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1abIo ot Contonta

7lt|o Pogo
Copyrlgbt Pogo
lotroooctloo

lAl1 OlE - 1ho low Wor|d ot O||
Chaptor 1 - lU33lA lE1Ull3
Chaptor 2 - 1|E CA3llAl 0El3Y
Chaptor 8 - AClO33 1|E CA3llAl
Chaptor 4 - 3UlElVA1Ol3'
Chaptor b - 1|E lE1lO-31A1E
Chaptor 0 - AGGlEGA1E 0l3lUl1lOl
Chaptor 7 - WAl ll llAO
Chaptor 8 - 1|E 0EVAl0 3|OCK
Chaptor 0 - C|llA'3 ll3E
Chaptor 10 - C|llA ll 1|E |A31 lAlE

lAl1 1WO - 3ocur|ng tho 3upp|y
Chaptor 11 - l3 1|E WOll0 lUllllG OU1 O| Oll?
Chaptor 12 - UlCOlvEl1lOlAl
Chaptor 18 - 1|E 3ECUll1Y O| ElElGY
Chaptor 14 - 3|l|1llG 3Al03 ll 1|E lEl3lAl GUl|
Chaptor 1b - GA3 Ol WA1El
Chaptor 10 - 1|E lA1UlAl GA3 lEvOlU1lOl

lAl1 1|lEE - 1ho E|octr|c Ago
Chaptor 17 - Al1EllA1llG CUllEl13
Chaptor 18 - 1|E lUClEAl CYClE
Chaptor 10 - 3lEAKllG 1|E 3AlGAll
Chaptor 20 - |UEl C|OlCE

lAl1 |OUl - C||mato and Carbon
Chaptor 21 - GlAClAl C|AlGE
Chaptor 22 - 1|E AGE O| 0l3COvElY
Chaptor 28 - 1|E lOA0 1O llO
Chaptor 24 - VAKllG A VAlKE1
Chaptor 2b - Ol 1|E GlO3Al AGEl0A
Chaptor 20 - ll 3EAlC| O| COl3El3U3

lAl1 |lvE - low Enorg|os
Chaptor 27 - lE3ll1| O| lElEWA3lE3
Chaptor 28 - 3ClElCE EXlEllVEl1
Chaptor 20 - AlC|EVY O| 3|llllG llG|1
Chaptor 80 - VY31ElY O| Wll0
Chaptor 81 - 1|E |l|1| |UEl-E||lClElCY
Chaptor 82 - ClO3llG 1|E COl3ElvA1lOl GAl

lAl1 3lX - load to tho |uturo
Chaptor 88 - CAl3O|Y0lA1E VAl
Chaptor 84 - ll1EllAl |llE
Chaptor 8b - 1|E GlEA1 ElEC1llC CAl EXlEllVEl1

CONCLU5lON. A OREA7 REVOLU7lON'
Ackoow|oogomoots
CRELl75
NO7E5
BlBLlOORAPlY
lNLEX
AL5O BY LANlEL YEROlN
Al3O 3Y 0AllEl YElGll
7bo Prlzo

5bottoroo Pooco

Coauthorod by 0an|o| Yorg|n

7bo Commooolog lolgbts

Rosslo 2010

O|obo| losocorlty

Eoorgy lotoro
1|E lElGUll llE33
lub||shod by tho longu|n Group
longu|n Group (U3A) lnc., 87b |udson 3troot, low York, low York 10014, U.3.A.
longu|n Group (Canada), 00 Eg||nton Avonuo East, 3u|to 700, 1oronto, Ontar|o, Canada
V4l 2Y8 (a d|v|s|on ot loarson longu|n Canada lnc.) longu|n 3ooks ltd, 80 3trand,
london WC2l 0ll, Eng|and longu|n lro|and, 2b 3t. 3tophon's Groon, 0ub||n 2, lro|and
(a d|v|s|on ot longu|n 3ooks ltd) longu|n 3ooks Austra||a ltd, 2b0 Camborwo|| load,
Camborwo||, v|ctor|a 8124, Austra||a (a d|v|s|on ot loarson Austra||a Group lty ltd)
longu|n 3ooks lnd|a lvt ltd, 11 Commun|ty Contro, lanchshoo| lark, low 0o|h|-110
017, lnd|a longu|n Group (lZ), 07 Apo||o 0r|vo, losoda|o, Auck|and 0082, low
Zoa|and (a d|v|s|on ot loarson low Zoa|and ltd) longu|n 3ooks (3outh Atr|ca) (lty)
ltd, 24 3turdoo Avonuo, losobank, 1ohannosburg 2100, 3outh Atr|ca

longu|n 3ooks ltd, log|storod Ott|cos:
80 3trand, london WC2l 0ll, Eng|and

||rst pub||shod |n 2011 by 1ho longu|n lross,
a mombor ot longu|n Group (U3A) lnc.

Copyr|ght t 0an|o| Yorg|n, 2011
A|| r|ghts rosorvod

lhotograph crod|ts appoar on pagos 722-28.

ll3lAlY O| COlGlE33 CA1AlOGllG ll lU3llCA1lOl 0A1A

Yorg|n, 0an|o|.
1ho quost :onorgy, socur|ty, and tho romak|ng ot tho modorn wor|d / by 0an|o| Yorg|n. p.
cm.
lnc|udos b|b||ograph|ca| rotoroncos and |ndox.
l33l : 078-1-101-b0870-0
1. lowor rosourcos-lo||t|ca| aspocts. 2. Vonoy-lo||t|ca| aspocts 8. G|oba||zat|on. l.
1|t|o.
|00b02.A2Y47 2011
888.70-dc22
2011018100

VAl3 3Y vllGlllA VA3Ol
GlAl|lC3 3Y 3EAl VClAUG|1Ol



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http://us.pongu|ngroup.com

hoy happonod at tho samo t|mo, ha|tway around tho g|obo trom oach
3othor. 1hoy both shook tho wor|d.


On Varch 11, 2011, at 2:40 |n tho attornoon 1apan t|mo, 17 m||os
bo|ow tho soabod, tho prossuro botwoon two vast tocton|c p|atos
croatod a mass|vo v|o|ont upward torco that sot ott ono ot tho most
powortu| oarthquakos ovor rocordod. ln add|t|on to w|dosproad
damago to bu||d|ngs and |ntrastructuro |n tho rog|on north ot 1okyo, tho
quako a|so knockod out tho powor supp|y, |nc|ud|ng that to tho
|ukush|ma 0a||ch| nuc|oar comp|ox. ||tty-t|vo m|nutos |ator, a hugo
tsunam| un|oashod by tho quako swopt ovor tho coast, drown|ng
thousands and thousands ot poop|o. At tho |ukush|ma 0a||ch|
comp|ox, |ocatod at tho vory odgo ot tho ocoan, tho mass|vo tsunam|
surgod abovo tho soawa|| and t|oodod tho powor stat|on, |nc|ud|ng |ts
backup d|oso| gonorator, dopr|v|ng tho hot nuc|oar roactors ot tho
coo||ng wator roqu|rod to koop thom undor contro|. ln tho days that
to||owod, oxp|os|ons damagod tho p|ants, rad|at|on was ro|oasod, and
sovoro mo|tdowns ot nuc|oar rods occurrod.
1ho rosu|t was tho worst nuc|oar acc|dont s|nco tho oxp|os|on at tho
Chornoby| nuc|oar p|ant |n 3ov|ot Ukra|no a quartor contury oar||or. 1ho
|ukush|ma acc|dont, compoundod by damago to othor o|octr|c
gonorat|ng p|ants |n tho aroa, |od to powor shortagos, torc|ng ro|||ng
b|ackouts that domonstratod tho vu|norab|||ty ot modorn soc|oty to a
suddon shortago ot onorgy supp|y. 1ho ottocts woro not ||m|tod to ono
country. 1ho |oss ot |ndustr|a| product|on |n 1apan d|sruptod g|oba|
supp|y cha|ns, ha|t|ng automob||o and o|octron|cs product|on |n lorth
Amor|ca and Europo, and h|tt|ng tho g|oba| oconomy. 1ho acc|dont at
|ukush|ma throw a groat quost|on mark ovor tho g|oba| nuc|oar
rona|ssanco,' wh|ch many had thought ossont|a| to ho|p moot tho
powor noods ot a grow|ng wor|d oconomy.
On tho othor s|do ot tho wor|d, a vory d|ttoront k|nd ot cr|s|s was
unto|d|ng. lt had boon tr|ggorod a tow months oar||or not by tho c|ash ot
tocton|c p|atos, but by a young tru|t so||or |n tho 1un|s|an town ot 3|d|
3ouz|d. |rustratod by constant harassmont by tho town's po||co and by
tho |nd|ttoronco ot |oca| ott|c|a|s, ho dousod h|mso|t w|th pa|nt th|nnor
and sot h|mso|t at|amo |n protost |n tront ot tho c|ty ha||. ||s story and
tho onsu|ng domonstrat|ons, transm|ttod by mob||o phonos, lntornot,
and sato|||to, wh|ppod across 1un|s|a, tho rost ot lorth Atr|ca, and tho
V|dd|o East. ln tho taco ot swo|||ng protosts, tho rog|mo |n 1un|s|a
co||apsod. And thon, as protostors t|||od 1ahr|r 3quaro |n Ca|ro, so d|d
tho govornmont |n Egypt. 0omonstrat|ons aga|nst author|tar|an
govornmonts sproad across tho ont|ro rog|on. ln l|bya, tho protosts
turnod |nto a c|v|| war wh|ch drow |n lA1O.
1ho g|oba| o|| pr|co shot up |n rosponso not on|y to tho |oss ot
potro|oum oxports trom l|bya, but a|so to tho d|srupt|on ot tho
goostratog|c ba|anco that had undorp|nnod tho V|dd|o East tor
docados. Anx|oty mountod as to what tho unrost m|ght moan tor tho
lors|an Gu|t, wh|ch supp||os 40 porcont ot tho o|| so|d |nto wor|d
markots, and tor |ts customors around tho g|obo.
1hoso two vory d|ttoront but concurront sots ot ovonts, ocoans away
trom oach othor, do||vorod shocks to g|oba| markots. 1ho ronowod
uncorta|nty and |nsocur|ty about onorgy, and tho ant|c|pat|on ot doopor
cr|s|s, undorscorod a tundamonta| roa||ty-how |mportant onorgy |s to
tho wor|d.
1h|s book tr|os to oxp|a|n that |mportanco. lt |s tho story ot tho quost
tor tho onorgy on wh|ch wo so comp|oto|y ro|y, tor tho pos|t|on and
rowards that accruo trom onorgy, and tor tho socur|ty |t attords. lt |s
about how tho modorn onorgy wor|d dovo|opod, about how concorns
about c||mato and carbon aro chang|ng |t, and about how d|ttoront tho
onorgy wor|d may bo tomorrow.
1hroo tundamonta| quost|ons shapo th|s narrat|vo: W||| onough
onorgy bo ava||ab|o to moot tho noods ot a grow|ng wor|d and at what
cost and w|th what tochno|og|os? |ow can tho socur|ty ot tho onorgy
systom on wh|ch tho wor|d doponds bo protoctod? What w||| bo tho
|mpact ot onv|ronmonta| concorns, |nc|ud|ng c||mato chango, on tho
tuturo ot onorgy-and how w||| onorgy dovo|opmont attoct tho
onv|ronmont?
As to tho t|rst, tho toar ot runn|ng out ot onorgy has troub|od poop|o
tor a |ong t|mo. Ono ot tho n|notoonth contury's groatost sc|ont|sts,
W||||am 1homson-bottor known as lord Ko|v|n-warnod |n 1881, |n
h|s pros|dont|a| addross to tho 3r|t|sh Assoc|at|on tor tho
Advancomont ot 3c|onco |n Ed|nburgh, that 3r|ta|n's onorgy baso was
procar|ous and that d|sastor was |mpond|ng. ||s toar was not about
o||, but about coa|, wh|ch had gonoratod tho Ago ot 3toam,' tuo|od
3r|ta|n's |ndustr|a| proom|nanco, and mado tho words ot lu|o,
3r|tann|a!' a roa||ty |n wor|d powor. Ko|v|n sombor|y warnod that
3r|ta|n's days ot groatnoss m|ght bo numborod bocauso tho
subtorranoan coa|-storos ot tho wor|d' woro bocom|ng oxhaustod
suro|y, and not s|ow|y' and tho day was draw|ng c|oso whon so ||tt|o ot
|t |s |ott.' 1ho on|y hopo ho cou|d ottor was that w|ndm|||s or w|nd-
motors |n somo torm w||| aga|n bo |n tho ascondant.'
3ut |n tho yoars attor Ko|v|n's warn|ng, tho rosourco baso ot a||
hydrocarbons-coa|, o||, and natura| gas-cont|nuod to oxpand
onormous|y.
1hroo quartors ot a contury attor Ko|v|n's addross, tho ond ot tho
|oss|| |uo| Ago' was prod|ctod by anothor torm|dab|o t|guro, Adm|ra|
|yman l|ckovor, tho tathor ot tho nuc|oar navy' and, as much as any
s|ng|o porson, tho tathor ot tho nuc|oar powor |ndustry, and doscr|bod
onco as tho groatost ong|noor ot a|| t|mo' by lros|dont 1|mmy Cartor.
1oday, coa|, o|| and natura| gas supp|y 08 porcont ot tho wor|d's
onorgy,' l|ckovor doc|arod |n 10b7. 1hat was, ho sa|d, a start||ng
rovorsa|' trom just a contury oar||or, |n 18b0, whon toss|| tuo|s supp||od
b porcont ot tho wor|d's onorgy, and mon and an|ma|s 04 porcont.'
1h|s harnoss|ng ot onorgy was what mado poss|b|o a standard ot
||v|ng tar h|ghor than that ot tho m|d-n|notoonth contury. 3ut l|ckovor's
contra| po|nt was that toss|| tuo|s wou|d run out somot|mo attor 2000-
and most ||ko|y botoro 20b0.
Can wo too| corta|n that whon oconom|ca||y rocovorab|o toss|| tuo|s
aro gono sc|onco w||| havo |oarnod how to ma|nta|n a h|gh standard ot
||v|ng on ronowab|o onorgy sourcos?' tho adm|ra| askod. |o was
doubttu|. |o d|d not th|nk that ronowab|os-w|nd, sun||ght, b|omass-
cou|d ovor got much abovo 1b porcont ot tota| onorgy. luc|oar powor,
though st||| oxpor|monta|, m|ght wo|| rop|aco coa| |n powor p|ants. 3ut,
sa|d l|ckovor, atom|c-poworod cars just woro not |n tho cards. lt w|||
bo w|so to taco up to tho poss|b|||ty ot tho u|t|mato d|sappoaranco ot
automob||os,' ho sa|d. |o put a|| ot th|s |n a stratog|c contoxt: ||gh-
onorgy consumpt|on has a|ways boon a proroqu|s|to ot po||t|ca|
powor,' and ho toarod tho por||s that wou|d como woro that to chango.
1ho rosourco ondowmont ot tho oarth has turnod out to bo nowhoro
noar as b|oak as l|ckovor thought. O|| product|on today |s t|vo t|mos
groator than |t was |n 10b7. Voroovor, ronowab|os havo ostab||shod a
much moro socuro toundat|on than l|ckovor |mag|nod. Yot wo st||| ||vo
|n what l|ckovor ca||od tho |oss|| |uo| Ago. 1oday, o||, coa|, and
natura| gas prov|do ovor 80 porcont ot tho wor|d's onorgy. 3upp||os
may bo much moro abundant today than was ovor |mag|nod, but tho
cha||ongo ot assur|ng onorgy's ava||ab|||ty tor tho tuturo |s so much
groator today than |n Ko|v|n's t|mo, or ovon l|ckovor's, ow|ng to tho
s|mp|o ar|thmot|c ot sca|o. W||| rosourcos bo adoquato not on|y to tuo|
today's $0b tr||||on g|oba| oconomy but a|so to tuo| what m|ght bo a
$180 tr||||on oconomy |n just two docados? 1o put |t s|mp|y, w||| tho o||
rosourcos bo sutt|c|ont to go trom a wor|d ot a|most a b||||on
automob||os to a wor|d ot moro than two b||||on cars?
1ho vory tact that th|s quost|on |s askod rot|octs somoth|ng now-tho
g|oba||zat|on ot onorgy domand.' 3||||ons ot poop|o aro bocom|ng part
ot tho g|oba| oconomy, and as thoy do so, tho|r |ncomos and tho|r uso
ot onorgy go up. Curront|y, o|| uso |n tho dovo|opod wor|d avoragos 14
barro|s por porson por yoar. ln tho dovo|op|ng wor|d, |t |s on|y 8 barro|s
por porson. |ow w||| tho wor|d copo whon b||||ons ot poop|o go trom 8
barro|s to 0 barro|s por porson?
1ho socond thomo ot th|s book, socur|ty, ar|sos trom r|sk and
vu|norab|||ty: tho throat ot |ntorrupt|on and cr|s|s. 3|nco Wor|d War ll,
many cr|sos havo d|sruptod onorgy supp||os, usua||y unoxpoctod|y.
Whoro w||| tho noxt cr|s|s como trom? lt cou|d ar|so trom what has
boon ca||od tho bad now wor|d' ot cybor vu|norab|||ty. 1ho comp|ox
systoms that produco and do||vor onorgy aro among tho most cr|t|ca|
ot a|| tho cr|t|ca| |ntrastructuros,' and that makos tho|r d|g|ta| contro|s
tompt|ng targots tor cyborattacks. 3hutt|ng down tho o|octr|c powor
systom cou|d do moro than causo b|ackouts, |t cou|d |mmob|||zo
soc|oty. Whon |t comos to tho socur|ty ot onorgy supp||os, tho ana|ys|s
a|ways sooms to roturn to tho lors|an Gu|t rog|on, wh|ch ho|ds 00
porcont ot convont|ona| o|| rosorvos. lran's nuc|oar program cou|d
upsot tho ba|anco ot powor |n that rog|on. 1orror|st notworks havo
targotod |ts vast onorgy |ntrastructuro to try to br|ng down ox|st|ng
govornmonts and to dr|vo up tho pr|co ot o|| and, |n so do|ng,
bankrupt' tho Wost. 1ho rog|on a|so contronts tho turmo|| ar|s|ng trom
tho d|ssat|stact|on ot a hugo bu|go ot young poop|o tor whom
oducat|on and omp|oymont opportun|t|os aro |ack|ng and whoso
oxpoctat|ons aro tar trom bo|ng mot.
1horo aro many othor k|nds ot r|sks and dangors. lt |s an |mporat|vo
to ant|c|pato thom, proparo tor thom, and onsuro tho ros|||onco to
rospond-so as not to havo to conc|udo attor tho tact, |n tho stark
words ot a 1apanoso govornmont roport on tho |ukush|ma 0a||ch|
d|sastor, that cons|stont proparat|on' was |nsutt|c|ont.'
ln torms ot tho onv|ronmont, tho th|rd thomo, tho onormous str|dos
havo boon mado to addross trad|t|ona| po||ut|on concorns. 3ut whon
poop|o |n oar||or docados tocusod on po||utants com|ng out ot tho
ta||p|po, thoy woro th|nk|ng about smog, not about CO
2
and g|oba|
warm|ng. Env|ronmonta| consc|ousnoss has oxpandod mass|vo|y
s|nco tho t|rst Earth 0ay |n 1070. ln th|s contury c||mato chango has
bocomo a dom|nant po||t|ca| |ssuo and contra| to tho tuturo ot onorgy.
1h|s sh|tt has turnod groonhouso gasos |nto a potont rat|ona|o tor
ro|||ng back tho supromacy ot hydrocarbons and tor oxpand|ng tho ro|o
ot ronowab|os.
Yot most torocasts show that much ot what w||| bo tho much |argor
onorgy noods two docados trom now-7b to 80 porcont-aro curront|y
on track to bo mot as thoy aro today, trom o||, gas, and coa|, a|though
usod moro ott|c|ont|y. Or w||| tho wor|d sh|tt toward what lord Ko|v|n
thought was noodod and Adm|ra| l|ckovor doubtod was poss|b|o-a
now ago ot onorgy, a rad|ca||y d|ttoront m|x that ro||os much moro
hoav||y on ronowab|os and a|tornat|vos-w|nd, so|ar, and b|otuo|s,
among othors-porhaps ovon trom sourcos that wo cannot |dont|ty
today? What k|nd ot onorgy m|x w||| moot tho wor|d's onorgy noods
w|thout cr|s|s and controntat|on?
Whatovor tho answors, |nnovat|on w||| bo cr|t|ca|. lorhaps not
surpr|s|ng|y, tho omphas|s on |nnovat|on across tho onorgy spoctrum |s
groator than ovor botoro. 1hat |ncroasos tho ||ko||hood ot soo|ng tho
bonot|ts trom what Gonora| Goorgos 0or|ot, tho toundor ot modorn
vonturo-cap|ta| |nvost|ng, ca||od app||od sc|onco' bo|ng succosstu||y
app||od to onorgy.
1ho |oad t|mos may bo |ong ow|ng to tho sca|o and comp|ox|ty ot tho
vast systom that supp||os onorgy, but |t th|s |s to bo an ora ot onorgy
trans|t|on, thon tho $0 tr||||on g|oba| onorgy markot |s contostab|o.'
1hat |s, |t |s up tor grabs among tho |ncumbonts-tho o||, gas, and coa|
compan|os that supp|y tho bu|k ot today's onorgy-and tho now
ontrants-such as w|nd, so|ar, and b|otuo|s-that want to capturo a
grow|ng sharo ot thoso do||ars. A trans|t|on on th|s sca|o, |t |t doos
happon, has groat s|gn|t|canco tor om|ss|ons, tor tho w|dor oconomy,
tor goopo||t|cs, and tor tho pos|t|on ot nat|ons.


