not unanalagous to the current tobacco extortions undertaken by the states and federal government-- initially to repay Medicare but already being diverted to other social purposes.

* With respect to Iraq, it has been openly reported that France has $30 Bil in contracts pending. The Russians have a similar amount and also have $8 Bil in pre-Desert Storm arms contract payments they expect to collect. Though Saddam owes $120 Bil + to foreign creditors that he has no intention of repaying, he has promised Moscow to repay these, knowing their greed.

* A win for China, Russia and France would mean they control oil from the Caspian, Iraq and Iran, where Mr. Clinton, forced by Sen. Helms and Congress, has invoked trade embargo rules to prevent Dupont-Conoco from jointly developing fields with Iran and through that, quietly rebuilding relations. The Chinese and Malays subsequently moved in to take over the deal in 1997 and have been browbeaten by the US and threatened with sanctions under Helms-Burton --hereās where conservative Republican provincialism contributes to the mischief.

* This great Russo-Chinese game may have a significant bearing on why Iranās new president is interested in improving relations with the US. In the ongoing Iraqi crisis, our diplomacy is frozen and the Russo-Chinese opposition is letting us trip up over our own traces. But elimination of Saddam and liberation of the Iraqi people by the US, Britain and Arab partners would change the calculus: France would be largely out of the game having lost Iraq. If Iran warms with the US, France will lose its favored position there, too.

* Another aspect of this greater game is the route of pipelines carrying oil out of the Caspian-Caucasus region. Russia wants the lines to exit via its territory to the Black Sea, so that it can control flow and collect tariffs on the transit. Manipulations in the Caucasus have included the bloody attempt to suppress Cechnya, open interference and stirring civil war in Georgia, etc. This is why the assassination attempt on Sheverdnadze on Feb. 9 looks so suspicious --he had just assured Lolly Weymouth (Newsweek, Feb. 9, on stands from Feb. 2) that the pipeline would run through a newly re-stabilized Georgia, one of the shortest and least politically dominated routes.

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