1ho t|rst soct|on ot th|s book doscr|bos tho now, moro comp|ox wor|d
ot o|| that has omorgod |n tho docados s|nco tho Gu|t War. 1ho
ossont|a| drama ot o||-tho strugg|o tor accoss, tho batt|o tor contro|,
tho goopo||t|cs that shapo |t-w||| cont|nuo to bo a doc|s|vo tactor tor
our chang|ng wor|d. Ch|na, wh|ch two docados ago hard|y t|gurod |n
tho g|oba| onorgy oquat|on, |s contra| to th|s now wor|d. 1h|s |s truo not
on|y bocauso |t |s tho manutactur|ng workshop ot tho wor|d,' but a|so
bocauso ot tho bu||d-out ot Ch|na'-tho mass|vo nat|ona| construct|on
projoct that |s accommodat|ng tho 20 m||||on poop|o who aro mov|ng
oach yoar trom rura| aroas |nto c|t|os.
lart ll contors on onorgy socur|ty and tho tuturo ot supp|y. W||| tho
wor|d run out' ot o||? lt not, whoro w||| |t como trom? 1ho now supp|y
w||| |nc|udo natura| gas, w|th |ts grow|ng |mportanco tor tho g|oba|
oconomy. 1ho rap|d oxpans|on ot ||quot|od natura| gas |s croat|ng
anothor g|oba| onorgy markot. 3ha|o gas, tho b|ggost onorgy
|nnovat|on s|nco tho start ot tho now contury, has turnod what was an
|mm|nont shortago |n tho Un|tod 3tatos |nto what may bo a hundrod-
yoar supp|y and may do tho samo o|sowhoro |n tho wor|d. lt |s
dramat|ca||y chang|ng tho compot|t|vo pos|t|ons tor ovoryth|ng trom
nuc|oar onorgy to w|nd powor. lt has a|so stokod, |n a romarkab|y short
t|mo, a now onv|ronmonta| dobato.
lart lll |s about tho ago ot o|octr|c|ty. Evor s|nco 1homas Ed|son
t|rod up h|s powor stat|on |n lowor Vanhattan, tho wor|d has bocomo
progross|vo|y moro o|octr|t|od. ln tho dovo|opod wor|d, o|octr|c|ty |s
takon tor grantod and yot tho wor|d cannot oporato w|thout |t. |or
dovo|op|ng countr|os, shortagos ot o|octr|c|ty tako tho|r to|| on poop|o's
||vos and on oconom|c growth.
1oday, a host ot now dov|cos and gadgots that d|d not ox|st throo
docados ago-trom porsona| computors and 0v0 p|ayors to smart
phonos and tab|ots- a|| roqu|ro |ncroas|ng supp||os ot o|octr|c|ty-
what m|ght bo ca||od gadg|watts.' Voot|ng tuturo noods tor o|octr|c|ty
moans tac|ng cha||ong|ng and somot|mos wronch|ng doc|s|ons about
tho cho|co ot tuo| that w||| bo roqu|rod to koop tho ||ghts on and tho
powor t|ow|ng.
lart lv to||s tho ||tt|o-known story ot how c||mato chango, a subjoct ot
|ntorost to a handtu| ot sc|ont|sts, bocamo ono ot tho dom|nat|ng
quost|ons tor tho tuturo. 1ho study ot c||mato bogan |n tho A|ps |n tho
1770s out ot shoor cur|os|ty. ln tho n|notoonth contury, a tow sc|ont|sts
bogan to th|nk systomat|ca||y about c||mato, but not bocauso thoy woro
worr|od about g|oba| warm|ng. lathor, thoy toarod tho roturn ot an |co
ago. On|y |n tho |ato 10b0s and 1000s d|d a tow rosoarchors bog|n to
ca|cu|ato r|s|ng |ovo|s ot carbon |n tho atmosphoro and ca||brato what
that m|ght moan tor r|s|ng tomporaturos. 1ho r|sk, thoy conc|udod, was
not g|oba| coo||ng but g|oba| warm|ng. 3ut |t was on|y |n tho twonty-t|rst
contury that c||mato chango as an |ssuo startod to havo major ottocts
on doc|s|ons by po||t|ca| |oadors, CEOs, and |nvostors-and ovon
bocamo a subjoct to bo ru|od upon by tho U.3. 3upromo Court.
lart v doscr|bos tho now onorg|os-tho rob|rth ot ronowab|os'-
and tho ovo|ut|on ot tochno|ogy. 1ho h|story ot tho ronowab|o |ndustr|os
|s ono ot |nnovat|on, ontropronour|a| dar|ng, po||t|ca| batt|os,
controvorsy, d|sappo|ntmont and dospa|r, rocovory and |uck. 1hoy
havo bocomo |argo g|oba| |ndustr|os |n thomso|vos, but thoy aro a|so
roach|ng a tost|ng po|nt to domonstrato whothor thoy can atta|n |argo-
sca|o commorc|a||ty.
1horo |s ono koy onorgy sourco that most poop|o do not th|nk ot as
an onorgy sourco. 3omot|mos |t |s ca||od consorvat|on, somot|mos
ott|c|oncy. lt |s hard to concoptua||zo and hard to mob|||zo and yot |t
can mako tho b|ggost contr|but|on ot a|| to tho onorgy ba|anco |n tho
yoars |mmod|ato|y ahoad.
1ho thomos convorgo |n lart vl on transportat|on and tho
automob||o. lt had soomod abso|uto|y c|oar that tho raco tor tho mass-
markot automob||o was doc|dod a|most oxact|y a contury ago, w|th an
ovorwho|m|ng v|ctory by tho |ntorna|-combust|on ong|no. 3ut tho roturn
ot tho o|octr|c car-|n th|s caso tuo|od not on|y by |ts battory but a|so by
govornmont po||c|os-|s rostart|ng tho raco. 3ut w||| a||-out
o|octr|t|cat|on w|n th|s t|mo ? lt tho o|octr|c car provos |tso|t compot|t|vo,
or at |oast compot|t|vo |n somo c|rcumstancos, that outcomo w|||
roshapo tho onorgy wor|d. 1hat |s not tho on|y compot|tor. 1ho raco |s
a|so on to dovo|op b|otuo|s-to grow' o||, rathor than dr||| tor |t. A|| th|s
sots a vory b|g quost|on: Can tho o|octr|c car or b|otuo|s doposo
potro|oum trom |ts pos|t|on as k|ng ot tho roa|m ot transportat|on?
Wo can bo suro that, |n tho yoars ahoad, now surpr|sos' w||| upsot
whatovor |s tho curront consonsus, chango porspoct|vos, rod|roct both
po||cy and |nvostmont, and attoct |ntornat|ona| ro|at|ons. 1hoso
surpr|sos may bo shocks ot ono k|nd or anothor-trom po||t|ca|
uphoava|s, wars or torror|sm, or abrupt changos |n tho oconomy. Or
thoy cou|d bo tho rosu|t ot acc|donts or ot naturo's tury. Or thoy cou|d
bo tho consoquonco ot unant|c|patod tochno|og|ca| broakthroughs that
opon up now opportun|t|os.
3ut ot ono th|ng wo can bo protty corta|n: 1ho wor|d's appot|to tor
onorgy |n tho yoars ahoad w||| grow onormous|y. 1ho abso|uto numbors
aro staggor|ng. Whatovor tho m|x |n tho yoars ahoad, onorgy and |ts
cha||ongos w||| bo dot|n|ng tor our tuturo.
PROLOCuE
| raq| troops and tanks had boon mass|ng om|nous|y tor sovora| days
on tho bordor w|th Kuwa|t. 3ut 3addam |usso|n, lraq's d|ctator,
assurod var|ous V|dd|o Eastorn |oadors that thoy nood not worry, that
h|s |ntont|ons woro poacotu|, and that mattors wou|d got sott|od.
loth|ng w||| happon,' ho sa|d to 1ordan's k|ng. |o to|d Egypt's
pros|dont that ho had no |ntont|on ot |nvad|ng Kuwa|t. 1o tho U.3.
ambassador, summonod on short not|co, ho ragod that Kuwa|t, a|ong
w|th tho Un|tod Arab Em|ratos, was wag|ng oconom|c wartaro'
aga|nst lraq. 1hoy woro produc|ng too much o|| and, thus, dr|v|ng down
tho pr|co ot o||, sa|d |usso|n-tho rosu|ts tor lraq, ho addod, woro
unboarab|o, and lraq wou|d havo to rospond.' 1ho U.3. ambassador,
c|t|ng lraq| troop movomonts, askod tho s|mp|o quost|on-what aro
your |ntont|ons?' |usso|n sa|d that ho was pursu|ng a d|p|omat|c
roso|ut|on. 1ho ambassador rop||od that tho Un|tod 3tatos wou|d
novor oxcuso sott|omont ot d|sputos by othor than poacotu| moans.' At
tho ond ot tho moot|ng, 3addam to|d tho ambassador that sho shou|d
go on vacat|on and not to worry.
1
|owovor, a wook |ator, |n tho oar|y morn|ng hours ot August 2, 1000,
lraq| torcos movod across tho bordor and procoodod, w|th groat
bruta||ty, to so|zo contro| ot Kuwa|t. 1ho rosu|t wou|d bo tho t|rst cr|s|s
ot tho post-Co|d War wor|d. lt wou|d a|so opon a now ora tor wor|d o||
supp||os.
lraq prottorod many rat|ona|os tor tho |nvas|on. Whatovor tho
just|t|cat|ons, tho objoct|vo was c|oar: 3addam |usso|n |ntondod to
annox Kuwa|t and romovo |t trom tho map. An lraq that subsumod
Kuwa|t wou|d r|va| 3aud| Arab|a as an o|| powor, w|th tar-roach|ng
|mpact tor tho rost ot tho wor|d.
NO1 5O FA51"
ln tho morn|ng on August 2, Wash|ngton, 0.C., t|mo, lros|dont Goorgo
|. W. 3ush mot w|th h|s lat|ona| 3ocur|ty Counc|| |n tho Cab|not loom
at tho Wh|to |ouso. 1ho mood was gr|m. 1ho poaco and stab|||ty so
many around tho wor|d had hopod tor was now suddon|y and
unoxpoctod|y throatonod. 1ust o|ght months oar||or, tho 3or||n Wa|| had
ta||on, s|gna||ng tho ond ot tho Co|d War. 1ho koy nat|ons st||| had tho|r
hands tu|| try|ng to poacotu||y w|nd down that tour-and-a-ha|t-docado
controntat|on.
W|th tho annoxat|on ot Kuwa|t, lraq wou|d bo |n a pos|t|on to assort
|ts sway ovor tho lors|an Gu|t, wh|ch at tho t|mo ho|d two th|rds ot tho
wor|d's rosorvos. 3addam a|roady had tho tourth-|argost army, |n
numbor ot so|d|ors, |n tho wor|d. low lraq wou|d a|so bo an o||
suporpowor. 3addam wou|d uso tho comb|nod o|| rosorvos, and tho
rovonuos that wou|d t|ow trom thom, to acqu|ro torm|dab|o arsona|s,
|nc|ud|ng nuc|oar and chom|ca| woapons, and, w|th th|s now strongth,
lraq cou|d projoct |ts |nt|uonco and powor tar boyond tho lors|an Gu|t.
ln short, w|th th|s |nvas|on and annoxat|on, lraq cou|d rowr|to tho
ca|cu|at|ons ot wor|d po||t|cs. A||ow|ng that to happon wou|d run countor
to tour docados ot U.3. po||cy, go|ng back to lros|dont |arry 1ruman,
a|mod at ma|nta|n|ng tho socur|ty ot tho lors|an Gu|t.
1ho d|scuss|on |n tho Cab|not loom on August 2, porhaps rot|oct|ng
tho |n|t|a| shock, was untormod and untocusod. Vuch ot |t soomod to
turn toward var|ous torms ot oconom|c sanct|ons, a|most as though
adjust|ng to a now roa||ty. Or at |oast |t soomod that way to somo |n tho
room, |nc|ud|ng lros|dont 3ush h|mso|t, who was appa||od,' as ho put
|t, at tho hugo gap botwoon thoso who saw what was happon|ng as
tho major cr|s|s ot our t|mo and thoso who troatod |t as tho cr|s|s du
jour.'
Wo w||| havo to got usod to a Kuwa|t-|oss wor|d,' sa|d ono adv|sor,
acknow|odg|ng what soomod to bo a ta|t accomp||.
3ush ra|sod up h|s hand.
lot so tast,' ho sa|d.
2
DE5ER1 51ORN
1horoattor unto|dod an oxtraord|nary ontorpr|so |n coa||t|on bu||d|ng-
w|th somo 80 nat|ons s|gn|ng on, |n tho torm ot o|thor troops or monoy,
undor tho ausp|cos ot tho Un|tod lat|ons. 1ho coa||t|on |nc|udod 3aud|
Arab|a, whoso |argost o|| t|o|d was on|y 2b0 m||os trom |ts bordor w|th
Kuwa|t and whoso ru|or, K|ng |ahd, to|d 3ush that 3addam was
conco|tod and crazy' and that ho |s to||ow|ng ||t|or |n croat|ng wor|d
prob|oms.' lt a|so |nc|udod tho 3ov|ot Un|on, whoso pros|dont, V|kha||
Gorbachov, sa|d somoth|ng that wou|d havo boon unth|nkab|o on|y a
coup|o ot yoars oar||or-that tho 3ov|ot Un|on wou|d stand shou|dor to
shou|dor' w|th tho Un|tod 3tatos |n tho cr|s|s.
8
Ovor tho s|x months that to||owod, a coa||t|on torco stoad||y and
mothod|ca||y assomb|od |n northorn 3aud| Arab|a unt|| |t numborod
a|most a m||||on strong. ln tho vory oar|y prodawn hours ot 1anuary 17,
Oporat|on 0osort 3torm commoncod |ts t|rst phaso, w|th aor|a|
bombardmont ot lraq| m|||tary targots. On 1anuary 28, tho lraq|s
oponod tho va|vos on Kuwa|t's 3oa ls|and O|| 1orm|na|, ro|oas|ng
upwards ot s|x m||||on barro|s ot o|| |nto tho lors|an Gu|t, tho |argost o||
sp||| |n h|story, |n an ottort to to|| what thoy oxpoctod to bo an ottons|vo
trom tho soa by U.3. Var|nos. A month |ator, on |obruary 28, coa||t|on
torcos ||boratod Kuwa|t C|ty. 1ho noxt day, tho coa||t|on torcos swopt
north trom 3aud| Arab|a |nto lraq, throw|ng back tho lraq| army. 1ho
|nvas|on trom tho soa turnod out to bo a to|nt. 1ho actua| ground war
took no moro than a hundrod hours, and |t ondod w|th lraq| torcos |n tu||
rotroat.
3ut |t |usso|n cou|d not havo Kuwa|t, ho wou|d try to dostroy |t.
|usso|n's so|d|ors |ott Kuwa|t burn|ng. A|most o|ght hundrod o|| wo||s
woro sot at|amo, w|th tomporaturos as h|gh as throo thousand
dogroos, croat|ng a ho|||sh m|xturo ot t|ro and darknoss and chok|ng
smoko and gross onv|ronmonta| damago. As much as s|x m||||on
barro|s ot o|| a day woro go|ng up |n t|amos-much moro than Kuwa|t's
norma| da||y product|on and cons|dorab|y moro than 1apan's da||y o||
|mports. 1ho sca|o ot th|s |ntorno was so much b|ggor than anyth|ng
that ovon tho most oxpor|oncod o||-wo|| t|ro-t|ght|ng t|rms had ovor
soon, and a host ot now tochn|quos had to bo qu|ck|y dovo|opod. 1ho
|ast ot tho t|ros was put out |n lovombor 1001.
ln tho attormath ot tho war, 3addam was boxod |n, |t soomod on|y a
mattor ot t|mo botoro tho lraq| d|ctator, woakonod and hum|||atod,
wou|d bo topp|od by |ntorna| oppononts.
A NEW ACE OF CLOBAL|ZA1|ON
1ho outcomo ot tho ||rst Gu|t War was a |andmark tor what was
oxpoctod to bo a moro poacotu| ora-what, tor a t|mo, was ca||od a
now wor|d ordor. 1ho 3ov|ot Un|on was no |ongor an advorsary ot tho
Wost. At tho ond ot 1001, tho 3ov|ot Un|on d|s|ntogratod a|togothor.
1ho ta|k was now ot a now un|po|ar wor|d' |n wh|ch tho Un|tod 3tatos
wou|d bo not on|y tho |nd|sponsab|o nat|on' but a|so tho wor|d's on|y
suporpowor.
A now ago ot g|oba||zat|on to||owod: oconom|os bocamo moro
|ntogratod and nat|ons, moro |ntorconnoctod. lr|vat|zat|on' and
dorogu|at|on,' wh|ch had bogun |n tho 1070s and ga|nod momontum
|n tho 1080s, bocamo tho watchwords around tho wor|d. Govornmonts
woro progross|vo|y g|v|ng up tho command|ng ho|ghts'-that |s,
contro| ot tho stratog|c soctors ot tho|r oconom|os. lat|ons |nstoad put
|ncroas|ng cont|donco |n markots, pr|vato |n|t|at|vo, and g|oba| cap|ta|
t|ows.
ln 1001 lnd|a bogan tho t|rst phaso ot rotorms that wou|d unshack|o
|ts oconomy and ovontua||y turn |t |nto a h|gh-growth nat|on and an
|ncroas|ng|y |mportant part ot tho g|oba| oconomy.
ln tho onorgy soctors ot countr|os, as |n so many othor soctors,
trad|t|ona| govornmont m|n|str|os woro turnod |nto stato-ownod
compan|os, wh|ch |n turn woro part|y or ont|ro|y pr|vat|zod. low many
ot thoso m|n|str|os-turnodcompan|os worr|od as much about what
pons|on tunds and othor sharoho|dors thought as about tho p|ans ot
govornmont c|v|| sorvants.
lntornat|ona| barr|ors ot a|| k|nds camo down. W|th tho lron Curta|n
gono, Europo was no |ongor d|v|dod botwoon East and Wost. 1ho
Europoan Commun|ty turnod |nto a much moro |ntogratod Europoan
Un|on and ostab||shod tho pr|nc|p|o ot tho ouro as |ts curroncy. A
sor|os ot major |n|t|at|vos-notab|y, tho lorth Amor|can |roo 1rado
Agroomont-promotod troor trado. Ovora||, g|oba| trado grow tastor
than tho g|oba| oconomy |tso|t. 0ovo|op|ng nat|ons morphod |nto
omorg|ng markots and bocamo tho tastost-grow|ng countr|os. 1ho|r
r|s|ng |ncomos moant grow|ng domand tor o||.
1ochno|ogy a|so drovo g|oba||zat|on-|n part|cu|ar, tho rap|d
dovo|opmont ot |ntormat|on tochno|ogy, tho r|so ot tho lntornot, and tho
dramat|c ta|| |n tho costs ot |ntornat|ona| commun|cat|ons. 1h|s was
chang|ng tho way t|rms oporatod, and |t was connoct|ng poop|o |n
ways that had boon |nconco|vab|o just a docado oar||or. 1ho g|oba|
v|||ago,' a spocu|at|vo concopt |n tho 1000s, was now qu|ck|y
bocom|ng a roa||ty. 1ho o|| and gas |ndustry was caught up |n thoso
rovo|ut|ons. Goopo||t|ca| chango and groator cont|donco |n markots
oponod now aroas to |nvostmont and oxp|orat|on. 1ho |ndustry
oxpandod |ts capac|ty to t|nd and produco rosourcos |n moro
cha||ong|ng onv|ronmonts. lt soomod now that an ago ot |noxpons|vo
o|| and natura| gas wou|d oxtond much turthor |nto tho tuturo. 1hat
wou|d bo good nows tor onorgy supp|y but not such good nows tor
h|ghor-pr|cod a|tornat|vos.
1EE FAD|NC OF RENEWABLE5?
1ho onorgy cr|sos ot tho 1070s had comb|nod w|th r|s|ng
onv|ronmonta| consc|ousnoss to g|vo b|rth to a rango ot now onorgy
opt|ons, known t|rst as a|tornat|vo onorgy' and thon, moro |ast|ng|y, as
ronowab|os.' 1hoy covorod a w|do rango-w|nd, so|ar, b|omass,
goothorma|, otc. What gavo thom a common dot|n|t|on was that thoy
woro basod no|thor on toss|| tuo|s nor on nuc|oar powor.
1hoy had omorgod out ot tho tumu|t ot tho 1070s w|th a groat doa| ot
onthus|asm-rays ot hopo' |n a tamous tormu|at|on. 3ut ovor tho
1080s, tho hopos had boon du||od by tho roa||t|os ot ta|||ng costs ot
convont|ona| onorgy, tho|r own cha||ong|ng oconom|cs, tochno|og|ca|
|mmatur|ty, and d|sappo|ntmont |n dop|oymont. W|th modorato pr|cos
and tho apparont rostorat|on ot onorgy stab|||ty |n tho oar|y 1000s, tho
prospocts tor ronowab|o onorgy bocamo ovon moro cha||ong|ng.
Yot onv|ronmonta| consc|ousnoss was bocom|ng moro porvas|vo.
Vost onv|ronmonta| |ssuos woro, trad|t|ona||y, |oca| or rog|ona|. 3ut
thoro was grow|ng attont|on to a now k|nd ot onv|ronmonta| |ssuo, a
g|oba| |ssuo: c||mato chango and g|oba| warm|ng. Attont|on was
|n|t|a||y cont|nod to a ro|at|vo|y sma|| sogmont ot poop|o. 1hat wou|d
chango |n duo courso, w|th protound |mp||cat|ons tor tho onorgy
|ndustry-convont|ona|, ronowab|o, and a|tornat|vos.
ln othor ways, tho comb|nat|on ot onorgy po||c|os |aunchod |n tho
1070s and tho dynam|cs ot tho markotp|aco had workod. ln tho taco ot
much skopt|c|sm, onorgy ott|c|oncy-consorvat|on-had turnod out to
bo a much moro v|gorous contr|butor to tho onorgy m|x than most had
ant|c|patod.
A 51ABLE N|DDLE EA51
V|doast po||t|cs, wh|ch so otton bodov||od socur|ty ot supp|y, was no
|ongor a throat. ln tho docado that to||owod tho Gu|t cr|s|s, |t soomod
that tho V|dd|o East was moro stab|o and that o|| cr|sos and
d|srupt|ons woro th|ngs ot tho past. lo |ongor was thoro a 3ov|ot
Un|on to modd|o |n rog|ona| po||t|cs, and tho outcomo ot tho Gu|t cr|s|s
and tho wo|ght ot tho Un|tod 3tatos |n wor|d atta|rs |ookod ||ko an
a|most suro guarantoo ot stab|||ty.
1ho la|ost|n|an l|borat|on Organ|zat|on roa||zod that |t had dr|von
|tso|t |nto a doad ond by support|ng 3addam |n tho Gu|t cr|s|s, and, |n
tho procoss, a||onat|ng many ot tho Arab countr|os that woro |ts
t|nanc|a| bonotactors. lt qu|ck|y roor|ontod |tso|t, and sw|tt progross
thoroupon to||owod |n tho lsrao||-la|ost|n|an poaco procoss. ln
Wash|ngton, 0.C., |n 3optombor 1008, Yassor Aratat, cha|rman ot tho
la|ost|n|an lat|ona| Author|ty, and lsrao|'s pr|mo m|n|stor, Y|tzhak
lab|n, s|gnod tho Os|o Accords, wh|ch |a|d out tho routo to a two-stato
so|ut|on to that |ong cont||ct. And thon, stand|ng |n tront ot lros|dont
C||nton w|th tho Wh|to |ouso as a backdrop, thoy d|d what wou|d havo
soomod |nconco|vab|o throo yoars oar||or-shook hands. 1ho
to||ow|ng yoar, thoy sharod tho lobo| loaco lr|zo a|ong w|th lsrao|'s
toro|gn m|n|stor, 3h|mon loros. A|| th|s was a pos|t|vo and powortu|
|nd|cator ot tho wor|d that soomod to bo ahoad. lt m|ght not havo
happonod had 3addam not gono to war.
As tor 3addam |usso|n h|mso|t, ho no |ongor soomod to bo go|ng
anywhoro.
CON1A|NNEN1
ln 1001 tho coa||t|on's torcos had stoppod 00 m||os short ot 3aghdad.
1ho coa||t|on had como togothor undor tho author|ty ot tho Un|tod
lat|ons to ojoct 3addam trom Kuwa|t, |t had no mandato to romovo
3addam and chango tho rog|mo. lor was thoro any dos|ro to ongago
|n tho potont|a||y b|oody urban wartaro that wou|d bo roqu|rod tor a t|na|
push. As |t was, tho to|ov|s|on |magos ot tho dostruct|on ot tho lraq|
army, and tho back|ash thoso |magos woro ongondor|ng, woro |n
thomso|vos a turthor roason to ca|| th|ngs to a ha|t-what has boon
dubbod tho Cll ottoct.' 3oyond a|| that, |t was w|do|y assumod that
aggr|ovod o|omonts ot tho lraq| m|||tary wou|d do what was oxpoctod-
|aunch a coup-and that 3addam's days woro numborod. 3ut, such
was h|s ruth|ossnoss and |ron contro|, that, contrary to oxpoctat|ons, ho
ho|d t|ght|y to powor attor tho war.
Yot 3addam's pos|t|on was much roducod. |or lraq was now
hommod |n by a program ot |nspoct|ons, m|||tary torco, and sanct|ons
that amountod to what has boon ca||od c|ass|c conta|nmont,' ovok|ng
tho po||cy that had chockod 3ov|ot oxpans|on dur|ng tho Co|d War. ln
add|t|on, somo ottorts woro mountod ovor tho noxt tow yoars to
support 3addam's oppononts |n topp||ng h|m, but that a|| ondod |n
ta||uro. Undor tho adm|n|strat|on ot 3||| C||nton, tho conta|nmont po||cy
bocamo moro oxp||c|t. lt a|so bocamo conjo|nod w|th what now was
doscr|bod as dua| conta|nmont'-ot lran a|ong w|th lraq.
ln pr|nc|p|o, U.l. woapons |nspoctors cou|d rango troo|y around lraq,
|ook|ng tor tho o|omonts that cou|d go |nto woapons ot mass
dostruct|on-co||oqu|a||y known as WV0. ln pract|co, obstruct|ons
woro constant|y put |n tho |nspoctors' way. 1horo was on|y ono momont
ot surpr|s|ng cooporat|on: ln 100b tho hoad ot lraq's unconvont|ona|
woapons program, who happonod to bo 3addam's son-|n-|aw,
dotoctod to 1ordan. 1ho rog|mo pan|ckod, toar|ng what ho m|ght to||.
1ry|ng to proompt any rovo|at|ons, 3aghdad suddon|y ro|oasod ha|t a
m||||on documonts (wh|ch had boon h|ddon |n a ch|ckon coop) that
dota||od product|on ot a var|oty ot b|o|og|ca| woapons. 3ut attor
3addam |urod h|s son-|n-|aw back to lraq (|n ordor to havo h|m k|||od),
obstruct|on onco aga|n roturnod as tho norm.
4
3t|||, tho days ot 3addam's capac|ty to try to contro| wor|d o|| had
passod. ||s cont|nu|ng |mpact on o|| camo ma|n|y |n tho torm ot h|s
ab|||ty to man|pu|ato pr|cos at tho marg|ns. ln tho t|rst tow yoars attor
tho Gu|t War, w|th oxports not porm|ttod, potro|oum output to||
proc|p|tous|y. ln 100b tho Un|tod lat|ons ostab||shod tho O||-tor-|ood
lrogrammo, wh|ch a||owod lraq to so|| a dot|nod amount ot o||. |a|t ot
tho rovonuos wont tor ossont|a|s, ||ko mod|c|no and tood. 3otoro
3addam so|zod powor, lraq had boon an oxportor ot tood to Europo
and ovon sh|ppod datos to tho Un|tod 3tatos. 3ut, undor 3addam,
agr|cu|turo had suttorod, and o|| oxports prov|dod tho tund|ng to |mport
tho tood tho country now roqu|rod. 1ho othor ha|t wont to roparat|ons
and to tund tho U.l. |nspoct|ons. 1horoattor lraq| product|on rocovorod
to somoth|ng ovor two m||||on barro|s por day, w|th s|gn|t|cant output
smugg|od |nto 1ordan, 3yr|a, and lran. ln add|t|on, 3addam's rog|mo
bonot|ttod trom b||||ons ot do||ars ot socrot k|ckbacks trom thoso who
had boon grantod contracts to so|| lraq| o||, rang|ng trom mystor|ous
luss|an m|dd|omon to a 1oxas o|| tycoon to ott|c|a|s trom countr|os
soon as tr|ond|y to lraq.
b
3ut tho program a|ways soomod at r|sk. Wou|d 3addam cont|nuo to
cooporato w|th tho U.l. program th|s t|mo? Or wou|d ho broak ott
cooporat|on, roduc|ng or cutt|ng ott a|togothor lraq| oxports-thus
abrupt|y sond|ng tho pr|co up? 1ho uncorta|nty croatod cons|dorab|o
pr|co vo|at|||ty.
3y tho ond ot tho 1000s, tho U.3. po||cy ot conta|nmont was c|oar|y
tray|ng. 3ont|mont was grow|ng |n tho V|dd|o East and Europo that tho
sanct|ons woro hurt|ng not 3addam and h|s c||quo, and tho lopub||can
Guard that kopt thom |n powor, but tho gonora| lraq| popu|at|on. ln
1008 3addam pormanont|y oxpo||od tho U.l. woapons |nspoctors. A
1008 U.3. lat|ona| lnto|||gonco Est|mato conc|udod that 3addam's
amb|t|ons tor woapons ot mass dostruct|on woro unchockod.
0
Yot 3addam had boon conta|nod, and |t appoarod that ho wou|d
novor aga|n bo ab|o to ronow h|s b|d to contro| tho lors|an Gu|t. loxt
door |n lran, |n 1007, Vohammad Khatam|, rogardod as a rotormor
and a ro|at|vo modorato, was o|octod pros|dont, and thoro soomod a
poss|b|||ty to roduco tho mutua| host|||ty that had so dom|natod
ro|at|ons botwoon Wash|ngton and 1ohran. W|th a|| thoso changos,
V|dd|o East potro|oum now appoarod much moro socuro-and that
moant that tho wor|d's o|| supp|y was moro socuro. G|von th|s stab|||ty,
|t was thought that tho pr|co wou|d c|rc|o around $20 or so a barro|. |or
Amor|can motor|sts, that moant ro|at|vo|y |ow gaso||no pr|cos, wh|ch
thoy assumod woro part ot tho natura| ordor.
NEW EOR|ZON5 AND 1EE Ou|E1
REVOLu1|ON"
At tho samo t|mo, tochno|ogy was |ncroas|ng tho socur|ty ot o||
supp||os |n a d|ttoront way-by oxpand|ng tho rango ot tho dr||| b|t and
|ncroas|ng rocovorab|o rosorvos. 1ho potro|oum |ndustry was go|ng
through a por|od ot |nnovat|on, cap|ta||z|ng on tho advancos |n
commun|cat|ons, computors, and |ntormat|on tochno|ogy to t|nd
rosourcos and dovo|op thom, whothor on |and or tarthor and tarthor out
|nto tho soa.
3o otton, ovor tho h|story ot tho o|| |ndustry, |t |s sa|d that tochno|ogy
has gono about as tar as |t can and that tho ond ot tho road' tor tho o||
|ndustry |s |n s|ght. And thon, now |nnovat|ons dramat|ca||y oxpand
capab|||t|os. 1h|s pattorn wou|d bo ropoatod aga|n and aga|n.
1ho rap|d advancos |n m|croprocoss|ng mado poss|b|o tho ana|ys|s
ot vast|y moro data, onab||ng goophys|c|sts to groat|y |mprovo tho|r
|ntorprotat|on ot undorground structuros and thus |mprovo oxp|orat|on
succoss. Enhancod comput|ng powor moant that tho so|sm|c mapp|ng
ot tho undorground structuros-tho strata, tho tau|ts, tho cap rocks, tho
traps-cou|d now bo dono |n throo d|mons|ons, rathor than two. 1h|s 8-
0 so|sm|c mapp|ng, though tar trom |nta|||b|o, onab|od oxp|orat|on|sts
to much |mprovo tho|r undorstand|ng ot tho goo|ogy doop
undorground.
1ho socond advanco was tho advont ot hor|zonta| dr||||ng. lnstoad ot
tho trad|t|ona| vort|ca| wo|| that wont stra|ght down, wo||s cou|d now bo
dr|||od vort|ca||y tor tho t|rst tow thousand toot and thon dr|von at an
ang|o or ovon s|doways w|th dr||||ng progross t|ght|y contro||od and
moasurod ovory tow toot w|th vory soph|st|catod too|s. 1h|s moant that
much moro ot tho rosorvo|r cou|d bo accossod, thus |ncroas|ng
product|on.
1ho th|rd broakthrough was tho dovo|opmont ot sottwaro and
computor v|sua||zat|on that was bocom|ng standard throughout tho
construct|on and ong|noor|ng |ndustr|os. App||od to tho o|| |ndustry, th|s
CA0/CAV (computor-a|dod dos|gn, computor-a|dod manutactur|ng)
tochno|ogy onab|od a b||||ondo||ar ottshoro product|on p|attorm to bo
dos|gnod down to tho t|n|ost dota|| on a computor scroon, and |ts
ros|||onco and ott|c|oncy tostod |n mu|t|p|o ways, ovon botoro wo|d|ng
bogan on tho t|rst p|oco ot stoo|.
As tho 1000s progrossod, tho sproad ot |ntormat|on and
commun|cat|ons tochno|ogy and tho oxtraord|nary ta|| |n
commun|cat|on costs moant that goosc|ont|sts cou|d work as v|rtua|
toams |n d|ttoront parts ot tho wor|d. Expor|onco and |oarn|ng trom a
t|o|d |n ono part ot tho wor|d cou|d |nstant|y bo sharod w|th thoso try|ng
to so|vo s|m||ar prob|oms |n ana|ogous t|o|ds |n othor parts ot tho
wor|d. As a rosu|t, tho CEO ot ono company sa|d at tho t|mo w|th on|y
somo oxaggorat|on, sc|ont|sts and ong|noors wou|d go up tho
|oarn|ng curvo on|y onco.'
1hoso and othor tochno|og|ca| advancos moant that compan|os
cou|d do th|ngs that had on|y rocont|y boon unatta|nab|o-whothor |n
torms ot |dont|ty|ng now prospocts, tack||ng t|o|ds that cou|d not bo
dovo|opod botoro, tak|ng on much moro comp|ox projocts, rocovor|ng
moro o||, or opon|ng up ont|ro|y now product|on prov|ncos.
A|togothor, tochno|ogy w|donod tho hor|zons ot wor|d o||, br|ng|ng on
|argo amounts ot now supp||os that supportod oconom|c growth and
oxpandod mob|||ty around tho wor|d. 3||||ons ot barro|s ot o|| that cou|d
not havo boon accossod or producod a docado oar||or woro now
w|th|n roach. A|| that provod to bo just |n t|mo' tochno|og|ca| progross.
|or tho wor|d appoarod to bo on a tast track |n torms ot oconom|c
growth-and, thus, |n |ts nood tor moro o||.


1ho wor|d was a|so chang|ng tast |n torms ot goopo||t|cs. Countr|os
that had boon c|osod or rostr|ct|vo toward |nvostmont by |ntornat|ona|
compan|os woro now opon|ng up, |nv|t|ng tho compan|os to br|ng tho|r
sk|||s and tochno|ogy a|ong w|th tho|r monoy. 1ho soom|ng|y |mmutab|o
structuro ot g|oba| controntat|on had suddon|y buck|od.
ln part|cu|ar, changos woro unto|d|ng |n tho succossor statos to tho
3ov|ot Un|on-luss|a and tho now|y |ndopondont countr|os around tho
Casp|an 3oa-that wou|d |ntograto tho rog|on w|th g|oba| markots. lt
was as |t tho twont|oth contury's ond was bo|ng roconnoctod back to
tho contury's bog|nn|ng. 1ho ottoct wou|d bo to broadon tho
toundat|ons ot tho wor|d potro|oum supp|y. As an art|c|o |n lorolgo
Aolrs put |t |n 1008, O|| |s tru|y a g|oba| bus|noss tor tho t|rst t|mo
s|nco tho barr|cados wont up w|th tho 3o|shov|k lovo|ut|on.'
7
1h|s obsorvat|on had part|cu|ar s|gn|t|canco tor luss|a, tho country
that had boon homo ot tho 3o|shov|k lovo|ut|on, and that now r|va|od
3aud| Arab|a |n |ts capac|ty to produco o||.
PAR1 ONE
1ho Now WorId ot OiI
1
Ru55|A RE1uRN5
On tho n|ght ot 0ocombor 2b, 1001, 3ov|ot pros|dont V|kha||
Gorbachov wont on nat|ona| to|ov|s|on to mako a start||ng
announcomont-ono that wou|d havo boon a|most un|mag|nab|o ovon
a yoar or two oar||or: l horoby d|scont|nuo my act|v|t|os at tho post ot
tho lros|dont ot tho Un|on ot 3ov|ot 3oc|a||st lopub||cs.' And, ho
addod, tho 3ov|ot Un|on wou|d short|y coaso to ox|st.
Wo havo a |ot ot ovoryth|ng-|and, o|| and gas and othor natura|
rosourcos-and thoro was ta|ont and |nto||oct |n abundanco,' ho
cont|nuod. |owovor, wo woro ||v|ng much worso than poop|o |n tho
|ndustr|a||zod countr|os woro ||v|ng and wo woro |ncroas|ng|y |agg|ng
boh|nd thom.' |o had tr|od to |mp|omont rotorms but ho had run out ot
t|mo. A tow months oar||or, d|ohard commun|sts had tr|od to stago a
coup but ta||od. 1ho coup had, howovor, sot |n mot|on tho t|na|
d|s|ntograt|on. 1ho o|d systom to|| apart ovon botoro tho now systom
bogan to work,' ho sa|d.
Ot courso,' ho addod, thoro woro m|stakos mado that cou|d havo
boon avo|dod, and many ot tho th|ngs that wo d|d cou|d havo boon
dono bottor.' 3ut ho wou|d not g|vo up hopo. 3omo day our common
ottorts w||| boar tru|t and our nat|ons w||| ||vo |n a prosporous,
domocrat|c soc|oty.' |o conc|udod s|mp|y, l w|sh ovoryono a|| tho
bost.'
1
W|th that, ho tadod out |nto tho othor and uncorta|nty ot tho n|ght.
||s who|o spooch had takon just two|vo m|nutos. 1hat was |t. Attor
sovon docados, commun|sm was t|n|shod |n tho |and |n wh|ch |t had
boon born.
3|x days |ator, on 0ocombor 81, tho U33l, tho Un|on ot 3ov|ot
3oc|a||st lopub||cs, torma||y coasod to ox|st. V|kha|| Gorbachov, tho
|ast pros|dont ot tho 3ov|ot Un|on, handod ovor tho tootba||'-tho
su|tcaso w|th tho codos to act|vato tho 3ov|ot nuc|oar arsona|-to
3or|s Yo|ts|n, tho t|rst pros|dont ot tho luss|an |odorat|on. 1horo woro
no r|ng|ng ot bo||s, no honk|ng ot horns, to mark th|s groat trans|t|on.
1ust a stunnod and mutod-and d|sbo||ov|ng-rosponso. 1ho 3ov|ot
Un|on, a g|oba| suporpowor, was gono. 1ho succossors wou|d bo
t|ttoon statos, rang|ng |n s|zo trom tho hugo luss|an |odorat|on to t|ny
Eston|a. luss|a was, by tar, tho t|rst among oqua|s: |t was tho |ogatoo
ot tho o|d 3ov|ot Un|on, |t |nhor|tod not on|y tho nuc|oar codos, but tho
m|n|str|os and tho dobts ot tho U33l. What had boon tho c|osod
3ov|ot Un|on was now, to ono dogroo or anothor, opon to tho wor|d.
1hat, among othor th|ngs, wou|d rodraw tho map ot wor|d o||.
Among tho tons ot m||||ons who had watchod Gorbachov's to|ov|s|on
tarowo|| on 0ocombor 2b was va|ory Gra|tor. 1o Gra|tor, tho co||apso
ot tho 3ov|ot Un|on was noth|ng |oss than a catastropho, a roa|
catastropho.' |or ha|t a docado, ho had boon at tho vory contor ot tho
3ov|ot o|| and gas |ndustry. |o had |od tho g|ant Wost 3|bor|a
oporat|on, tho |ast groat |ndustr|a| ach|ovomont ot tho 3ov|ot systom.
Gra|tor had boon sont thoro |n tho m|d-1080s, whon product|on had
bogun ta|tor|ng, to rostoro output and push |t h|ghor. Undor h|m, Wost
3|bor|a had roachod 8 m||||on barro|s por day-a|most r|va||ng 3aud|
Arab|a's tota| output. 1ho sca|o ot tho ontorpr|so was onormous: somo
4b0,000 poop|o u|t|mato|y roportod up to h|m. And yot Wost 3|bor|a
was part ot an ovon b|ggor 3ov|ot |ndustry. lt was ono b|g o|| tam||y
throughout a|| tho ropub||cs ot tho 3ov|ot Un|on,' ho |ator sa|d. lt
anyono had to|d mo that th|s tam||y was about to co||apso, l wou|d havo
|aughod.' 3ut tho shock ot tho co||apso woro ott, and w|th|n a yoar ho
had |aunchod a tochno|ogy company to sorvo whatovor wou|d bo tho
now o|| |ndustry ot |ndopondont luss|a. Wo had a tough t|mo,' ho
sa|d. 3ut l saw that ||to goos on.'
2
1E|NC5 ARE BAD W|1E BREAD"
Ono ot tho |ast|ng |ron|os ot tho 3ov|ot Un|on was that wh||o tho
commun|st systom was a|most synonymous w|th torco-pacod
|ndustr|a||zat|on, |ts oconomy |n |ts t|na| docados was so hoav||y
dopondont on vast natura| rosourcos-o|| and gas |n part|cu|ar.
1ho oconom|c systom that 1osoph 3ta||n had |mposod on tho 3ov|ot
Un|on was groundod |n contra| p|ann|ng, t|vo-yoar p|ans, and so|t-
sutt|c|oncy-what 3ta||n ca||od, soc|a||sm |n ono country.' 1ho U33l
was |argo|y shut ott trom tho wor|d oconomy. lt was on|y |n tho 1000s
that tho 3ov|ot Un|on roomorgod on tho wor|d markot as a s|gn|t|cant
oxportor ot o|| and thon, |n tho 1070s, ot natura| gas. Crudo o|| a|ong
w|th othor natura| rosourcos woro,' as ono luss|an o|| |oador |ator
sa|d, noar|y tho s|ng|o ox|st|ng ||nk ot tho 3ov|ot Un|on to tho wor|d' tor
oarn|ng tho hard curroncy so dosporato|y noodod by th|s |argo|y
|so|atod country.'
8
3y tho ond ot tho 1000s, tho 3ov|ot oconomy was show|ng s|gns ot
docay and |ncapac|ty to ma|nta|n oconom|c growth. 3ut, as a
s|gn|t|cant o|| oxportor, |t roco|vod a hugo w|ndta|| trom tho 1078
Octobor War and tho Arab o|| ombargo: tho quadrup||ng ot o|| pr|cos.
1ho oconomy turthor bonot|ttod |n tho oar|y 1080s whon o|| pr|cos
doub|od |n rosponso to tho lran|an lovo|ut|on. 1h|s surgo |n o||
rovonuos ho|pod koop tho ontoob|od 3ov|ot oconomy go|ng tor
anothor docado, onab||ng tho country to t|nanco |ts suporpowor m|||tary
status and moot othor urgont noods.


At tho top ot tho ||st ot thoso noods woro tho tood |mports roqu|rod,
bocauso ot |ts ondom|c agr|cu|tura| cr|s|s, |n ordor to avort acuto
shortagos, ovon tam|no, and soc|a| |nstab|||ty. 3omot|mos tho throat ot
tood shortagos was so |mm|nont that 3ov|ot prom|or A|oxo| Kosyg|n
wou|d ca|| tho hoad ot o|| and gas product|on and to|| h|m, 1h|ngs aro
bad w|th broad. G|vo mo throo m||||on tons [ot o||| ovor tho p|an.'
Econom|st Yogor Ga|dar, act|ng luss|an pr|mo m|n|stor |n 1002,
summod up tho |mpact ot thoso o|| pr|co |ncroasos: 1ho hard curroncy
trom o|| oxports stoppod tho grow|ng tood supp|y cr|s|s, |ncroasod tho
|mport ot oqu|pmont and consumor goods, onsurod a t|nanc|a| bas|s
tor tho arms raco and tho ach|ovomont ot nuc|oar par|ty w|th tho Un|tod
3tatos and porm|ttod tho roa||zat|on ot such r|sky toro|gn po||cy act|ons
as tho war |n Atghan|stan.'
4
1ho |ncroaso |n pr|cos a|so a||owod tho 3ov|ot Un|on to go on
w|thout rotorm|ng |ts oconomy or a|tor|ng |ts toro|gn po||cy. 1rappod by
|ts own |nort|a tho 3ov|ot |oadorsh|p ta||od to g|vo sor|ous
cons|dorat|on to tho thought that o|| pr|cos m|ght ta|| somoday, |ot a|ono
proparo tor such an ovontua||ty.
DEAR JOEN~EELPI"
V|kha|| Gorbachov camo to powor |n 108b dotorm|nod to modorn|zo
both tho oconomy and tho po||t|ca| systom w|thout ovorturn|ng o|thor.
Wo know what k|nd ot country wo had,' ho wou|d say. lt was tho most
m|||tar|zod, tho most contra||zod, tho most r|g|d|y d|sc|p||nod, |t was
stuttod w|th nuc|oar woapons and othor woapons.'
An |ssuo that |ntur|atod h|m whon ho camo |nto ott|co-womon's
pantyhoso-symbo||zod to h|m what was so wrong. Wo woro p|ann|ng
to croato a comm|ss|on hoadod by tho socrotary ot tho Contra|
Comm|ttoo . . . to so|vo tho prob|om ot womon's pantyhoso,' ho sa|d.
lmag|no a country that t||os |nto spaco, |aunchos 3putn|ks, croatos
such a dotonso systom, and |t can't roso|vo tho prob|om ot womon's
pantyhoso. 1horo's no toothpasto, no soap powdor, not tho bas|c
nocoss|t|os ot ||to. lt was |ncrod|b|o and hum|||at|ng to work |n such a
govornmont.'
3ut Gorbachov had vory bad |uck |n t|m|ng. ln 1080, ono yoar attor
h|s ascons|on, ovorsupp|y and roducod domand on tho wor|d
potro|oum markot tr|ggorod a hugo co||apso |n tho o|| pr|co. 1h|s
drast|ca||y roducod tho hard curroncy oarn|ngs that tho country noodod
to pay tor |mports.
Evon though tho 3ov|ot o|| |ndustry-wh|ch was now contorod |n
Wost 3|bor|a-cont|nuod to push up output, |t was not onough to ba||
out tho s|nk|ng oconomy. At tho samo t|mo, Gorbachov was ro|ax|ng
tho grasp ot commun|st ropross|on on tho soc|oty.
b
Wh||o tho co||apso |n o|| pr|cos was tho t|na| b|ow,' as Yogor Ga|dar
has wr|tton, tho ta||uro was ot tho systom |tso|t. 1ho co||apso ot tho
3ov|ot systom,' ho sa|d, had boon proorda|nod by tho tundamonta|
charactor|st|cs ot tho 3ov|ot oconom|c and po||t|ca| systom,' wh|ch
d|d not porm|t tho country to adapt to tho cha||ongos ot wor|d
dovo|opmont |n tho |ato twont|oth contury. ||gh o|| pr|cos was not a
dopondab|o toundat|on tor prosorv|ng tho |ast omp|ro.'
3y tho ond ot tho 1080s and tho bog|nn|ng ot tho 1000s, tho word
cr|s|s' |n govornmont and party documonts was bo|ng rop|acod by
acuto cr|s|s,' and thon by catastropho.' |ood shortagos woro sovoro.
At ono po|nt, tho c|ty ot 3t. lotorsburg noar|y ran out ot da|ry products
tor ch||dron.
ln lovombor 1001, Gorbachov askod ono ot h|s a|dos to sond
3r|t|sh pr|mo m|n|stor 1ohn Vajor, at that t|mo hoad ot tho G7 group ot
|ndustr|a| nat|ons, a throo-word mossago-0oar 1ohn, |o|p!'
0
lt was just a month |ator that Gorbachov wont on to|ov|s|on to
announco tho d|sso|ut|on ot tho 3ov|ot Un|on.
A NEW Ru55|A : NO ONE'5 A1 1EE
CON1ROL5"
|rom 1anuary 1, 1002, luss|a was an |ndopondont stato, a hugo ono,
travors|ng o|ovon t|mo zonos. 1ho contra||y p|annod soc|a||st oconomy
ot tho 3ov|ot Un|on, whoro v|rtua||y ovory act|on |n tho ont|ro oconomy
was tho rosu|t ot buroaucrat|c doc|s|ons, had d|s|ntogratod, |oav|ng
oconom|c chaos and uncorta|nty. 1horo was no ru|o ot commorc|a| |aw,
no bas|s tor contracts, no ostab||shod channo|s or ru|os tor trado.
3artor bocamo tho ordor ot tho day, not just tor now|y omorg|ng tradors
and morchants out on tho stroots or work|ng out ot tho|r apartmonts,
but a|so tactor|os, wh|ch tradod goods and output back and torth as
though |t woro a|| curroncy. lt was a|so a troo-tor-a||, a mad scramb|o,
as most ot tho commorc|a| assots ot tho stato and ot tho ooroo-tho
3ov|ot poop|o-woro now up |n p|ay. lt was a tr|ghton|ng t|mo tor tho
popu|aco and a t|mo ot groat hardsh|p: tho|r pons|ons and sa|ar|os, |t
pa|d at a||, |ost tho|r va|uo, and tho |ow, but guarantood, |ovo| ot
oconom|c socur|ty on wh|ch thoy countod was d|sappoar|ng botoro
tho|r oyos.
lt was a|so tr|ghton|ng tor tho young rotormors who camo to powor
undor luss|an pros|dont 3or|s Yo|ts|n. A nuc|oar suporpowor was |n
anarchy,' sa|d Ga|dar, who was Yo|ts|n's t|rst t|nanco m|n|stor. Wo
had no monoy, no go|d, and no gra|n to |ast through tho noxt harvost,
and thoro was no way to gonorato a so|ut|on. lt was ||ko travo|||ng |n a
jot and you go |nto tho cockp|t and you d|scovor that thoro's no ono at
tho contro|s.' 1ho rotormors cou|dn't ovon got |nto govornmont
computors bocauso tho passwords had boon |ost dur|ng tho co||apso.
1horo woro two urgont noods |n thoso days. Ono was to stab|||zo tho
oconomy, ronow tho t|ow ot goods and sorv|cos, koop poop|o tod and
warm, and ostab||sh toundat|ons tor trado and a markot oconomy. 1ho
othor was to t|guro out what to do w|th a|| tho tactor|os and ontorpr|sos
and rosourcos-tho moans ot product|on that tho govornmont ownod
-and somohow movo thom |nto somo othor torm ot ownorsh|p-
pr|vato ownorsh|p, wh|ch was moro product|vo and appropr|ato to a
markot oconomy. 3|nco tho stato ownod most ovoryth|ng, |t moant that
a|| tho assots ot tho 3ov|ot Un|on woro up tor grabs.
And thoy woro bo|ng grabbod. As lros|dont Yo|ts|n put |t, tho
oconom|c assots ot tho stato woro bo|ng pr|vat|zod w||d|y,
spontanoous|y, and otton on a cr|m|na| bas|s.' |o and h|s toam ot
rotormors woro dotorm|nod to roga|n contro|, to broak up whatovor
roma|nod trom tho command-and-contro| oconomy, and to rop|aco |t
w|th a now oconom|c systom basod upon pr|vato proporty. 1ho
objoct|vos ot pr|vat|zat|on woro not on|y oconom|c, thoy a|so wantod to
torosta|| any roturn to tho commun|st past by romov|ng assots trom
stato contro| as qu|ck|y as poss|b|o. 1o mako mattors ovon moro
d|tt|cu|t, th|s oconom|c uphoava| took p|aco aga|nst a backdrop ot
po||t|ca| turmo||: a standott botwoon tho Yo|ts|n adm|n|strat|on and tho
3tato 0uma, or par||amont, |nc|ud|ng a v|o|ont s|ogo' ot tho 0uma, tho
t|rst Chochnya war, and a 1000 pros|dont|a| o|oct|on that, unt|| |ato |n
tho campa|gn, soomod ||ko|y to ond w|th a v|ctory by rosurgont
commun|sts.
1ho 3ov|ot systom had |ott many va|uab|o |ogac|os-a hugo notwork
ot |argo |ndustr|a| ontorpr|sos (though strandod |n tho 1000s |n torms ot
tochno|ogy), a vast m|||tary mach|no, and an oxtraord|nary rosorvo|r ot
sc|ont|t|c, mathomat|ca|, and tochn|ca| ta|ont, a|though d|sconnoctod
trom a commorc|a| oconomy. 1ho h|gh|y capab|o o|| |ndustry was
burdonod w|th an ago|ng |ntrastructuro. 3o|ow ground |ay a|| tho
onormous r|chos |n tho torm ot potro|oum and othor raw mator|a|s that
Gorbachov had c|tod |n h|s tarowo|| addross .
7
RECON51RuC1|NC 1EE O|L |NDu51RY
1hoso natura| rosourcos-part|cu|ar|y o|| and natura| gas-woro as
cr|t|ca| to tho now luss|an stato as thoy had boon to tho tormor 3ov|ot
Un|on. 3y tho m|dd|o 1000s, o|| oxport rovonuos accountod tor as
much as two th|rds ot tho luss|an govornmont's hard curroncy
oarn|ngs. What happonod to thoso rovonuos dom|natod luss|an
po||t|cs and oconom|c po||cy throughout tho 1000s and |nto tho 2000s.'
Yot tho o|| soctor was swopt up |n tho samo anarchy as tho rost ot tho
oconomy. Workors, who woro not bo|ng pa|d, wont on str|ko, shutt|ng
down tho o|| t|o|ds. lroduct|on and supp|y across tho country woro
d|sruptod. O|| was bo|ng commandoorod or sto|on and so|d tor hard
curroncy |n tho Wost. lo ono ovon know who roa||y ownod tho o||.
lnd|v|dua| product|on organ|zat|ons |n var|ous parts ot Wost 3|bor|a
and o|sowhoro woro bus||y doc|ar|ng thomso|vos |ndopondont and
try|ng to go |nto bus|noss tor thomso|vos. 1ho |ndustry was suddon|y
bo|ng run by noar|y 2000 uncoord|natod assoc|at|ons, ontorpr|sos and
organ|zat|ons bo|ong|ng to tho tormor 3ov|ot |ndustry m|n|stry.' Am|d
such d|srupt|on and starvod tor |nvostmont, luss|an o|| output startod
to s||p, and thon co||apso. ln ||tt|o moro than ha|t a docado, luss|an
product|on p|ummotod by a|most b0 porcont-an aston|sh|ng |oss ot
moro than b m||||on barro|s a day.
lr|vat|zat|on horo, too, wou|d bo tho answor. 3ut how to do |t? 1ho
o|| |ndustry was structurod to moot tho noods ot a contra||y p|annod
systom. lt was organ|zod hor|zonta||y, w|th d|ttoront m|n|str|os-o||,
rot|n|ng and potrochom|ca|s, and toro|gn trado-oach contro|||ng |ts
sogmonts ot tho |ndustry. 1ho rosourcos |ndustry was as |mportant to
tho now stato as to tho o|d and had to bo hand|od d|ttoront|y trom tho
othor pr|vat|zat|ons.
Ono porson w|th c|oar|y thought-through |doas about what to do was
vag|t A|okporov. 3orn |n 3aku, ho had workod |n tho ottshoro
Azorba|jan| o|| |ndustry unt|| transtorr|ng at ago twonty-n|no to tho now
hoart|and ot 3ov|ot o||, Wost 3|bor|a. 1horo ho camo to tho attont|on ot
va|ory Gra|tor, thon |oad|ng Wost 3|bor|a to |ts max|mum
portormanco. locogn|z|ng A|okporov's capab|||t|os, Gra|tor promotod
h|m to run ono ot tho most |mportant tront|or rog|ons |n Wost 3|bor|a. ln
1000, A|okporov |oaptroggod to Voscow, whoro ho bocamo doputy o||
m|n|stor.
On tr|ps to tho Wost, A|okporov v|s|tod a numbor ot potro|oum
compan|os. |o saw a dramat|ca||y d|ttoront way ot oporat|ng an o||
bus|noss. lt was a rovo|at|on,' ho sa|d. |oro was a typo ot
organ|zat|on that was t|ox|b|o and capab|o, a company that was
tack||ng a|| tho |ssuos at tho samo t|mo-oxp|orat|on, product|on, and
ong|noor|ng-and ovorybody purs|ng tho common goa|, and not oach
branch oporat|ng soparato|y.' |o camo back to Voscow conv|ncod
that tho typ|ca| organ|zat|on tound |n tho rost ot tho wor|d-vort|ca||y
|ntogratod compan|os w|th oxp|orat|on and product|on, rot|n|ng and
markot|ng a|| |n ono company-was tho way to organ|zo a modorn o||
|ndustry. lr|or to tho co||apso ot tho 3ov|ot Un|on, h|s ottorts to
promoto a vort|ca||y |ntogratod stato-ownod o|| company woro
robuttod. Oppononts accusod h|m ot dostroy|ng tho o|| soctor.' |o
tr|od aga|n attor luss|a bocamo an |ndopondont stato. |or to stay w|th
tho ox|st|ng sotup, ho sa|d, wou|d rosu|t |n chaos.
8
ln lovombor 1002, lros|dont Yo|ts|n adoptod th|s approach |n
0ocroo 1408 on pr|vat|zat|on |n tho o|| |ndustry. 1ho now |aw prov|dod
tor throo vort|ca||y |ntogratod o|| compan|os-luko||, Yukos, and
3urgut. Each wou|d comb|no upstroam o|| product|on aroas w|th
rot|n|ng and markot|ng systoms. 1hoy wou|d bocomo somo ot tho
|argost compan|os |n tho wor|d. 1ho stato wou|d rota|n substant|a|
ownorsh|p dur|ng a throo-yoar trans|t|on por|od, wh||o tho now
compan|os tr|od to assort contro| ovor now som|-|ndopondont
|nd|v|dua| product|on groups and rot|nor|os, quo|| robo|||ous
subs|d|ar|os, and capturo contro| ovor o|| sa|os, o|| oxports, and tho
hard curroncy that camo trom thoso transact|ons. 1ho contro|||ng
sharos tor othor compan|os |n tho o|| |ndustry woro a|so parkod tor
throo yoars |n what was to bo a tomporary stato company, losnott,
buy|ng t|mo tor doc|s|ons about tho|r tuturo.
1h|s rostructur|ng wou|d havo boon hard to do undor any
c|rcumstancos. lt was vory hard to do |n tho oar|y and m|d-1000s, whon
tho stato was vory woak and |aw and ordor was |n short supp|y. 1horo
was v|o|onco at ovory |ovo|, as luss|an moylos-gangs, scar||y
tattoood votorans ot pr|son camps, and potty cr|m|na|s-ran protoct|on
rackots, sto|o crudo o|| and rot|nod products, and sought to stoa|
assots trom |oca| d|str|but|on torm|na|s. As tho gangs batt|od tor
contro|, a contract, a|| too otton, rotorrod not to a |oga| agroomont but to
a h|rod k||||ng. ln tho o|| towns, tho compot|ng gangs tr|od to tako ovor
who|o swaths ot tho |oca| oconomy-trom tho outdoor markots to tho
hoto|s and ovon tho tra|n stat|ons. 1ho |ncont|vos woro c|oar: o|| was
woa|th, and gott|ng contro| ot somo part ot tho bus|noss was tho way to
qu|ck|y amass woa|th on a sca|o that cou|d not ovon havo boon
droamod about |n 3ov|ot days, just a tow yoars oar||or.
0
3ut ovontua||y tho stato roassortod |ts po||co powors, and tho now|y
ostab||shod o|| compan|os bu||t up tho|r own socur|ty torcos, otton w|th
oxpor|oncod votorans ot tho KG3, and tho b|oody t|do ot v|o|onco and
gang wars bogan to rocodo.
LuKO|L AND 5uRCu1
Voanwh||o, to||ow|ng on Yo|ts|n's pr|vat|zat|on docroo, tho luss|an o||
majors woro bog|nn|ng to tako shapo.
1ho most v|s|b|o was luko||. vag|t A|okporov, oqu|ppod w|th a c|oar
v|s|on ot an |ntogratod o|| company, sot about bu||d|ng |t as qu|ck|y as
poss|b|o. 1ho t|rst th|ng was to pu|| togothor a host ot d|sparato o||
product|on organ|zat|ons and rot|nor|os that had horototoro had no
connoct|on. |o barnstormod around tho country try|ng to porsuado tho
managomonts ot oach organ|zat|on to jo|n th|s untam|||ar now ont|ty
ca||od luko||. ln ordor tor luko|| to como |nto ox|stonco, ovory s|ng|o
ont|ty had to s|gn on. 1ho hardost th|ng was to conv|nco tho managors
to un|to tho|r |ntorosts,' sa|d A|okporov. 1horo was chaos |n tho
country, and wo a|| had to surv|vo, wo had to pay wagos, and koop tho
ont|t|os togothor. W|thout un|t|ng, wo wou|d not bo ab|o to surv|vo.'
1hoy hoard tho mossago, a|| s|gnod on, and luko|| bocamo a roa|
company.
A|okporov rocogn|zod tho hoavy burdons that tho now luss|an
compan|os carr|od-what ho ca||od tho|r 3ov|ot |ogacy' ot agod
oqu|pmont a|ong w|th obso|oto manpowor and product|on
managomont systoms.' luko|| had to targot tho bost |ntornat|ona|
pract|cos.' |rom tho bog|nn|ng, A|okporov put |n p|aco |ntornat|ona|
standards and usod |ntornat|ona| |aw t|rms, accountants, and bankors.
ln 100b tho ch|ot t|nanc|a| ott|cor ot tho Amor|can o|| company AlCO
camo across an art|c|o about luko|| |n tho Ecooomlst magaz|no. |o
tound |t |ntr|gu|ng onough that ho to||owod up, and AlCO subsoquont|y
bought a sharo ot luko||. |rom tho oar|y days, luko|| a|so pursuod an
|ntornat|ona| stratogy, t|rst |n tho othor now nat|ons ot tho tormor 3ov|ot
Un|on and thon |n othor parts ot tho wor|d.
lt luko|| was tho most |ntornat|ona| ot tho now luss|an majors,
3urgut was tho most doc|dod|y luss|an. lts CEO, v|ad|m|r 3ogdanov,
was ca||od tho horm|t o|| man' by somo. |o had boon born |n a t|ny
3|bor|an v|||ago, mado h|s namo as a dr|||or |n 1yumon, and tho
ontorpr|so ho managod thoro bocamo tho bas|s ot what omorgod as
3urgutnottogaz, bottor known by |ts short namo, 3urgut. |o novor
movod to Voscow, |nstoad koop|ng 3urgut's hoadquartors |n tho c|ty
ot 3urgut. As ho onco oxp|a|nod, ho ||kod to wa|k to work.
10
3oth luko|| and 3urgut woro run by poop|o who wou|d havo boon
qua||t|od as o|| gonora|s' undor tho 3ov|ot systom.
YuKO5: 1EE 5ALE OF 1EE CEN1uRY
vory d|ttoront was a company ca||od Yukos. lt was ono ot tho t|rst o||
compan|os to bo run by ono ot tho now o||garchs who had omorgod
not trom tho o|| |ndustry but out ot tho chaot|c bartor oconomy.
V|kha|| Khodorkovsky had startod ott w|th orthodox 3ov|ot
amb|t|ons: as a ch||d, ho announcod that h|s objoct|vo was to r|so to
tho h|ghost |ovo|s ot tho 3ov|ot |ndustr|a| systom and ach|ovo tho
vauntod pos|t|on ot tactory d|roctor. lator, wh||o a studont at tho
Vondo|oov lnst|tuto tor Chom|stry, ho jumpod |nto bus|noss as a |oador
ot tho schoo|'s Komsomo|, tho commun|st youth organ|zat|on, turn|ng |t
|nto a commorc|a| organ|zat|on. |o thon movod |nto trad|ng |n
|mportod computors and sottwaro and thon, |n tho |ato 1080s, sot up a
bank ca||od Vonatop, wh|ch wou|d soon bo rogardod as sor|ous
onough to bo ontrustod w|th govornmont accounts. lt a|so prov|dod
t|nanco to ono ot tho now o|| compan|os, Yukos.
Khodorkovsky soon conc|udod that o|| was an ovon bottor bus|noss
than bank|ng. 1ho t|m|ng was r|ght. 3y 100b tho luss|an govornmont
was dosporato|y short ot tunds, and somo ot tho now bus|nossmon
and tho Yo|ts|n govornmont camo up w|th a so|ut|on that wont by tho
namo ot |oans-tor-sharos.' 3us|nossmon wou|d |oan tho luss|an
govornmont monoy, tak|ng h|gh|y d|scountod sharos |n potro|oum and
othor compan|os as co||atora|. Whon tho govornmont, as ant|c|patod,
dotau|tod on tho |oans, tho sharos wou|d ond up as tho proporty ot tho
|ondors. 1hoy wou|d thus contro| thoso now compan|os. 1ho
govornmont moanwh||o got tho short-torm tund|ng |t noodod to koop
at|oat pr|or to tho 1000 pros|dont|a| o|oct|on. lt was corta|n|y an unusua|
way to pr|vat|zo assots, and |oans-tor-sharos was |mmorta||zod as tho
sa|o ot tho contury.' Khodorkovsky |ont tho luss|an govornmont $800
m||||on and won contro| ot Yukos's sharos.
11
Khodorkovsky sot about task numbor ono, wh|ch was to ga|n contro|
ot tho t|ows ot o|| and monoy, wh|ch soomod to bo go|ng |n a||
d|roct|ons. Khodorkovsky had novor attondod tho Gubk|n lnst|tuto or
any ot tho othor 3ov|ot o|| acadom|os, and ho had no part|cu|ar
attachmont to tho 3ov|ot approach to t|o|d dovo|opmont. And so ho
turnod to Wostorn o|| t|o|d sorv|co compan|os to como |n and app|y
Wostorn dovo|opmont tochn|quos, rathor than 3ov|ot tochn|quos, to tho
o|| t|o|ds. 1h|s wou|d |oad to dramat|c |mprovomonts |n output. (lt wou|d
a|so, |n |ator yoars, como back to haunt h|m, dur|ng h|s controntat|on
w|th tho luss|an govornmont, w|th chargos that ho had v|o|atod
rocogn|zod and sound luss|an' o|| t|o|d product|on pract|cos.) As h|s
woa|th and |nt|uonco magn|t|od, so d|d h|s amb|t|ons.
1hoso compan|os-luko||, 3urgut, and Yukos-woro tho throo
majors. 1hoy woro not a|ono by any moans. 1horo roma|nod tho stato
company, losnott, s|x m|n|-majors', and a numbor ot othor
compan|os, |nc|ud|ng thoso ownod or sponsorod by o||-r|ch rog|ona|
govornmonts.
Ono ot tho m|n|-majors was 1lK. A consort|um ot ownors, tho AAl
group, camo togothor to buy tho company |n 1007. 1hoy wou|d
bocomo among tho country's most prom|nont o||garchs. 1hroo ot thom
camo trom tho A|ta 3ank. V|kha|| |r|dman was a graduato ot tho
lnst|tuto ot 3too| and A||oys. |o had workod tor a coup|o ot yoars |n a
tactory, but whon |t bocamo poss|b|o to go |nto bus|noss |n tho |ato
1080s, ho jumpod |n, start|ng a d|zzy|ng host ot ontorpr|sos, rang|ng
trom a photo coop to w|ndow wash|ng. 0osp|to tho chaos and bo|ng
to|d that h|s bus|nossos cou|d not succood, |r|dman |ator sa|d, wo d|d
havo an |ntorna| conv|ct|on.' ||s partnor Gorman Khan, anothor
graduato ot tho lnst|tuto ot 3too| and A||oys, ran what bocamo tho o||
trad|ng part ot tho|r now ontorpr|so and wou|d roma|n tho most tocusod
on tho o|| bus|noss |tso|t. 1ho monoy thoy mado trom trad|ng
commod|t|os onab|od thom to sot up tho A|ta 3ank. A th|rd partnor was
lotor Avon, who had a|roady ostab||shod h|s roputat|on as an
acadom|c mathomat|c|an and had boon m|n|stor ot toro|gn trado |n tho
oar|y 1000s.
1ho othor mombors ot tho consort|um |nc|udod v|ktor vokso|borg,
who tra|nod |n transportat|on ong|noor|ng, and lon 3|avatn|k, who had
om|gratod to tho Un|tod 3tatos at ago 21 and workod h|s way through
|arvard 3us|noss 3choo| attor a st|nt as a computor programmor.
3|avatn|k mado h|s t|rst tr|p back to tho 3ov|ot Un|on |n 1088. lt was a
d|ttoront country. |o roturnod aga|n |n 1001-now |t was luss|a-and
bocamo sor|ous about |nvost|ng |n a now|y |ndopondont luss|a, wh|ch
|od h|m to jo|n up w|th tho othors |n 1lK. |or |ts part, 1lK contro||od
ha|t tho 3amot|or o|| t|o|d |n wostorn 3|bor|a. lt was a most dos|rab|o
jowo|-among tho ha|t dozon |argost o|| t|o|ds |n tho wor|d.
1horo was anothor prom|nont company-3|bnott, as |n 3|bor|an O||.
1h|s was tho most c|ass|c ot tho |oans-tor-sharos doa|s. loman
Abramov|ch, who had boon trad|ng ovoryth|ng trom o|| to ch||dron's
toys, toamod up w|th 3or|s 3orozovsky and |ont $100 m||||on to tho
|mpovor|shod luss|an govornmont tor ha|t tho company. Whon, as
ant|c|patod, tho govornmont ta||od to ropay tho |oans, thoso o||garchs
had contro|. 3orozovsky wont |nto po||t|ca| ox||o attor ta|||ng out w|th
lros|dont v|ad|m|r lut|n. Abramov|ch to||owod a d|ttoront path. |o
took on tho add|t|ona| dut|os ot govornor ot an |mpovor|shod rog|on |n
tho luss|an |ar East. Abramov|ch ovontua||y so|d 3|bnott to tho
luss|an gas g|ant Gazprom and movod to Eng|and, whoro ho was
sa|d to bo tho socond-r|chost porson |n tho country, oxcoodod on|y by
tho Ouoon horso|t.
12
Ovora||, by 1008, w|th|n s|x yoars ot tho co||apso ot tho 3ov|ot Un|on,
tho luss|an o|| |ndustry had gono trom a systom run by a sor|os ot
m|n|str|os and subord|natod to contra| p|ann|ng to a systom ot |argo
vort|ca||y |ntogratod compan|os, organ|zod, at |oast |n rough out||no,
s|m||ar|y to tho trad|t|ona| compan|os |n tho Wost. 0ur|ng thoso yoars,
thoy a|| oporatod |argo|y autonomous|y trom tho stato. Evontua||y tho
luss|an |odorat|on wou|d havo t|vo |argo onorgy compan|os, oach ot
whoso o|| rosorvos woro comparab|o to tho s|zo ot tho |argost wostorn
majors.
1ho dovo|opmont ot thoso compan|os was moro than just a
who|osa|o roconstruct|on ot tho luss|an o|| |ndustry. lt a|so brought
v|s|b|o changos |n tho |argor c|t|os. ln 3ov|ot t|mos, thoso tow |ucky
onough to own automob||os had to soarch out tho raro and hard-to-t|nd
d|ngy sorv|co stat|ons on tho outsk|rts ot tho c|ty. 3ut now now, modorn
sorv|co stat|ons woro spr|ng|ng up at |ntorsoct|ons and a|ongs|do tho
h|ghways, bodockod w|th sh|ny corporato |ogos-luko||, Yukos,
3urgut, 1lK, and a numbor ot othors. 1ho stat|ons camo oqu|ppod not
on|y w|th h|gh octano gaso||no ot dopondab|o qua||ty, but a|so |n many
casos th|ngs that poop|o novor oxpoctod to soo, ||ko convon|onco
storos and, ovon moro romarkab|o, automat|c car washos. A|| ot that
wou|d a|so havo boon un|mag|nab|o |n 3ov|ot t|mos.
OPEN|NC uP
|ow d|d th|s now luss|an o|| |ndustry |ook to tho rost ot tho wor|d? ln
1002 tho hoad ot ono ot tho wor|d's |argost stato-ownod o|| compan|os
was askod what ho thought about luss|a and a|| tho changos that woro
happon|ng thoro. ||s answor was vory s|mp|o. Whon l th|nk ot luss|a,'
ho sa|d w|thout a pauso, l th|nk ot |t as a compot|tor.'
Othors saw opportun|ty. |or many docados attor tho 1017 3o|shov|k
lovo|ut|on, tho 3ov|ot Un|on had boon c|osod ott, an a|most torb|ddon
p|aco, anothor wor|d. 1ho 3ov|ot o|| |ndustry oporatod |argo|y |n
|so|at|on, w|th ||tt|o ot tho t|ow ot tochno|ogy and oqu|pmont that was
common |n tho rost ot tho wor|d.
ln tho |ato Gorbachov yoars, at tho ond ot tho 1080s, tho 3ov|ot
Un|on startod to opon tho doors to jo|nt vonturos w|th Wostorn
compan|os. 1ho objoct|vo was to br|ng |n tho tochno|ogy |t noodod to
|mprovo tho portormanco ot tho 3ov|ot |ndustry. 1hon camo tho
co||apso ot tho 3ov|ot Un|on. 1h|s prov|dod a vast now prospoct to
Wostorn compan|os: tho potont|a| to part|c|pato |n a rog|on r|ch w|th
hydrocarbons, porhaps comparab|o to tho V|dd|o East |n tho sca|o ot
rosourcos, and wor|d-c|ass opportun|t|os. 1hoy d|spatchod toams to
rosoarch thoso opportun|t|os.
3omo conc|udod that, whatovor tho luss|an r|sk,' thoy s|mp|y cou|d
not attord not to bo |n luss|a. Whon you |ookod at tho opportun|ty, you
bocamo onthus|ast|c,' roca||od Arch|o 0unham, thon CEO ot tho U.3.
major Conoco. lt was just a hugo opportun|ty.' 3ut, as t|mo wont on,
tho Wostorn compan|os |oarnod how d|tt|cu|t |t was to work |n tho
luss|an |odorat|on. As 0unham addod, You had a ru|o ot |aw
prob|om, you had a tax prob|om, and you had a |og|st|ca| prob|om.'
1ho uncorta|n po||t|ca| onv|ronmont, tho sh|tt|ng cast ot charactors,
tho corrupt|on, tho socur|ty r|sks, tho opaquo and constant|y chang|ng
ru|os, tho uncorta|nty as to who was who' and who was boh|nd
who'-a|| ot thoso mado othors moro ro|uctant. Wo had opportun|t|os
a|| ovor tho wor|d,' sa|d luc|o loto, CEO ot Vob||. Onco you s|nk a
coup|o ot b||||on do||ars |nto tho ground, you can't movo |t.'
18


Whon tho Wostorn compan|os |ookod across tho panorama-at tho
oporat|ng cond|t|ons, tho oqu|pmont, and tho t|o|ds-thoy saw an
|ndustry that was suttor|ng trom docados ot |so|at|on and that |ackod
tho most up-to-dato oqu|pmont, advancod sk|||s, and sutt|c|ont
comput|ng powor. 1hoy rocogn|zod that luss|an goosc|ont|sts woro at
tho torotront ot tho|r d|sc|p||nos, but that, |n luss|a, thoory' was qu|to
soparatod trom pract|co.' 1hoy a|so saw tho d|ro s|tuat|on |n tho
luss|an o|| t|o|ds and tho dosporato nood tor |nvostmont. 1ho
Wostornors woro conv|ncod that thoy wou|d bo wo|como bocauso thoy
brought tochno|ogy, cap|ta|, oxport|so, and managomont sk|||s. 1hat |s
not how luss|an o|| poop|o |ookod at |t, howovor. 1hoy took groat
pr|do |n what tho 3ov|ot |ndustry had accomp||shod, thoy woro
cont|dont |n tho|r own sk|||s, and thoy onormous|y rosontod tho
|mp||cat|on that thoy woro not up to wor|d standards. 1ho luss|an
|ndustry, |n tho|r v|ow, d|d not nood outs|dors to|||ng thom what to do.
lor d|d |t nood substant|a| d|roct toro|gn part|c|pat|on |n ordor to
transtor tochno|ogy. lt tho luss|ans noodod tochno|ogy, thoy cou|d buy
|t on tho wor|d markot trom sorv|co compan|os.
lo|thor tho govornmont nor tho omorg|ng luss|an bus|noss and
po||t|ca| c|assos saw any roason to g|vo up contro| ovor any substant|a|
rosourcos to Wostorn compan|os. 1hoy may not havo agrood among
thomso|vos as to who wou|d u|t|mato|y own thoso rosourcos and
contro| tho woa|th so gonoratod, but tho ono th|ng on wh|ch thoy cou|d
a|| agroo was that |t shou|d not bo tho toro|gnors.
1ho major Wostorn compan|os cou|d not oporato on any sca|o (w|th
ono major oxcopt|on) |n tho coro, that |s, tho trad|t|ona| aroas ot curront
|argo product|on, tho brown t|o|ds' ot Wost 3|bor|a. lathor |t was |n
thoso tho aroas whoro thoro was ||tt|o dovo|opmont and major
tochn|ca| cha||ongos to bo ovorcomo and whoro tho Wostorn
compan|os thus had compot|t|vo advantago |n torms ot tochno|ogy and
oxocut|on ot comp|ox projocts.
1EE PER|PEER|E5
ln partnorsh|p w|th luko||, Conoco took on a projoct |n tho northorn
Arct|c rog|on. Conoco brought tho know-how to luss|a |t had |oarnod
trom A|aska, whoro now tochno|og|os had boon dovo|opod |n ordor to
m|n|m|zo tho tootpr|nt |n Arct|c rog|ons. Evon so, tho lo|ar l|ghts
projoct was constant|y bodov||od by an ond|oss protus|on ot now tax
chargos and now rogu|at|ons. 1ho |oca| rog|ona| boss, a tormor
snowmob||o mochan|c, was known to domand a paymont ovory t|mo a
now porm|t camo up. ||na||y, Conoco had to to|| Voscow that |t was
go|ng to pu|| out a|togothor |t tho oxtra-contractua|' domands d|d not
coaso.
14
3oth Exxon and 3ho|| wont to 3akha||n, tho s|x-hundrod-m||o-|ong
|s|and ott tho coast ot luss|a's tar oast, north ot 1apan, whoro thoro
was somo m|nor onshoro product|on. Wh||o tho tochn|ca| cha||ongos
woro |mmonso thoro, so was tho apparont potont|a|, ospoc|a||y
ottshoro. 1hough tho rog|on was a|most tota||y dovo|d ot tho
|ntrastructuro that tho p|annod mogaprojocts wou|d nood, |t had othor
|mportant advantagos. 3akha||n was as tar trom Voscow as ono cou|d
got and st||| bo |n luss|a. lt was a|so on tho opon soa, so that output
cou|d bo oxportod d|roct|y to wor|d markots.
Exxon bocamo tho oporator tor a projoct that a|so |nc|udod tho
luss|an stato company losnott, 1apanoso compan|os, and lnd|a's
nat|ona| o|| company. W|th|n ExxonVob||, somo cons|dorod th|s tho
most comp|ox projoct that tho company had ovor undortakon up to that
t|mo-work|ng |n a romoto, undovo|opod subarct|c aroa, whoro
|coborgs aro a chron|c prob|om, w|nds aro hurr|cano strongth tor
sovora| months a yoar, and tomporaturos can drop to -40 or ovon
|owor. 1ho cond|t|ons woro so d|tt|cu|t, |n tact, that work cou|d on|y bo
dono tor t|vo months a yoar. ln tho m|dd|o ot dovo|opmont, as now
comp|ox|t|os omorgod, tho ong|noors conc|udod that thoy noodod to
go back and rodos|gn tho who|o projoct. 1ho projoct, |n|t|a||y scopod
out |n tho oar|y 1000s, took a docado botoro |t producod t|rst o||' and
a docado and a ha|t botoro |t roachod tu|| product|on-a|| th|s at a cost
approach|ng $7 b||||on.
1b
3ho||'s 3akha||n-2 a|so bogan |n tho oar|y 1000s w|th tho samo
onv|ronmonta| cha||ongos. lt wou|d provo to bo tho |argost comb|nod o||
and gas projoct |n tho wor|d, not just a mogaprojoct, but oqu|va|ont to
t|vo wor|d-c|ass mogaprojocts |n sca|o and comp|ox|ty. 3ho|| tacod tho
add|t|ona| cha||ongos ot bu||d|ng two t|vo-hundrod-m||o p|po||nos-ono
o|| and ono gas-that had to cross moro than a thousand r|vors and
stroams, through torra|n trozon |n tho w|ntor and soggy |n tho summor.
1o got tho o|| and gas to oxport tac|||t|os ondod up cost|ng moro than
$20 b||||on.
|N 1EE EEAR1LAND
On|y ono Wostorn company managod to ga|n a s|gn|t|cant pos|t|on |n
tho hoart|and, Wost 3|bor|a. 3|danco was a socond-t|or luss|an major
that had boon bought by a group ot o||garchs |n ono ot tho |oans-tor-
sharos doa|s |n 100b. lt had ono jowo|: part|a| ownorsh|p (a|ong w|th
1lK) ot 3amot|or, tho |argost o|| t|o|d |n Wost 3|bor|a. 3l bought ton
porcont ot 3|danco tor $b71 m||||on |n 1007. 3omo mombors ot 3l's
board thought |t was a harobra|nod schomo, |t was hard to mako tho
caso that luss|a was a country w|th ru|o ot |aw. 3ut 3l ch|ot oxocut|vo
1ohn 3rowno arguod |t was tho on|y obv|ous way to got |nto Wost
3|bor|a, and luss|a was contra| to 3l's ovora|| g|oba| stratogy.
lonotho|oss, ho addod, wo shou|d cons|dor |t an outr|ght gamb|o. Wo
cou|d |oso |t a||.'
10
lt soon appoarod that 3rowno's cavoat was ovon moro warrantod
than ho m|ght havo ant|c|patod. |or strango th|ngs bogan to happon.
Undor tho gu|so ot a now|y approvod luss|an bankruptcy |aw,
subs|d|ar|os ot 3|danco kopt d|sappoar|ng |n a sor|os ot bankruptcy
procood|ngs |n var|ous out-ot-tho-way 3|bor|an courts. lt bocamo
apparont that thoso woro manutacturod bankruptc|os. 1ho crod|tors'
woro prov|ng vory adopt at tak|ng advantago ot prov|s|ons |n luss|a's
now bankruptcy |aw to tako ownorsh|p ot tho subs|d|ar|os. lt |ookod as
though 3|danco m|ght ond up a sho||, and 3l w|th ||tt|o or noth|ng to
show tor |ts $b71 m||||on.
ln duo courso |t omorgod that what was go|ng on was a strugg|o
botwoon two groups ot o||garchs who had jo|nt|y part|c|patod |n tho
or|g|na| |oans-tor-sharos acqu|s|t|on ot 3|danco and thon had a b|ttor
ta|||ng-out. 1ho AAl group bo||ovod that |ts partnor, lntorros, had
tr|ckod |t |nto so|||ng out at a groat|y d|scountod pr|co pr|or tho 3l doa|.
And now AAl wantod back |n. 3l was roa||y a bystandor, but |ts
prospocts tor protoct|ng |ts pos|t|on |n luss|a d|d not |ook at a|| good.
Outs|do luss|a was a d|ttoront mattor. AAl a|so ownod 1lK. At th|s
po|nt, 1lK had vory tow t|nanc|a| rosourcos ot |ts own but noodod
cons|dorab|o |nvostmont to ma|nta|n and dovo|op |ts sharo ot
3amot|or. 3o |t was turn|ng to Wostorn crod|t markots to t|nanco |ts
act|v|t|os. 3ut thon Wostorn crod|t ||nos, on wh|ch 1lK dopondod,
woro ono attor anothor shutt|ng down. 1lK cou|d corta|n|y prova||
w|th|n luss|a, but 3l ho|d h|gh cards and |nt|uonco outs|do luss|a.
1hat was sutt|c|ont to torco tho part|os to tho nogot|at|ng tab|o: tho
d|ss|dont o||garchs and tho|r company 1lK ga|nod a major sharo ot
3|danco. Yot 3l had prosorvod |ts ro|o as tho on|y Wostorn company
to havo tound away |nto a s|gn|t|cant pos|t|on |n tho hoart|and ot
luss|an o||-|n Wost 3|bor|a.
3y th|s t|mo, po||t|cs |n luss|a had changod, and so had tho pos|t|on
ot tho luss|an govornmont.
A CREA1 ECONON|C POWER"
W|th tho ond ot tho Co|d War, v|ad|m|r lut|n, who had boon a KG3
ott|cor stat|onod |n 0rosdon |n East Gormany, roturnod to h|s homo
town ot 3t. lotorsburg and jo|nod tho c|ty govornmont. Whon tho
rotorm|st mayor tor whom ho workod as a doputy mayor was dotoatod,
lut|n was w|thout a job. 1hon h|s country houso burnod down. |o
onro||od to do a doctorato |n tho 3t. lotorsburg V|n|ng lnst|tuto. ||s
stud|os thoro wou|d ho|p shapo h|s v|ow ot luss|a's tuturo.
ln 1000, lut|n pub||shod an art|c|o |n tho |nst|tuto's journa| on
V|nora| latura| losourcos' that arguod that luss|a's o|| and gas
rosourcos woro koy to oconom|c rocovory and to tho ontry ot luss|a
|nto tho wor|d oconomy' and tor mak|ng luss|a a groat oconom|c
powor.' G|von tho|r contra| stratog|c |mportanco, thoso rosourcos had
to bo, u|t|mato|y, undor tho aog|s, |t not d|roct contro|, ot tho stato.
3y tho t|mo tho art|c|o was |n pr|nt, lut|n h|mso|t was a|roady |n
Voscow, rap|d|y ascond|ng |n a sor|os ot jobs-|nc|ud|ng hoad ot tho
|33, succossor to tho KG3, and thon pr|mo m|n|stor. On tho |ast day
ot 0ocombor 1000 3or|s Yo|ts|n abrupt|y ros|gnod and v|ad|m|r lut|n,
w|thout a job just throo yoars oar||or, bocamo luss|a's act|ng
pros|dont.
ln 1u|y 2000, two months attor h|s ott|c|a| o|oct|on, lut|n mot |n tho
Krom||n w|th somo ot tho r|ch and powortu| bus|nossmon known by
thon as o||garchs. |o vory c|oar|y |a|d down tho now ground ru|os. 1hoy
cou|d rota|n tho|r assots, but thoy woro not to cross tho ||no to try to
bocomo k|ngmakors or |n othor ways contro| po||t|ca| outcomos. 1wo
ot tho o||garchs who d|d not ||ston c|oso|y woro soon |n ox||o.
1NK-BP 50/50"
Onco |ts doa| w|th 1lK had boon conc|udod, 3l bogan |ook|ng at tho
poss|b|||ty ot a morgor ot |ntorosts. G|von tho|r rocont strugg|o ovor
3|danco, thoro was war|noss on both s|dos. Attor |ntonso nogot|at|ons,
tho two groups agrood to comb|no tho|r o|| assots |n luss|a w|th b0/b0
ownorsh|p ot tho now t|rm, 1lK-3l. 3l wantod b1 porcont, but th|s
was novor go|ng to bo poss|b|o. As 1ohn 3rowno |ator sa|d, Wo cou|d
not havo |t.' On tho othor hand, |t cou|d not go ahoad |n a m|nor|ty
pos|t|on ot 40 porcont. 1ho rosu|t was oqua| ownorsh|p. lros|dont
lut|n gavo h|s approva|, though w|th a word ot adv|co. lt's up to you,'
ho sa|d to 3rowno. 3ut ho addod, An oqua| sp||t novor works.' 1ho
doa| wont torward. At a coromony |n lancastor |ouso |n london |n
2008, 3rowno and |r|dman s|gnod documonts tor tho now company,
w|th v|ad|m|r lut|n and 3r|t|sh lr|mo V|n|stor 1ony 3|a|r stand|ng
boh|nd thom, ovorsoo|ng tho s|gnaturos. 1ho now 1lK-3l
roprosontod tho |argost d|roct toro|gn |nvostmont |n luss|a. At tho
samo t|mo |t was a luss|an company. 1ho now comb|nat|on
modorn|zod tho o|| t|o|ds and |ncroasod product|on rap|d|y. lt a|so
|ncroasod 3l's tota| rosorvos by a th|rd, and |t pushod 3l ahoad ot
3ho|| to bo tho socond |argost company, attor ExxonVob||. 3ut a tow
yoars |ator, boar|ng out lut|n's adago, a t|orco batt|o oruptod ovor
contro| and as to oxact|y what b0/b0 moant. Evontua||y, attor much
tons|on, tho two s|dos camo to a now comprom|so that mod|t|od tho
govornanco, sh|tt|ng tho ba|anco toward tho luss|an partnors wh||o
prosorv|ng 3l's pos|t|on. V|kha|| |r|dman bocamo tho now CEO.
17
YuKO5
3y tho t|mo ot lut|n's o|oct|on |n 2000, V|kha|| Khodorkovsky ot Yukos
was a|roady on h|s way to bocom|ng tho r|chost man |n luss|a. |o had
tho roputat|on as an aggross|vo and ruth|oss bus|nossman, but w|th tho
bog|nn|ng ot tho now contury ho soomod to bo romak|ng h|mso|t. |o
wou|d compross throo gonorat|ons-ruth|oss robbor baron,
modorn|z|ng bus|nossman, and ph||anthrop|st-|nto ono. |o brought |n
Wostorn tochno|ogy to transtorm Yukos |nto a tar moro ott|c|ont
company. 3y |mport|ng Wostorn-sty|o corporato govornanco and
||st|ng h|s company on Wostorn oxchangos, ho cou|d groat|y |ncroaso
tho va|uat|on ot Yukos and thus mu|t|p|y h|s woa|th sovora| t|mos ovor.
1hrough h|s Opon luss|a |oundat|on, ho bocamo tho b|ggost
ph||anthrop|st |n luss|a, support|ng c|v|c and human r|ghts
organ|zat|ons.
||s spond|ng on po||t|cs was a|so wo|| known, |ndood a|most
|ogondary |n |ts oxtont, most notab|y |n tho monoy spont to onsuro that
doput|os |n tho 0uma votod oxact|y tho way ho wantod on tax
|og|s|at|on |n Vay 2008. |o soomod to bo pursu|ng h|s own toro|gn
po||cy. |o nogot|atod d|roct|y w|th Ch|na on bu||d|ng a p|po||no,
bypass|ng tho Krom||n on somoth|ng ot groat stratog|c |mportanco,
and on wh|ch lut|n had vory d|ttoront v|ows. |o was mov|ng tast to
acqu|ro 3|bnott, ono ot tho othor now luss|an o|| majors, wh|ch wou|d
mako Yukos poss|b|y tho |argost o|| company |n tho wor|d. And ho was
|n ta|ks w|th both Chovron and ExxonVob|| about so|||ng contro|||ng
|ntorost |n Yukos. Whon lut|n mot w|th tho CEO ot ono ot tho wostorn
compan|os, ho had many, many quost|ons about how a doa| wou|d
work and what |t wou|d moan. |or |t wou|d havo movod contro| ovor a
substant|a| part ot tho country's most |mportant stratog|c assot, o||, out
ot luss|a, wh|ch ran oxact|y countor to tho pr|nc|p|o that ho had |a|d
down |n h|s 1000 art|c|o.
Wh||o mov|ng on a|| thoso tronts at tho samo t|mo, Khodorkovsky |ot
|t bo w|do|y known that ho was proparod to spond monoy to movo
luss|a toward bo|ng a par||amontary rathor than a pros|dont|a|
domocracy, w|th tho |mp||cat|on that ho |ntondod to bocomo pr|mo
m|n|stor. 3o|||ng part ot Yukos wou|d g|vo h|m many b||||ons ot do||ars
that cou|d go |nto that campa|gn.
And thon thoro was what turnod |nto a hoatod oxchango w|th lut|n at
a moot|ng w|th tho |ndustr|a||sts that was capturod on v|doo.
Corrupt|on |n tho country |s sproad|ng ,' sa|d Khodorkovsky. 1o wh|ch
an angry lut|n rom|ndod h|m that ho had won contro| ovor hugo o||
rosorvos tor vory ||tt|o monoy. And tho quost|on |s, how d|d you obta|n
thom?' sa|d lut|n. |o thon addod, l'm roturn|ng tho hockoy puck to
you.'
18
3ovora| months |ator, |n 1u|y 2008, ono ot Khodorkovsky's bus|noss
partnors was arrostod, and thon othors. 3omo ot h|s adv|sors, toar|ng
that ho was bocom|ng |ncroas|ng|y unroa||st|c, warnod h|m to procood
w|th caro, but ho soomod to d|srogard thom. On a v|s|t to Wash|ngton
|n 3optombor 2008, ho sa|d that ho thought thoro was a 40 porcont
chanco ho wou|d bo arrostod. 3ut ho gavo tho |mpross|on that ho d|d
not bo||ovo that tho roa| odds woro anywhoro noar that h|gh.
ln tho autumn ot 2008, Khodorkovsky ombarkod on what |ookod ||ko
a campa|gn sw|ng, w|th spoochos and |ntorv|ows and pub||c moot|ngs
|n c|t|os across 3|bor|a. ln tho oar|y morn|ng ot Octobor 28, h|s p|ano
was on tho ground |n lovos|b|rsk, whoro |t had stoppod tor rotuo||ng.
At b a.m. |33 agonts burst |n and arrostod h|m. ln tho spr|ng ot 200b,
attor a |ongthy tr|a|, Khodorkovsky was conv|ctod ot tax traud and sont
to a d|stant and |so|atod 3|bor|an pr|son camp. ln 2011, a socond tr|a|
tor ombozz|omont oxtondod h|s sontonco. 3y thon, tho caso had
bocomo an |ntornat|ona| causo, oxomp||t|od whon, attor tho tr|a|,
Amnosty lntornat|ona| so|octod h|m as a pr|sonor ot consc|onco.'
As tor Yukos, |t was no moro. lt was d|smant|od and bocamo a
noncompany and was absorbod |nto losnott, wh|ch |s now luss|a's
|argost o|| company and, |argo|y ownod by tho govornmont, tho nat|ona|
champ|on.
51RA1EC|C RE5OuRCE5"
3tratog|c rosourcos' camo to tho toro |n othor ways as wo||.
ExxonVob||'s 3akha||n-1 projoct had a luss|an company as partnor,
losnott. 3ut 3ho||'s 3akha||n-2 d|d not. Gazprom may havo boon tho
|argost gas company |n tho wor|d, but |t had no roprosontat|on |n
||quot|od natura| gas (llG), and no capac|ty to markot to As|a. Ovor
sovora| months |n 2000, tho 3akha||n-2 projoct was chargod w|th a
||tany ot var|ous onv|ronmonta| v|o|at|ons that carr|od a var|oty ot
pona|t|os, somo ot thom sovoro. At tho ond ot 0ocombor 2000, 3ho||
and |ts 1apanoso partnors accoptod Gazprom as major|ty
sharoho|dor. 1ho projoct thoroattor cont|nuod on courso and |n 2000
bogan oxport|ng llG to As|a and ovon as tar away as 3pa|n.
O|L AND Ru55|A'5 Fu1uRE
3y tho socond docado ot tho twonty-t|rst contury, luss|a was back as
an o|| producor. lts output was as h|gh as |t had boon |n tho tw|||ght ot
tho 3ov|ot Un|on, two docados oar||or, but on vory d|ttoront torms. 1ho
o|| |ndustry was |ntogratod tochno|og|ca||y w|th tho rost ot tho wor|d,
and |t was no |ongor tho prov|nco ot a s|ng|o a||-oncompass|ng
m|n|stry, but rathor was oporatod by a var|oty ot compan|os w|th many
d|ttoroncos |n |oadorsh|p, cu|turo, and approachos. Whon |t was a||
addod up, luss|a was onco aga|n tho |argost producor ot o|| and tho
socond |argost oxportor |n tho wor|d.
Onco, as luss|an product|on and o|| rovonuos woro ramp|ng up,
v|ad|m|r lut|n was askod |t luss|a was an onorgy suporpowor. |o
rop||od that ho d|d not ||ko tho phraso. 3uporpowor,' ho sa|d, was tho
word wo usod dur|ng tho Co|d War,' and tho Co|d War was ovor. l
havo novor rotorrod to luss|a as an onorgy suporpowor. 3ut wo do
havo groator poss|b|||t|os than a|most any othor country |n tho wor|d. lt
put togothor luss|a's onorgy potont|a| |n a|| aroas, o||, gas, and
nuc|oar, our country |s unquost|onab|y tho |oador.'
Corta|n|y luss|a's onorgy rosourcos-and |ts markots-put |t |n a
pos|t|on ot proom|nonco, and w|th a now uncorta|nty about tho V|dd|o
East, |t took on a ronowod sa||onco as an onorgy supp||or and |n torms
ot onorgy socur|ty.
O|| and gas woro a|so what poworod |ts own oconomy. As lut|n had
wr|tton |n h|s 1000 art|c|o, thoy had |ndood boon tho ong|no ot luss|a's
rocovory and growth-and tho numbor ono sourco ot govornmont
rovonuos. ||gh pr|cos moant ovon moro monoy t|ow|ng |nto tho
nat|on's troasury. 1ho country's domograph|cs mado thoso rovonuos
ovon moro cr|t|ca|-|n ordor to moot tho pons|on noods ot an ag|ng
popu|at|on.
3ut tho hoavy ro||anco on o|| and gas st|rrod a nat|ona| dobato about
tho country's hoavy dopondonco on that ono soctor and about tho nood
tor modorn|zat|on,' wh|ch moant, |n part, d|vors|t|cat|on away trom
hydrocarbons. 3ut modorn|zat|on was hard to ach|ovo w|thout broad-
rang|ng rotorms ot tho oconomy and |oga| and govornmonta|
|nst|tut|ons, a|ong w|th a nurtur|ng ot a cu|turo ot ontropronoursh|p.
3omo arguod that h|gh o|| pr|cos, by croat|ng a cush|on ot woa|th,
mado |t oas|or to postpono rotorm. Whatovor tho progross on
modorn|zat|on, o|| and gas wou|d cont|nuo to bo tho country's groatost
sourco ot woa|th tor somo yoars to como, as wo|| as an arona |n |ts
own r|ght tor advancod tochno|ogy.
3ut tho vory |mportanco ot o|| and gas h|gh||ghtod a d|ttoront k|nd ot
r|sk: wou|d luss|a bo ab|o to ma|nta|n |ts |ovo| ot output or was anothor
groat doc||no |n tho ott|ng? 1ho |attor wou|d throaton tho oconomy.
3omo arguod that luss|a wou|d not bo ab|o to susta|n product|on
w|thout b|g changos-a stop up |n now |nvostmont, a tax rog|mo that
oncouragod |nvostmont, augmontat|on ot tochno|ogy, and, ot cr|t|ca|
|mportanco, tho dovo|opmont ot tho noxt gonorat|on' ot o|| and gas
t|o|ds. Ono ot tho major targots tor that noxt gonorat|on was tho
ottshoro, part|cu|ar|y |n tho Arct|c rog|ons, ott tho northorn coast ot
luss|a.
0ovo|op|ng thoso tront|or rog|ons wou|d bo cha||ong|ng and cost|y
and ovon moro comp|ox than tho 3akha||n projocts. Onco aga|n, horo
was tho potont|a| tor a s|gn|t|cant ro|o tor |ntornat|ona| compan|os.
1hoso wou|d bo tho projocts tor wh|ch Wostorn partnors wou|d bo
sought, ospoc|a||y tho |argo majors w|th tho|r capab|||t|os to oxocuto
projocts on that sca|o. Yot undortak|ng thom wou|d roqu|ro
cons|dorab|o cont|donco on both s|dos. |or thoso wou|d bo vory |ong-
torm ro|at|onsh|ps, tho dovo|opmont t|mo wou|d bo moasurod not |n
yoars, but docados, and tho|r tu|| |mpact wou|d ||ko|y bo to|t noaror tho
m|dd|o ot tho twonty-t|rst contury, rathor than tho bog|nn|ng. 3ut that
was st||| prospoct.
|or tho Wostorn compan|os-savo tor thoso |ong-rango projocts |n
p|acos ||ko tho Arct|c-thoro was not much moro |n tho way ot |argo
opportun|t|os boyond what had a|roady boon |aunchod |n tho 1000s.
As th|ngs had turnod out, tho oar|y oxpoctat|ons about luss|a had
provod to bo much |argor than tho roa||ty.


Whon |t camo to o|| and gas, howovor, thoro had boon moro
opportun|ty to bo tound |n tho tormor 3ov|ot Un|on than just |n tho
luss|an |odorat|on. Vuch moro. And |t was to tho rost ot tho rog|on
that attont|on had a|so turnod |n tho |ato 1080s and oar|y 1000s as tho
3ov|ot systom was d|s|ntograt|ng.
2
1EE CA5P|AN DERBY
|n tho |ato 1080s and tho bog|nn|ng ot tho 1000s, as tho 3ov|ot Un|on
startod to como unh|ngod, tho t|rst Wostorn o|| mon had bogun to dr|tt
down toward tho south, to tho Casp|an and |nto Contra| As|a, |nto what
wou|d attor 1001 bocomo tho now|y |ndopondont countr|os ot
Azorba|jan, Kazakhstan, and 1urkmon|stan.
||stor|ca||y, tho most |mportant c|ty on tho Casp|an coast||no was
3aku. A contury oar||or, 3aku had boon a hub ot groat commorc|a| and
ontropronour|a| act|v|ty, w|th grand pa|acos, bu||t by n|notoonth-contury
o|| tycoons, and ono ot tho wor|d's groat opora housos. 3ut what thoso
arr|v|ng o|| mon now tound |nstoad, am|d tho sp||ntor|ng ot tho 3ov|ot
Un|on, woro tho romnants ot a onco-v|brant |ndustry and what soomod
a|most ||ko a musoum ot tho h|story ot o||.
1ho |ntoract|on botwoon thoso o|| mon and tho now|y omorg|ng
nat|ons wou|d ho|p wrost thoso countr|os out ot tho|r |so|atod h|stor|os
and connoct thom to tho wor|d oconomy. 1ho rosu|ts wou|d rodraw tho
map ot wor|d o|| and br|ng |nto tho g|oba| markot an o|| rog|on that, by
tho socond docado ot tho twonty-t|rst contury, wou|d r|va| such
ostab||shod prov|ncos as tho lorth 3oa, and wou|d |nc|udo tho wor|d's
th|rd-|argost produc|ng o|| t|o|d.
1ho dovo|opmont ot tho Casp|an o|| and natura| gas rosourcos was
|noxtr|cab|y ontang|od w|th goopo||t|cs and tho amb|t|ons ot nat|ons. lt
wou|d a|so ho|p dot|no what tho now wor|d-tho wor|d attor tho Co|d
War-wou|d |ook ||ko and how |t wou|d oporato.
At tho contor |s tho Casp|an 3oa |tso|t, tho wor|d's |argost |n|and
body ot wator, w|th 8,800 m||os ot coast||no. 1hough not connoctod to
any ocoan, |t |s sa|ty, and a|so subjoct to suddon, v|o|ont storms.
Azorba|jan |s on |ts wostorn shoro. 1o tho wost ot Azorba|jan aro
Goorg|a and Armon|a-tho throo togothor const|tut|ng tho 3outh
Caucasus. On tho northwost s|do ot tho Casp|an, abovo Azorba|jan,
aro luss|a and |ts turbu|ont lorth Caucasus rog|on, |nc|ud|ng
Chochnya. On tho northoast s|do ot tho Casp|an |s Kazakhstan, and,
on tho southoast, 1urkmon|stan. On tho southorn shoro |s lran, w|th
amb|t|ons to bo a dom|nant rog|ona| powor and w|th |ntorosts go|ng
back to tho dynast|os ot tho lors|an shahs.
1EE NEW CREA1 CANE
1ho t|orco vortox ot compot|ng |ntorosts |n th|s rog|on camo to bo
known as tho now Groat Gamo.' 1ho torm had or|g|na||y boon
attr|butod to Arthur Cono||y, a cava|ry ott|cor |n tho 3r|t|sh army |n lnd|a
turnod oxp|oror and spy, whoso untortunato ond |n 1842-ho was
oxocutod by tho |oca| ru|or |n tho anc|ont Contra| As|an town ot
3ukhara-capturod both tho sor|ousnoss and tut|||ty ot tho gamo. 3ut |t
was ludyard K|p||ng who took up tho phraso and mado |t tamous |n
Klm, h|s novo| about a 3r|t|sh spy and advonturor, at tho tront ||no |n tho
|ato n|notoonth contury |n tho contost w|th tho luss|an Emp|ro.
1
3ut th|s purportod now round |n tho Groat Gamo, at tho ond ot tho
twont|oth contury, |nc|udod not just luss|a and 3r|ta|n, tho two ma|n
contondors trom tho t|rst round |n tho n|notoonth contury, but many
moro-tho Un|tod 3tatos, 1urkoy, lran, and, |ator, Ch|na. And ot courso
tho now|y |ndopondont countr|os thomso|vos woro p|ayors, |ntont on
ba|anc|ng among thoso var|ous contond|ng torcos to ostab||sh and
thon prosorvo tho|r |ndopondonco.
1hon thoro woro tho o|| and gas compan|os, oagor to add major now
rosorvos and dotorm|nod not to bo |ott out. And hard|y to bo
ovor|ookod was tho jost||ng ot tho whoo|ors-doa|ors, tho oporators, tho
t|ndors, and tho tac|||tators, a|| ot thom out tor tho|r cut. 1h|s |s a grand
trad|t|on ostab||shod |n tho t|rst docados ot tho twont|oth contury by tho
groatost o|| whoo|or-doa|or ot thom a||, Ca|ousto Gu|bonk|an, |ator
|mmorta||zod as Vr. ||vo lorcont.'
CA3llAl 3EA Al0 1|E CAUCA3U3: 1|E lEWlY
ll0ElEl0El1 31A1E3'
7bo brookop o tbo Uoloo rocooooctoo o rosoorco-rlcb rogloo to
wor|o ooorgy morkots

lathor than tho Groat Gamo, othors usod tho |oss dramat|c
shorthand ot p|po||no po||t|cs' to convoy tho tact that tho doc|s|vo
c|ash was not that ot woapons but ot tho routos by wh|ch o|| and natura|
gas trom tho |and|ockod Casp|an wou|d got to tho wor|d's markots. 3ut
to somo, watch|ng tho co|||s|ons and tho contus|on among tho p|ayors,
hoar|ng tho cacophony ot chargos and countorchargos and tho b|ustor
and bang|ng ot doa| mak|ng, |t was bottor doscr|bod as tho Casp|an
0orby. Whatovor tho namo, tho pr|zo was tho o|| and natura| gas-who
wou|d produco |t, and who cou|d succood |n gott|ng |t to markot.
1EE PLAYER5
1ho 3ov|ot Un|on was gono. 3ut luss|an |ntorosts woro not. 1ho
oconom|os ot luss|a and tho now|y |ndopondont nat|ons woro h|gh|y
|ntogratod |n ovoryth|ng trom |ntrastructuro to tho movomonts ot
poop|o. luss|an m|||tary basos, as |ogatoos ot tho 3ov|ot m|||tary,
woro scattorod throughout tho rog|on. What wou|d bo tho naturo ot
luss|a's ro|at|ons w|th tho now|y |ndopondont statos, many ot wh|ch
had boon khanatos |n tho contur|os botoro tho|r conquost by tho
luss|an Emp|ro but had novor roa||y ox|stod as modorn nat|on-statos?
|or tho luss|ans, |t was about powor and pos|t|on and rostor|ng
tho|r country as a groat powor. 1hoy had hard|y oxpoctod tho 3ov|ot
Un|on to ta|| apart. Vany luss|ans had como to rogrot th|s |oss and
rogardod tho d|sso|ut|on ot tho 3ov|ot Un|on as a nat|on (|t not as a
commun|st stato) as a hum|||at|on, as somoth|ng that had boon to|stod
upon thom by ma|ovo|ont torcos trom outs|do, spoc|t|ca||y |n tho v|ow ot
somo, tho Un|tod 3tatos. lmmod|ato|y attor tho broakup, thoy bogan to
doscr|bo thoso now|y ostab||shod countr|os as bo|ong|ng to a now|y
conco|vod rog|on, tho loar Abroad,' ovor wh|ch thoy wantod to
roassort contro|. 1hat vory namo a|so convoyod a spoc|a| status w|th
spoc|a| prorogat|vos tor luss|a-and a|| tho moro so bocauso ot tho
|argo numbors ot othn|c luss|ans who ||vod |n what woro now
|ndopondont countr|os. Wh||o thoro m|ght now bo torma| boundar|os,
luss|a and thoso now nat|ons woro bound togothor by h|story,
oducat|on, oconom|c and m|||tary ||nks, tho luss|an |anguago, and
|doo|ogy and common cu|turo-and a mu|t|tudo ot marr|agos. ln
Voscow's v|ow, thoy bo|ongod vory much |n luss|a's sphoro ot
|nt|uonco and undor |ts tuto|ago. luss|ans saw Wostorn |nt|uonco |n tho
loar Abroad as an attompt to turthor undorm|no luss|a and rotard tho
rostorat|on ot |ts Groat lowor status.
2
And thoro was tho spoc|t|c mattor ot o||. |rom tho 3o|shov|k
lovo|ut|on onward, tho Casp|an's potro|oum rosourcos had boon
dovo|opod by tho 3ov|ot o|| |ndustry w|th 3ov|ot tochno|ogy and 3ov|ot
|nvostmont. 1ho 3ov|ots had bogun to br|ng on a vory |argo, |t a|so vory
d|tt|cu|t, now t|o|d |n tho lopub||c ot Kazakhstan, and tho 3ov|ot o||
gonora|s had boon ta|k|ng, botoro tho broakup, about ronowod tocus
on tho Casp|an as a product|on aroa.
3omo luss|ans a|so bo||ovod, or at |oast ha|t bo||ovod, that tho
Un|tod 3tatos had do||borato|y orchostratod tho co||apso ot tho 3ov|ot
Un|on tor tho spoc|t|c purposo ot gott|ng |ts hands on Casp|an o||.
Onco, |n tho m|d-1000s, tho luss|an onorgy m|n|stor was |nnocont|y
askod what ho thought ot tho dovo|opmont ot Casp|an o||. |o poundod
h|s t|st down on h|s contoronco tab|o.
Eto oosb oot,' ho rop||od. lt's our o||.'
|or tho Un|tod 3tatos and 3r|ta|n, tho conso||dat|on ot tho now|y
|ndopondont nat|ons was part ot tho unt|n|shod bus|noss ot tho post-
Co|d War and what was roqu|rod tor a now, moro poacotu| wor|d
ordor. 1h|s was thoso nat|ons' opportun|ty to roa||zo tho W||son|an
droam ot so|t-dotorm|nat|on. An oxc|us|vo luss|an sphoro ot |nt|uonco
wou|d, |n tho Amor|can and 3r|t|sh v|ow, bo dangorous and
dostab|||z|ng. Voroovor, thoro was tho r|sk ot lran's t||||ng a vacuum,
wh|ch, though not otton statod, was vory much on tho|r m|nds.
1ho onorgy d|mons|on a|so |oomod |argo tor Wash|ngton |n tho oar|y
1000s. 3addam's grab tor Kuwa|t and tho Gu|t War, just conc|udod,
had onco aga|n domonstratod tho r|sks ot tho wor|d's ovordopondonco
on tho lors|an Gu|t. lt tho Casp|an cou|d bo ro|ntogratod |nto tho wor|d
onorgy |ndustry, as |t had boon pr|or to Wor|d War l, |t major now
potro|oum rosourcos trom tho rog|on cou|d bo brought to tho wor|d
markot, that wou|d bo a vory |argo stop |n d|vors|t|cat|on ot potro|oum
supp||os, mak|ng a most s|gn|t|cant contr|but|on to g|oba| onorgy
socur|ty. 1o bo provontod was tho t||p s|do-thoso rosourcos s||pp|ng
back undor oxc|us|vo luss|an sway or, ovon worso, undor lran|an
|nt|uonco.
Yot at tho samo t|mo, bu||d|ng a now ro|at|onsh|p w|th luss|a was at
tho vory top ot tho pr|or|t|os ot tho C||nton adm|n|strat|on, and so thoro
was ||tt|o dos|ro to havo that ro|at|onsh|p damagod by compot|t|on tor
Casp|an o|| and a modorn Groat Gamo. ln a spooch ca||od A |arowo||
to ||ashman' (||ashman bo|ng a t|ct|ona| swashbuck||ng 3r|t|sh
m|||tary man |n tho n|notoonth-contury Groat Gamo), U.3. 0oputy
3ocrotary ot 3tato 3trobo 1a|bott skotchod out tho goa| ot stab|o
oconom|c and po||t|ca| dovo|opmont |n a cr|t|ca| crossroads ot tho
wor|d, and warnod aga|nst tho a|tornat|vo-that tho rog|on cou|d
bocomo a brood|ng ground ot torror|sm, a hotbod ot ro||g|ous and
po||t|ca| oxtrom|sm, and a batt|oground tor outr|ght war.' |o addod, lt
has boon tash|onab|o to proc|a|m . . . a rop|ay ot tho 'Groat Gamo' |n
tho Caucasus and Contra| As|a . . . tuo|od and |ubr|catod by o||.' 3ut,
ho sa|d, Our goa| |s to act|vo|y d|scourago that atav|st|c outcomo.'
1ho Groat Gamo, ho addod t|rm|y, bo|ongod on tho sho|vos ot
h|stor|ca| t|ct|on.' Yot |t wou|d bo vory cha||ong|ng to modu|ato tho c|ash
ot |ntorosts and amb|t|ons |n th|s stratog|c torra|n.
8
|or 1urkoy, |ockod out ot tho rog|on tor contur|os, tho broakup ot tho
3ov|ot Un|on was a way to oxpand |ts |nt|uonco and |mportanco and
commorco across tho 3|ack 3oa |nto tho Caucasus and onto tho
Casp|an 3oa and boyond-and a|so to connoct w|th tho 1urk|c
poop|os ot Contra| As|a. And, tor tho ls|am|c lopub||c ot lran, horo was
tho opportun|ty to oxpand |ts po||t|ca| and ro||g|ous |nt|uonco north |nto
tho othor countr|os on tho Casp|an 3oa and |nto Contra| As|a and to
sook to proso|yt|zo among ls|am|c poop|os whoso accoss to ls|am|c
ro||g|on had boon t|ght|y constra|nod dur|ng 3ov|ot t|mos.
Azorba|jan was ot part|cu|ar |mportanco to lran. Ovor 7.b m||||on
othn|c Azor|s ||vod thoro, now w|th tho opportun|ty to |ntoract w|th tho
outs|do wor|d, wh||o an ost|matod 10 m||||on lran|ans, a quartor ot lran's
tota| popu|at|on, woro a|so othn|ca||y Azor|. 1hough gonora||y t|ght|y
po||cod by lran's ru||ng thoocracy, many lran|an Azor|s had d|roct tam||y
ro|at|ons |n Azorba|jan. 3o tor tho rog|mo |n 1ohran, an |ndopondont
Azorba|jan, as an oxamp|o ot a moro to|orant, socu|ar and potont|a||y
prosporous soc|oty and ono connoctod to tho Wost, was somoth|ng to
bo toarod as a throat to |ts own |ntorna| contro|.
Ch|na's |ntorosts dovo|opod moro s|ow|y, but thoy bocamo
progross|vo|y moro s|gn|t|cant as tho rap|d growth ot |ts oconomy
mado onorgy an |ncroas|ng|y |mportant |ssuo. 1ho Contra| As|an
statos woro noxt door,' and thoy cou|d bo connoctod by p|po||nos,
prov|d|ng cr|t|ca| d|vors|t|cat|on. Ch|na |ncroas|ng|y mado |ts |mpact
to|t, but |oss through po||t|cs and moro through |nvostmont.
1ho now|y |ndopondont statos woro hard|y moro pawns. 1ho|r
|oadors woro dotorm|nod to so||d|ty tho|r powor. A|though thoro woro
cons|dorab|o d|ttoroncos among thom, at homo that moant what woro
ossont|a||y ono-party statos w|th powor conso||datod |n tho hands ot
tho pros|dont. ln toro|gn po||cy, tho stratog|c objoct|vos ot thoso nat|ons
woro vory c|oar: ma|nta|n and conso||dato tho|r |ndopondonco and
ostab||sh thomso|vos as nat|ons. Whatovor tho d|ttoroncos |n tho|r
v|ows ot tho Krom||n, thoy d|d not want to t|nd thomso|vos roabsorbod
ono way or tho othor by tho now luss|an |odorat|on. On tho othor
hand, thoy woro |n no pos|t|on to d|songago trom luss|a or stoko |ts
|ro. 1hoy noodod luss|a. 1ho connoct|ons woro so many and so
strong, and tho goography so obv|ous. Voroovor, thoy had to bo
concornod about tho|r own othn|c popu|at|ons |n Voscow and tho othor
luss|an c|t|os, whoso rom|ttancos wou|d bocomo |mportant
compononts ot tho|r now nat|ona| Glls.
|or many ot tho countr|os, o|| and natura| gas woro potont|a||y
cr|t|ca|, an onormous sourco ot rovonuos and tho major dr|vor ot
rocovory and oconom|c growth. 1ho dovo|opmont ot o|| cou|d br|ng |n
compan|os trom many countr|os and gonorato not on|y cash but a|so
po||t|ca| |ntorost and support. As tho Azor| nat|ona| socur|ty adv|sor put
|t, O|| |s our stratogy, |t |s our dotonso, |t |s our |ndopondonco.'
4
lt o|| was tho phys|ca| rosourco thoy noodod tor tho|r surv|va| as
nat|on-statos, thoy a|so roqu|rod anothor k|nd ot rosourco-w||y
d|p|omacy. |or tho gamo, a|ways, roqu|rod oxtraord|nary sk||| |n
ba|anc|ng |n a d|tt|cu|t torra|n. Azorba|jan, a socu|ar ls|am|c stato, was
squoozod botwoon lran and luss|a. Kazakhstan, w|th a hugo torr|tory
but ro|at|vo|y sma|| popu|at|on, had to t|nd |ts ba|anco botwoon luss|a
and an |ncroas|ng|y so|t-cont|dont and rap|d|y grow|ng Ch|na.
Yot |n a|| tho d|scuss|ons about o|| and goopo||t|cs and groat gamos,
ono cou|d not |oso s|ght ot tho moro pract|ca| mattors: that o||
dovo|opmont took p|aco not on|y on tho stago ot wor|d po||t|cs but on
tho p|ay|ng t|o|ds ot tho potro|oum |ndustry-on tho computor scroons
ot ong|noors and sproadshoots ot t|nanc|a| ana|ysts, |n tho tabr|cat|on
yards whoro tho r|gs woro bu||t, and on tho dr||||ng s|tos and ottshoro
p|attorms-whoro tho koy cons|dorat|ons woro goo|ogy and
goography, ong|noor|ng, costs, |nvostmont, |og|st|cs, and tho mastory
ot tochno|og|ca| comp|ox|ty. And tho r|sk tor tho compan|os was |argo
-not just po||t|ca| r|sk, but tho |nhoront r|sk |n try|ng to dovo|op now
rosourcos that m|ght bo wor|d c|ass but a|so posod groat onormous
ong|noor|ng cha||ongos.
1ho compan|os had to oporato aga|nst oxtromos ot oxpoctat|ons.
|or at ono po|nt, tho Casp|an was co|obratod as a now E| 0orado, a
mag|ca| so|ut|on, anothor lors|an Gu|t, a rog|on ot hugo r|chos |n o||
and gas rosourcos oagor|y wa|t|ng tor tho dr||| b|t. At anothor t|mo, |t
was a hugo d|sappo|ntmont, a g|ant bust, ono groat dry ho|o bonoath
tho wot soabod. 3o |n torms ot oxpoctat|ons, too, ono had to stay
sobor and koop ono's ba|anco.
1EE O|L K|NCDON"
ln tho |ato n|notoonth contury and oar|y twont|oth contury, tho luss|an
Emp|ro, spoc|t|ca||y tho rog|on around 3aku on tho Casp|an 3oa, had
boon ono ot tho wor|d's major sourcos ot o||. lndood, at tho vory
bog|nn|ng ot tho twont|oth contury, |t had ovortakon wostorn
lonnsy|van|a to bo tho wor|d's numbor ono sourco. |am|||os w|th
namos ||ko lobo| and lothsch||d mado tortunos thoro. ludw|g lobo|
-brothor ot A|trod, tho |nvontor ot dynam|to and ondowor ot tho lobo|
lr|zos-was known as tho luss|an lockoto||or.' lt was ludw|g lobo|
who conco|vod and bu||t tho wor|d's t|rst o|| tankor, to transport
potro|oum on tho stormy Casp|an 3oa. 3ho|| O|| had boon toundod on
tho bas|s ot o|| trom 3aku, audac|ous|y brought to wor|d o|| markots by
an oxtraord|nary ontropronour and onot|mo sho|| morchant namod
Varcus 3amuo|. 1hoy sharod tho stago w|th prom|nont |oca| o||
tycoons ot groat |nt|uonco.
1ho ascondancy ot 3aku wou|d bo undorm|nod by po||t|ca|
|nstab|||ty, bog|nn|ng w|th tho abort|vo rovo|ut|on ot 100b, what v|ad|m|r
lon|n dubbod tho groat rohoarsa|.' ln tho yoars |mmod|ato|y attor, tho
rog|on cont|nuod to bo shakon by rovo|ut|onary act|v|ty. Among thoso
most act|vo was a onot|mo Orthodox som|nar|an trom no|ghbor|ng
Goorg|a, los|t 0zhugashv|||, bottor known to tho wor|d as 1osoph
3ta||n. As 3ta||n |ator sa|d, ho honod h|s sk|||s as a journoyman tor tho
rovo|ut|on' work|ng as an ag|tator and organ|zor |n tho o|| t|o|ds. What
ho d|d not add woro h|s add|t|ona| act|v|t|os as a somot|mo bank
robbor and oxtort|on|st. lt was thus w|th good roason that 3ta||n,
rocogn|z|ng tho woa|th that was to bo oxtortod, ano|ntod 3aku as tho
tho O|| K|ngdom.'
b
W|th tho co||apso ot tho luss|an Emp|ro at tho outbroak ot tho
3o|shov|k lovo|ut|on dur|ng Wor|d War l, tho rog|on wost ot tho
Casp|an 3oa, |nc|ud|ng 3aku, doc|arod |tso|t tho |ndopondont
Azorba|jan 0omocrat|c lopub||c. lt ostab||shod ono ot tho t|rst modorn
par||amonts |n tho ls|am|c wor|d. lt was a|so tho t|rst Vus||m country to
grant womon tho r|ght to voto (ahoad ot such countr|os as 3r|ta|n and
tho Un|tod 3tatos). 3ut lon|n doc|arod that h|s now rovo|ut|onary stato
cou|d not surv|vo w|thout 3aku's o||, and |n 1020 tho 3o|shov|ks
conquorod tho ropub||c, |ncorporat|ng |t |nto tho now 3ov|ot Un|on and
nat|ona||z|ng tho o|| t|o|ds.
1hat samo yoar, howovor, 3|r |onr| 0otord|ng, tho hoad ot loya|
0utch 3ho||, cont|dont|y doc|arod, 1ho 3o|shov|ks w||| bo c|oarod, not
on|y out ot tho Caucasus, but out ot tho who|o ot luss|a |n about s|x
months.' lt soon bocamo ov|dont, howovor, that tho 3o|shov|ks woro
not go|ng anywhoro soon, and that Wostorn compan|os had no p|aco
|n tho now 3ov|ot Un|on.
Whon, |n 1uno 1041, ||t|or |aunchod h|s |nvas|on ot tho 3ov|ot
Un|on, Azorba|jan was ono ot h|s most |mportant stratog|c objoct|vos
-ho wantod to got h|s hands on an assurod supp|y ot o|| to tuo| h|s war
mach|no. Un|oss wo got tho 3aku o||, tho war |s |ost,' ho to|d ono ot
h|s gonora|s. ||s torcos got vory c|oso to 3aku, but not c|oso onough,
ow|ng to t|orco ros|stanco by tho 3ov|ots and tho natura| barr|ors
|mposod by tho h|gh mounta|ns ot tho Caucasus. 1ho ta||uro was cost|y
tor laz| Gormany, tor |ts sovoro shortago ot o|| cr|pp|od |ts m|||tary
mach|no and was ono ot tho roasons tor |ts u|t|mato dotoat.
0
3y tho 1070s and 1080s, tho Casp|an had bocomo an o|| backwator
ot tho 3ov|ot Un|on, thought to bo dop|otod or tochno|og|ca||y too
d|tt|cu|t, |ts onco prom|nont ro|o had boon assumod by othor produc|ng
rog|ons, most notab|y Wost 3|bor|a. ln tho |ato 1080s and oar|y 1000s,
howovor, as 3ov|ot powor crumb|od and Azorba|jan, Kazakhstan, and
1urkmon|stan woro mov|ng toward, and thon |nto, |ndopondonco, tho
rog|on's potont|a|-buttrossod by advancos |n tochno|ogy-onco
aga|n |oomod vory |argo.
E|51ORY ON D|5PLAY
3aku and |ts onv|rons stood at tho h|stor|c contor ot what had boon tho
luss|an and thon 3ov|ot o|| |ndustry, and that ont|ro h|story was on
d|sp|ay tor tho w|dooyod Wostorn o|| mon who woro bog|nn|ng to show
up.
3omo ot |t was at soa. A r|ckoty notwork ot woodon wa|kways and
p|attorms, connoctod ||ko a ||tt|o c|ty, oxtondod out trom tho soatront |n
3aku. |arthor ottshoro, 40 m||os trom tho coast||no, whoro tho soabod
bocamo sha||ow aga|n, was O||y locks, a groat notwork ot wa|kways
and p|attorms, a woodon and stoo| o|| town on st||ts, 1b m||os |ong and
a ha|t m||o w|do,' w|th 12b m||os ot road and a numbor ot mu|t|story
apartmont bu||d|ngs bu||t on art|t|c|a| rock |s|ands. Onco |t had boon
rogardod as ono ot tho groat ach|ovomonts ot 3ov|ot ong|noor|ng, a
|ogond |n tho opon soa.' 3ut now O||y locks was so d||ap|datod that
parts ot |t woro crumb||ng and ta|||ng |nto tho soa, and somo parts woro
cons|dorod so troachorous that thoy had boon abandonod and c|osod
ott a|togothor .
7
Onshoro, |n and around 3aku, woro |nnumorab|o ant|quo nodd|ng
donkoys,' st||| bobb|ng up and down, ho|p|ng to pump up o|| trom wo||s
that had boon dr|||od |n tho |ato n|notoonth and oar|y twont|oth
contur|os. ||k|ng |nto tho w|do, dry K|rmaky va||oy just north ot 3aku
wou|d tako ono back ovon oar||or |n t|mo. 1horo ono wou|d stop ovor
p|po||nos and c|ambor up barron h|||s that woro pockmarkod w|th
hundrods ot p|ts that boon dug by hand |n tho o|ghtoonth and
n|notoonth contur|os. ln thoso days, ono or two mon wou|d bo |oworod
|nto oach ot thoso narrow, dangorous p|ts, past wa||s ro|ntorcod w|th
wood p|anks, 2b to b0 toot down to tho c|austrophob|c bottom, whoro
thoy wou|d t||| buckots w|th o|| that wou|d bo ho|stod out w|th pr|m|t|vo
ropo pu||oys.
0own on tho othor s|do ot tho h||| was tho 3a|achanavaya ||o|d,
whoro a gushor had boon dr|||od |n 1871. 1hat t|o|d was st||| crowdod
w|th o|d r|gs, donso|y packod up aga|nst ono anothor, somo ot thom
go|ng back to tho days ot tho lobo|s and tho lothsch||ds. A|togothor b
b||||on barro|s ot o|| had boon oxtractod trom tho t|o|d, and |t was st|||
modost|y produc|ng away, wh||o gas |oak|ng trom a noarby
mounta|ns|do cont|nuod to burn |n an otorna| t|amo.'
1hus, awa|t|ng tho arr|v|ng o|| mon |n Azorba|jan was an |ndustry
doop |nto doc||no and docay, starvod ot |nvostmont, modorn
tochno|ogy, and shoor attont|on. Yot what tho o|| mon a|so saw, |t not
a|togothor c|oar|y, was tho opportun|ty-though tomporod by many
r|sks and uncorta|nt|os.
ALL ROAD5 ARE 1EERE"
Azorba|jan was ground zoro tor tho Casp|an 0orby. As a luss|an
onorgy m|n|stor put |t, |t was tho koy' to tho Casp|an, tor a|| roads aro
thoro.' Evory k|nd ot |ssuo was at p|ay, and so many ot thom tho rosu|t
ot goography. 1ho most |mmod|ato prob|om was to tho wost, tho now|y
|ndopondont stato ot Armon|a, w|th wh|ch war had brokon out ovor tho
d|sputod onc|avo lagorno-Karabakh. Armon|a, w|th somo luss|an
support, was v|ctor|ous, 800,000 othn|c Azor|s, pr|mar||y trom
lagorno-Karabakh, bocamo rotugoos and |ntorna||y d|sp|acod
poop|os,' ||v|ng |n tont c|t|os and corrugatod t|n huts and whatovor o|so
Azorba|jan cou|d t|nd tor thom. 1h|s d|sp|acomont-oqu|va|ont to 10
porcont ot tho Azor| popu|at|on-addod to tho woos ot what was
a|roady an |mpovor|shod country, w|th a brokon-down |ntrastructuro
and tootor|ng on oconom|c co||apso.
ln tho t|rst yoars ot tho 1000s, var|ous consort|a ot |ntornat|ona| o||
compan|os pursuod what has boon doscr|bod as d|srupt|vo and
comp|ox nogot|at|ons' w|th succoss|vo Azor| govornmonts, wh|ch had
|argo|y como to naught. 1ho country |tso|t soomod to bo ontrappod |n
ondom|c |nstab|||ty and |nsurgonc|os, and, as var|ous c|ans strugg|od
tor powor, hoadod toward c|v|| war.
8
1EE NA1|VE 5ON"
0ur|ng 3ov|ot t|mos, |oydar A||yov had r|son to tho p|nnac|o ot powor
|n Azorba|jan, |n|t|a||y as a KG3 gonora| and thon hoad ot tho |oca|
KG3, and thon as t|rst socrotary ot tho Azor| Commun|st larty. |o had
subsoquont|y movod to Voscow and |nto tho ru||ng lo||tburo,
bocom|ng tor a t|mo ono ot tho most powortu| mon |n tho 3ov|ot Un|on.
3ut attor a t|ory ta|||ng-out w|th V|kha|| Gorbachov and a spoctacu|ar
ta|| trom powor, ho was oxpo||od not on|y trom tho lo||tburo but a|so
trom Voscow, and don|od ovon an apartmont back |n 3aku. |o
roturnod to h|s boyhood homo, lakh|chovan, an |so|atod cornor ot
Azorba|jan, wh|ch, attor tho co||apso ot tho 3ov|ot Un|on, was cut ott
trom tho rost ot tho country by Armon|a and was roachab|o on|y by
occas|ona| a|r t||ghts trom 3aku. Wh||o |n th|s |ntorna| ox||o, ho
d|scovorod h|s now vocat|on and |dont|ty-no |ongor as a 3ov|ot
man,' but, as ho put |t, as a nat|vo son.' |o b|dod h|s t|mo.
W|th tho po||t|ca| batt|o |n 3aku gott|ng ovon hottor and tho country
tootor|ng on c|v|| war, ho roturnod to tho cap|ta| c|ty and, |n 1008, am|d
an attomptod |nsurroct|on, took ovor as pros|dont. At ago sovonty,
A||yov was back |n powor. |o brought stab|||ty. |o a|so brought groat
sk||| to tho job. l'vo boon |n po||t|cs a |ong t|mo, and l'vo soon |t a|| trom
|ns|do out as part ot tho coro |oadorsh|p ot a wor|d suporpowor,' ho
sa|d not |ong attor tak|ng powor. |o was now an Azor| nat|ona||st. |o
was a|so a provon mastor ot tact|cs and a br||||ant stratog|st. |o wou|d
uso Azorba|jan's o|| potont|a| to turn tho country |nto a roa| nat|on, and
to on||st koy nat|ons |n support ot |ts |ntogr|ty, and, |n tho procoss ot
do|ng a|| ot th|s, onsuro h|s own pr|macy and contro|. 3ut ho a|so know
tho luss|ans and tho monta||ty ot Voscow as wo|| as anyono, and ho
undorstood c|oar|y how to doa| w|th tho luss|ans and how tar ho cou|d
sato|y troad out on h|s own path.
0
1EE DEAL OF 1EE CEN1uRY"
ln 3optombor 1004, A||yov assomb|od a host ot d|p|omats and o||
oxocut|vos |n tho Gu||stan la|aco banquot ha|| |n 3aku tor tho s|gn|ng
ot what ho proc|a|mod tho doa| ot tho contury.' 1ho s|gnator|os
|nc|udod ton o|| compan|os-roprosont|ng s|x d|ttoront nat|ons-that
bo|ongod to what was now tho Azorba|jan lntornat|ona| Oporat|ng
Company (AlOC) p|us tho 3tato O|| Company ot Azorba|jan lopub||c
(3OCAl), tho Azor| stato company. 3l and Amoco woro tho
dom|nant Wostorn compan|os, but a|so, and ot groat s|gn|t|canco, |n
tho doa| was luko||, tho luss|an company. lator tho 1apanoso trad|ng
company ltochu jo|nod tho AlOC, br|ng|ng tho numbor ot nat|ona| t|ags
to sovon. G|von tho comp|ox|t|os and uncorta|nt|os, somo mumb|od
that a bottor sobr|quot than doa| ot tho contury' wou|d bo V|ss|on
lmposs|b|o.' Attor a||, how was th|s go|ng to got dono? And how was
|and|ockod Azorba|jan ovor go|ng to got |ts o|| to tho wor|d markot? Yot
as tho CEO ot ono ot tho Wostorn compan|os put |t, tho o|| had to go
somowhoro.'
10
Voroovor, ovon w|th A||yov |n powor, tho po||t|ca| s|tuat|on was tar
trom stab|o. 3aku was undor n|ght|y curtow, and, short|y attor tho
s|gn|ng ot tho doa| ot tho contury,' two ot A||yov's c|osost a|dos woro
assass|natod, |nc|ud|ng h|s socur|ty ch|ot, to bo to||owod by a ta||od
m|||tary coup.
1ho objoct ot tho doa| ot tho contury' was tho hugo Azor|-Ch|rag-
Gunash|| t|o|d (ACG) |n tho Asphoron trond, sovonty-t|vo m||os
ottshoro. lt had boon d|scovorod pr|or to tho co||apso ot tho 3ov|ot
Un|on, but |t was a most|y undovo|opod projoct, and a vory cha||ong|ng
ono. Vuch ot |t had provod wo|| boyond tho tochno|og|ca| capab|||t|os
ot tho 3ov|ot o|| |ndustry. |owovor, dur|ng 3ov|ot t|mos, dovo|opmont
had startod |n a moro sha||ow cornor ot tho t|o|d, and |t tho p|attorm
cou|d bo succosstu||y roturb|shod and upgradod to |ntornat|ona|
standards, somo oar|y product|on wou|d bo poss|b|o. 1h|s wou|d
bocomo known as Ear|y O||. lt was dos|rab|o, bocauso |t wou|d croato
an oar|y |ncomo stroam and, porhaps ovon moro |mportant, bu||d
cont|donco among tho AlOC sharoho|dors.
WEA1 ROu1E FOR EARLY O|L?
3ut Ear|y O|| was a|so h|gh|y contont|ous, tor |t wou|d croato a b|g and
|mmod|ato prob|om. |ow to got tho o|| out? Onco ashoro, somo ot |t
cou|d bo sh|ppod |n ra||way tank cars, just as |n tho n|notoonth contury,
but that was a ||m|tod and hard|y sat|stactory a|tornat|vo.
1ho on|y obv|ous answor was a p|po||no. And, w|th that answor, tho
Casp|an 0orby turnod c|amorous. 3y rovors|ng d|roct|ons, tho o|| cou|d
go north through tho ox|st|ng luss|an p|po||no systom, wh|ch |s ot
courso oxact|y what tho luss|ans wantod. 3ut that wou|d a|so havo
g|von luss|a vory cons|dorab|o |ovorago ovor Azorba|jan's oconom|c
and po||t|ca| tato, and tho Un|tod 3tatos stronuous|y opposod |t.
1ho othor opt|on tor tho Ear|y O|| p|po||no was to go wost |nto
Goorg|a and to tho 3|ack 3oa, whoro tankors wou|d p|ck up tho o|| and
carry |t through tho 3osporus to tho Vod|torranoan-a routo that
trackod what had boon tho ma|n out|ot tor n|notoonth-contury 3aku o||.
3ut that wou|d mako Azorba|jan dopondont on Goorg|a, wh|ch was
wrackod by soparat|st strugg|os and wh|ch had a vory tonso and
unoasy ro|at|onsh|p w|th luss|a. 1h|s routo wou|d a|so bo a groat doa|
moro oxpons|vo, onta|||ng much moro construct|on |n d|tt|cu|t torra|n.
1ho AlOC was undor groat prossuro to chooso. 1ho Azor|s noodod
rovonuos , tho compan|os noodod c|ar|ty. 3ut tho Un|tod 3tatos and
luss|a woro at |oggorhoads. Yot somoth|ng noodod to bo dono. Ono
way or tho othor, Ear|y O|| was com|ng.
1EE 1WO-1RACK 51RA1ECY: OFFEND NO
ONE"
ln a nondoscr|pt contoronco room |n contra| london, somo son|or
AlOC statt and a sma|| group ot o|| and rog|ona| oxports dobatod tho
cho|cos-Ear|y O|| Goos lorth' and Ear|y O|| Goos Wost'-and tho
||ko|y back|ash to oach. lt was rocogn|zod that an unoqu|voca| cho|co
|n o|thor d|roct|on wou|d bo por||ous trom tho standpo|nt ot po||t|ca|
r|sk.'
||na||y, ono ot tho part|c|pants who had sat qu|ot|y |n tho cornor
spoko up. Why chooso ? ho askod. Why not do both? 1ho moro
p|po||nos, tho bottor. Evon |t tho cost was h|ghor, dua| p|po||nos wou|d
prov|do moro socur|ty. lt wou|d bo a groat |nsuranco po||cy. 1hat
approach wou|d a|so ho|p assuro spood and d|scourago toot dragg|ng
-s|nco tho AlOC cou|d a|ways throaton to go w|th tho othor' opt|on.
3o takon togothor, two routos mado a |ot ot sonso.
11
Ot courso, ono had to start somowhoro. And that moant start|ng w|th
tho luss|an routo. Attor a||, a p|po||no was |n p|aco. 1ho po||t|cs woro
r|ght.
|oydar A||yov saw |t that way. On a droary, co|d |obruary n|ght |n
100b, |n h|s ott|co |n tho h|||s abovo 3aku, A||yov gavo h|s march|ng
|nstruct|ons both to 1oronco Adams, tho hoad ot tho AlOC, and to tho
hoad ot 3OCAl. loth|ng shou|d bo dono that wou|d a||onato' tho
luss|ans, sa|d tho pros|dont. lt was too r|sky. A contract had to bo
s|gnod w|th tho luss|ans botoro anyth|ng o|so was dono. 1ho
goopo||t|ca| |mporat|vo cou|d not havo boon mado c|oaror tor 3aku o||
d|p|omacy,' Adams |ator sa|d. 1ho pros|dont mado ono othor th|ng
vory c|oar. |a||uro |n any torm wou|d bo a major d|sastor tor
Azorba|jan, and thus wou|d corta|n|y a|so bo a d|sastor tor AlOC and
porsona||y tor a|| thoso |nvo|vod. |o |ookod hard at both mon. At tho
samo t|mo, A||yov omphas|zod that tho ro|at|onsh|p w|th tho Un|tod
3tatos was a|so ossont|a| to h|s stratogy. ||s mossago to tho o||
compan|os was cha||ong|ng but c|oar: Ottond no ono.'
1h|ngs woro a|so chang|ng w|th tho Un|tod 3tatos. 1horo had boon a
vory sharp dobato |n Wash|ngton botwoon thoso h|gh|y susp|c|ous ot
luss|a, who tavorod an anyth|ng but luss|a' p|po||no po||cy, and
thoso who bo||ovod that a co||aborat|vo approach w|th Voscow was
roqu|rod tor tho dovo|opmont ot onorgy rosourcos and transportat|on |n
tho tormor 3ov|ot Un|on. And, |n tho |attor v|ow, that dovo|opmont was
nocossary to moot tho two objoct|vos: ho|p|ng to conso||dato tho
nat|onhood ot tho now|y |ndopondont statos and onhanc|ng onorgy
socur|ty by br|ng|ng add|t|ona| supp||os to tho wor|d markot. ln duo
courso, mattors woro gonora||y-a|though novor comp|oto|y-roso|vod
|n tavor ot tho moro co||aborat|vo approach. ln |obruary 1000, tho
northorn routo won ott|c|a| approva|.
12
Agroomont tor tho wostorn Ear|y O|| routo soon to||owod. |or |ts part,
tho Goorg|an routo ottorod a countorba|anco to tho luss|ans. Gott|ng
th|s p|an dono drow upon tho porsona| ro|at|onsh|p botwoon A||yov and
Goorg|an pros|dont Eduard 3hovardnadzo, whoso caroor, ||ko
A||yov's, had trackod trom tho |oca| commun|st socur|ty sorv|co to
|oador ot tho Goorg|an commun|st party to tho p|nnac|o ot 3ov|ot
powor |n tho Krom||n as V|kha|| Gorbachov's toro|gn m|n|stor-and,
thus, tho oppos|to numbor ot U.3. 3ocrotary ot 3tato 1amos 3akor |n
nogot|at|ng tho ond ot tho Co|d War. low 3hovardnadzo, who had
roturnod as pros|dont to Goorg|a attor tho broakup ot tho 3ov|ot Un|on,
was nogot|at|ng a p|po||no whoso trans|t toos wou|d bo |mportant to
koop|ng |mpovor|shod, |ndopondont Goorg|a at|oat. Evon moro
|mportant was tho goopo||t|ca| cap|ta| that Goorg|a ga|nod trom U.3.,
3r|t|sh, and 1urk|sh ongagomont w|th wh|ch to ba|anco aga|nst tho
luss|an g|ant to tho north.
lllElllE lOll1lC3
7bo bott|os ovor plpo|loo rootos or ol| ooo gos bocomo koowo os tbo
Cosploo Lorby.
3ourco: l|3 CElA

3y 1000 both Ear|y O|| oxport ||nos woro oporat|ng. 1ho wostorn
routo trackod tho o|d woodon p|po||no bu||t by tho lobo|s |n tho
n|notoonth contury. 1ho luss|an northorn ||no passod through
Chochnya, whoro |n that samo yoar tho socond Chochon War wou|d
orupt botwoon luss|an torcos and ls|am|c robo|s. 1hat cont||ct torcod
tho shutdown ot tho luss|an p|po||no. 1h|s provod tho |nsuranco va|uo
ot a socond, wostorn Ear|y O|| ||no through Goorg|a.
1hat took caro ot Ear|y O||. Voanwh||o, as tho docado progrossod,
tho tochn|ca| cha||ongos woro bo|ng surmountod ottshoro ot
Azorba|jan, and |t was c|oar that vory substant|a| add|t|ona| product|on
wou|d bog|n |n tho now contury. 1ho rosourcos had boon provod up':
o|| cou|d actua||y bo oconom|ca||y oxtractod |n |argo vo|umos trom
bonoath tho Casp|an Wators.
WEA1 ROu1E FOR 1EE NA|N P|PEL|NE?
low that tho rosourcos woro bankab|o, a ma|n oxport p|po||no capab|o
ot transport|ng much groator vo|umos had to bo bu||t. lt was back to tho
samo batt|os as ovor Ear|y O||. 1h|s t|mo, howovor, thoro cou|d bo on|y
ono p|po||no. G|von tho costs and sca|o, tho d|ttoronco cou|d not bo
sp||t botwoon two ||nos. 1ho luss|ans, ot courso, wantod tho p|po||no
to go north and t|ow |nto tho|r nat|ona| p|po||no systom, wh|ch wou|d
g|vo thom somo dogroo ot contro| and |ovorago ovor tho Casp|an
rosourcos. Anothor opt|on was to go through Goorg|a. 3ut |n both
casos, tho o|| wou|d havo to bo p|ckod up by tankors that wou|d carry |t
across tho 3|ack 3oa and thon sa|| through tho 3osporus, tho narrow
stra|t that runs through tho m|dd|o ot lstanbu|. And that was a b|g
prob|om.
1ho 3osporus, wh|ch connocts tho 3|ack 3oa and tho
Vod|torranoan and |s tho domarcat|on botwoon Europo and As|a, has
|oomod |argo throughout h|story. lt was on |ts banks that, |n tho tourth
contury A.0., tho loman omporor Constant|no ostab||shod h|s now
oastorn cap|ta|-Constant|nop|o-|n ordor to bottor manago tho tar-
t|ung loman Emp|ro. ln moro rocont contur|os, |t was ot groat stratog|c
|mportanco tor both tho luss|an and 3ov|ot omp|ros, as tho on|y
warm-wator ports tor tho|r t|oots woro on tho 3|ack 3oa, and tho|r
warsh|ps had to pass through tho 3osporus to roach tho wor|d's
ocoans.
3ut tho 3osporus was bocom|ng |ncroas|ng|y crowdod w|th tho
grow|ng t|oot ot o|| tankors that wou|d carry luss|an and Casp|an o|| to
tho wor|d's markots. And tho 3osporus was no |so|atod watorway, |t
ran r|ght through tho m|dd|o ot lstanbu| (as Constant|nop|o had boon
ott|c|a||y ronamod |n 1080), a c|ty ot 11 m||||on poop|o. 1urkoy was
approhons|vo ot a major tankor acc|dont |n what |n ottoct was
lstanbu|'s ||v|ng room. And w|th good roason. 1ho 10-m||o watorway
has 12 turns. lts narrowost po|nt |s 780 yards, wh|ch roqu|ros a 4b-
dogroo turn. Anothor turn |s 80 dogroos, a|most a r|ght ang|o.
18
1horo was st||| anothor opt|on tor tho ma|n out|ot, and |n do||ars and
conts, tho choapost ot a||. Go south and do||vor o|| to rot|nor|os |n
northorn lran, wh|ch wou|d supp|y 1ohran. And thon swap an oqu|va|ont
amount ot o|| trom t|o|ds |n tho south ot lran tor oxport v|a tho lors|an
Gu|t. |onco, |t wou|d not bo nocossary to bu||d a p|po||no through lran.
3uch a swap was tho |oast cost opt|on |n oconom|c torms. 3ut |t was
who||y unaccoptab|o to tho Un|tod 3tatos and othor Wostorn countr|os,
and thus a comp|oto nonstartor. lt wou|d not on|y havo bo|storod lran,
but wou|d havo g|von tho nat|on tho tr|ggor t|ngor ovor Azorba|jan's
tuturo, wh|ch was hard|y somoth|ng that |oydar A||yov wantod.
Voroovor, |t wou|d havo comp|oto|y undorcut tho who|o quost tor
d|vors|t|cat|on and onorgy socur|ty by putt|ng moro o|| |nto tho lors|an
Gu|t and |ncroas|ng dopondonco on tho 3tra|t ot |ormuz, whon tho
who|o po|nt was to d|vors|ty away trom |t.
1horo was ono moro opt|on-go wost, sk|rt|ng around Armon|a |nto
Goorg|a, and thon turn |ott noar tho Goorg|an cap|ta| ot 1b|||s| and
hoad south down through 1urkoy to |ts port ot Coyhan on tho
Vod|torranoan. 1h|s was tho most |og|ca| routo. 1ho prob|oms w|th tho
proposod 31C p|po||no-3aku to 1b|||s| to Coyhan-woro two: ||rst, |t
wou|d bo ono ot tho |ongost o|| oxport p|po||nos |n tho wor|d, and tho
ong|noor|ng cha||ongos ovor tho ta|| poaks ot tho Caucasus woro
onormous. And, socond, |t was by tar tho most oxpons|vo routo. lt was
vory d|tt|cu|t to mako tho oconom|cs work.
As doc|s|on t|mo approachod, tho argumonts ovor tho ma|n p|po||no
bocamo |ncroas|ng|y t|orco. 1ho luss|ans woro out to scutt|o tho
projoct. 1ho Azor|s c|oar|y wantod |t, as d|d tho 1urks. 3oth prossod
3l to push |t torward. |or a t|mo, |t soomod that tho Un|tod 3tatos was
most voc|torous proponont ot a|| tor 3aku-1b|||s|-Coyhan. lts
roprosontat|vos took ovory opportun|ty to arguo tho caso, somot|mos
w|th a torco that surpr|sod and ovon shockod othor part|c|pants |n tho
dobato. |or Wash|ngton, tho thought that tho ma|n oxport p|po||no
cou|d poss|b|y go through luss|a was unaccoptab|o. 1ho r|sk was too
groat.
Vado|o|no A|br|ght, 3||| C||nton's socrotary ot stato, pr|vato|y
summod up tho mattor at tho t|mo. Ono attornoon, s|tt|ng |n a ||tt|o room
on tho sovonth t|oor ot tho 3tato 0opartmont, sho sa|d, Wo don't want
to wako up ton yoars trom now and havo a|| ot us ask ourso|vos why |n
tho wor|d wo mado a m|stako and d|dn't bu||d that p|po||no.'
NOW |5 1EE NONEN1"
|or ha|t a docado, an annua| contoronco, tho 1a|o ot 1hroo 3oas'
(Casp|an, 3|ack, and Vod|torranoan), had boon convon|ng |n lstanbu|
oach 1uno. lt wou|d start |n tho ovon|ng, as tho sun wont down, |n a
h|||s|do gardon ovor|ook|ng tho 3osporus, w|th a sooth|ng outdoor
concort by what was ca||od tho Orchostra ot tho 1hroo 3oas.' lts
mus|c was moant to symbo||zo tho hoa||ng ot a|| tho h|stor|c broachos
that noodod to bo hoa|od, tor |ts mombors woro drawn trom tho
Caucasus and Contra| As|a and trom a numbor ot Arab countr|os, as
wo|| as lsrao|.
And thon, tho noxt day, a|| tho harmon|os wou|d d|sappoar as tho
raucous Casp|an 0orby bogan |n oarnost. Yoar attor yoar, tho
contoronco soss|ons and tho corr|dors woro tho scono ot ag|tatod
argumonts and |ncroas|ng|y voca| dobato ovor p|po||no routos-and, at
|oast onco, a shov|ng match among vory son|or poop|o.
1ho contoronco d|nnor, on a warm summor n|ght |n 1uno 2001, was
ho|d |n tho Esma 3u|tan la|aco, w|th a swoop|ng v|ow ovor tho
3osporus. 1ho spoakor was 1ohn 3rowno, tho ch|ot oxocut|vo ot 3l,
now tho dom|nant company among tho sharoho|dors ot tho AlOC. |o
strossod that tho 3osporus s|mp|y cou|d not tako any moro tankor
tratt|c. 1ho r|sks ot ro|y|ng so|o|y on th|s routo wou|d bocomo too h|gh.
Anothor so|ut|on |s nocossary,' ho sa|d. And that so|ut|on was a now
oxport p|po||no'-tho 3aku-1b|||s|-Coyhan ||no.
1ho o|| compan|os, ho announcod, woro roady to bog|n tho
ong|noor|ng, w|th tho objoct|vo ot bog|nn|ng construct|on as soon as
poss|b|o. As ho mado th|s doc|arat|on, a|most as |t on cuo, on tho dark
h|stor|c wators boh|nd h|m tho shadowy s||houotto ot a |argo tankor
g||dod by, |||um|natod on|y by |ts own ||ghts. lts s||ont mossago soomod
to bo, |ow many moro ot thoso tankors cou|d tho 3osporus tako? 1ho
p|po||no had to bo bu||t.
Vany obstac|os had to bo ovorcomo. 1ho t|rst was to conv|nco a
sutt|c|ont numbor ot tho AlOC partnors that tho p|po||no was
commorc|a| and got thom to s|gn up tor |t. Anothor was tho shoor
onorm|ty ot nogot|at|ng so many |ncrod|b|y comp|ox mu|t|party
agroomonts that woro roqu|rod to bu||d and oporato and t|nanco tho
p|po||no, |nvo|v|ng countr|os, compan|os, |oca||t|os, ong|noor|ng t|rms,
banks, and t|nanc|ng agonc|os, among othor part|os. |oro tho Un|tod
3tatos p|ayod a koy ro|o by tac|||tat|ng an |ntorgovornmonta|
agroomont, and myr|ad othor agroomonts, wh|ch othorw|so, |n tho
words ot ono ot tho company nogot|ators, wou|d havo takon yoars to
arrango and nogot|ato.'
14
Anothor cont|nu|ng obstac|o was tho oppos|t|on ot nongovornmonta|
organ|zat|ons (lGOs) on var|ous onv|ronmonta| and po||t|ca| grounds.
Wou|d tho p|po||no bo bur|od throo toot undorground, whoro |t was
accoss|b|o to ropa|rs, or t|ttoon toot, whoro |t wou|d not bo? (1hroo toot
won out.) Vuch |ntonso dobato onsuod as to whothor tho proposod
routo was a throat to tho 3orzhom| spr|ngs, tho sourco ot Goorg|a's
most tamous m|nora| wator. Ono tonso nogot|at|ng soss|on w|th tho
pros|dont ot Goorg|a wont on unt|| 8:00 a.m., and thon had to bo
oxtondod anothor hour whon a tunct|on|ng photocop|or cou|d not bo
tound |n tho pros|dont|a| pa|aco. 1ho routo, |n tho ond, was not
changod, but tho consort|um ond|ng up pay|ng tho 3orjom| brand wator
company about $20 m||||on to covor tho potont|a| nogat|vo roputat|ona|
|mpact' ot tho p|po||no. As |t turnod out, tho roputat|ona| |mpact was
surpr|s|ng|y pos|t|vo, tho hoad ot tho 3orjom| wator company |s sa|d to
havo |ator doscr|bod tho op|sodo as tho bost g|oba| advort|s|ng tho
m|nora| wator cou|d havo ovor gotton, and, bottor yot, |t was troo
advort|s|ng.
1b
OuR NAJOR COAL": PE1ROLEuN AND 1EE
NA1|ON-51A1E
1ho 31C p|po||no has boon doscr|bod as tho t|rst groat ong|noor|ng
projoct ot tho twonty-t|rst contury.' 1ho 1,000-m||o-|ong p|po||no had to
cross somo 1,b00 r|vors and wator coursos, h|gh mounta|ns, and
sovora| major oarthquako tau|t zonos, wh||o moot|ng str|ngont
onv|ronmonta| and soc|a| |mpact standards. |our yoars and $4 b||||on
|ator, tho p|po||no was t|n|shod. 1ho t|rst barro|s arr|vod at tho 1urk|sh
o|| port Coyhan, on tho Vod|torranoan coast, |n tho summor ot 2000,
whoro thoy woro wo|comod |n a grand coromony. lt had boon two|vo
yoars s|nco tho doa| ot tho contury' had boon s|gnod.
As wou|d bo oxpoctod, an A||yov was thoro at tho vory torotront
among tho d|gn|tar|os who proc|a|mod tho |mportanco ot tho day tor
tho countr|os |nvo|vod, tho rog|on, and tho wor|d's onorgy markots. 3ut
|t was not |oydar A||yov, |t was h|s son l|ham, tho now pros|dont ot
Azorba|jan. |oydar A||yov had not ||vod to soo that day. |or A||yov, tho
KG3 gonora| and 3ov|ot lo||tburo mombor who had gono on to
bocomo Azorba|jan's prom|or nat|vo son,' had passod away throo
yoars oar||or at tho C|ovo|and C||n|c |n tho Un|tod 3tatos. 3ut th|s day
was tho domonstrat|on that h|s stratogy had workod, that o||-and how
ho had p|ayod |t-had g|von Azorba|jan a tuturo that |n 1004 had
soomod a|most unatta|nab|o. lotro|oum had conso||datod Azorba|jan
as a nat|on and ostab||shod |ts |mportanco on tho wor|d stago. Or, as
l|ham A||yov had put |t botoro tak|ng ovor as pros|dont, Wo nood o|| tor
our major goa|.' Wh|ch was, ho sa|d, to bocomo a roa| country.'
10
Azorba|jan |s a|so stratog|ca||y |mportant bocauso |t |s a socu|ar,
Vus||mmajor|ty stato s|tuatod botwoon luss|a and lran. 1oday
Azorba|jan's ottshoro ACG t|o|d-a $22 b||||on projoct-ranks as tho
th|rd-|argost produc|ng o|| t|o|d |n tho wor|d. lotro|oum t|ows ashoro at
tho now $2.2 b||||on 3angacha| 1orm|na|, just south ot 3aku, thon
movos |nto a torost ot p|pos and a sor|os ot tanks whoro |t |s c|oanod
and proparod tor trans|t. 1hon tho o||, now t|t tor oxport, a|| convorgos
|nto a s|ng|o torty-two-|nch, cr|sp wh|to p|po||no. 1hat |s |t-tho much-
dobatod 3aku-1b|||s|-Coyhan p|po||no. 1ho p|po||no oxtonds t|at out on
tho ground tor t|tty toot and thon curvos down |nto tho oarth and
d|sappoars trom s|ght. lt bonds and tw|sts |ts way, most|y undorground,
unt|| |t surtacos aga|n, 1,708 k||omotors-1,000 m||os-|ator at
Coyhan, whoro moro than a m||||on barro|s a day t|ow |nto tho storago
tanks that t|ock tho Vod|torranoan shoro, wa|t|ng tor tho tankors that
w||| p|ck up tho|r cargoos and tako thom to wor|d markots. Attor a|| tho
batt|os ot tho groat gamo, a|| tho c|ash and c|amor ot tho Casp|an
0orby, a|| tho manouvor|ng and d|p|omacy, a|| tho nogot|at|ng and
trad|ng and doa| mak|ng, |t a|| comos down to sc|onco and ong|noor|ng
and construct|on-tho p|attorms and o|| comp|oxos |n tho Casp|an
3oa, and tho $4 b||||on undorground stoo| tubu|ar h|ghway that has
roconnoctod 3aku to tho g|oba| markot. As |t carr|os o||, that p|po||no
a|so sooms to bo carry|ng tho cargo ot h|story, connoct|ng not on|y
3aku and Coyhan but a|so tho bog|nn|ng ot tho twonty-t|rst contury
back to tho bog|nn|ng ot tho twont|oth.
3ubsoquont|y, a socond p|po||no was bu||t para||o| to tho 31C to
carry gas trom tho ottshoro Casp|an 3hah 0on|z t|o|d, ono ot tho
|argost gas d|scovor|os ot rocont docados, to 1urkoy. 1ho p|po||no,
known as tho 3outh Caucasus l|po||no, was no |oss cha||ong|ng
tochn|ca||y, but po||t|ca||y a good doa| oas|or. 1ho hard work had boon
dono by tho o|| ||no. 1ho 3outh Caucasus l|po||no turthor conso||datod
tho Casp|an w|th tho g|oba| onorgy markot.
3ut Azorba|jan was on|y part ot tho Casp|an 0orby. Anothor round
was bo|ng p|ayod out across tho Casp|an 3oa.
8
ACRO55 1EE CA5P|AN
|n tho summor ot 108b, spy sato|||tos sp|nn|ng h|gh abovo tho oarth
p|ckod up somoth|ng start||ng-a hugo co|umn ot t|amos on tho
northoastorn cornor ot tho Casp|an 3oa, w|th p|umos that strotchod a
hundrod m||os. lt was an o|| t|o|d d|sastor on a sca|o v|s|b|o trom
spaco. A wo|| bo|ng dr|||od-Wo|| 87-|n tho now|y oponod o|| t|o|d ot
1ong|z, |n tho 3ov|ot lopub||c ot Kazakhstan, had b|own out, sond|ng
up a powortu| gushor ot o||, m|xod w|th natura| gas. lt had caught t|ro,
croat|ng a t|am|ng co|umn that roachod 700 toot or moro |nto tho a|r.
1ho gas was |adon w|th doad|y hydrogon su|t|do, wh|ch |nh|b|tod
rocovory ottorts. 1ho U33l V|n|stry ot O|| had no|thor tho capab|||ty
nor tho oqu|pmont to br|ng |t undor contro|. At ono po|nt tho V|n|stry,
dosporato and at w|t's ond, cons|dorod an atom|c oxp|os|on' to got
tho wo|| undor contro|.
1hat opt|on was novor |mp|omontod. Wo managod to |ntorcodo |n
t|mo,' sa|d lursu|tan lazarbayov, thon tho ropub||c's prom|or.
Evontua||y Amor|can and Canad|an oxports woro rocru|tod to ho|p. lt
took two months to put out tho t|ro and tour hundrod days to got tho wo||
tu||y undor contro|. 1h|s d|sastrous and cost|y b|owout undor||nod tho
tochn|ca| cha||ongos tac|ng tho 3ov|ot o|| |ndustry. 3ut tho burn|ng o||
tounta|n' a|so |||um|natod somoth|ng o|so: Kazakhstan m|ght havo
wor|d-sca|o potro|oum potont|a|.
1
KAZAKE51AN AND 1EE FOuR1E
CENERA1|ON" OF O|L
Kazakhstan today, ono ot tho now|y |ndopondont countr|os ot tho
tormor 3ov|ot Un|on, |s a |argo nat|on |n torms ot torr|tory, phys|ca||y
a|most tho s|zo ot lnd|a, but w|th a popu|at|on ot 1b.b m||||on. A ||tt|o
ovor ha|t |s othn|ca||y Kazakh, 80 porcont othn|ca||y luss|an, and tho
rost othor othn|c groups. W|th tho oxcopt|on ot tho now cap|ta| Astana,
most ot tho popu|at|on ||vos on tho por|phory ot tho country, a good part
ot tho country |s grassy stoppo. 0ur|ng 3ov|ot t|mos, oach ot tho
Un|on ropub||cs occup|od a part|cu|ar p|aco |n tho d|v|s|on ot |abor,' as
lazarbayov put |t, and Kazakhstan's ro|o was as a supp||or ot raw
mator|a|s, toodstutts, and m|||tary product|on.' A quartor ot |ts
popu|at|on had d|od dur|ng 3ta||n's tam|no |n tho oar|y 1080s. lt was
whoro 3ta||n ox||od othn|c groups ho d|d not ||ko, whoro l|k|ta
Khrushchov un|oashod h|s d|sastrous v|rg|n |ands' program to try to
roscuo 3ov|ot agr|cu|turo, and whoro tho 3ov|ot Un|on tostod |ts
nuc|oar woapons. lt was tho p|aco trom whonco tho 3ov|ot Un|on
|aunchod |ts spy sato|||tos and whoro luss|a today shoots tour|sts |nto
spaco, at $20 m||||on a shot.
Kazakhstan had had a sma|| |oca| o|| |ndustry go|ng back to tho
n|notoonth contury, an oastorn oxtons|on ot tho groat Azor| boom that
had mado tho lobo|s and tho lothsch||ds |nto o|| tycoons. lt Wost
3|bor|a had boon tho g|ant th|rd gonorat|on' ot 3ov|ot o||, thon |t was
oxpoctod that Kazakhstan, contorod |n 1ong|z, wou|d bo a koy part ot
tho tourth gonorat|on.'
3ut Kazakhstan's dovo|opmont was ho|d back |n tho 1080s by |ack
ot |nvostmont and tochno|ogy |n tho taco ot d|tt|cu|t and unusua|
cha||ongos, as ov|doncod at 1ong|z. As tormor 3ov|ot o|| m|n|stor lov
Chur||ov wroto: Exp|orat|on and product|on oqu|pmont stood trozon |n
t|mo, w|th tow tochno|og|ca| advancos attor tho 1000s.' ln tho ottort to
bo|stor tho ta|tor|ng oconomy and tac|||tato tochno|ogy transtor, |n tho
t|na| yoars ot tho 3ov|ot Un|on, V|kha|| Gorbachov had tr|od to |uro |n
toro|gn |nvostors. Undor that umbro||a, a controvors|a| Amor|can
promotor namod 1amos G|tton brought togothor a group ot U.3.
compan|os that wou|d sorvo as an |nvostmont consort|um.
2
1ENC|Z: A PERFEC1 O|L F|ELD"
Ono ot tho compan|os |n tho consort|um was Chovron, wh|ch attor
|ook|ng around tho 3ov|ot Un|on camo to tocus on 1ong|z. 1ho
company was doop|y |mprossod by tho hugo potont|a|. A portoct o||
t|o|d' |s tho way ono Chovron ong|noor doscr|bod |t. W|th what was
t|na||y ost|matod as at |oast 10 b||||on barro|s ot potont|a| rocovorab|o
rosorvos, 1ong|z wou|d rank among tho ton |argost o|| t|o|ds |n tho
wor|d.
8
1horo woro, untortunato|y, a tow ways |n wh|ch |t was not qu|to
portoct. Ono was tho prob|om ot tho sour gas,' so-ca||od bocauso ot
tho hoavy concontrat|ons ot po|sonous hydrogon su|t|do. 3|ckon|ng|y
nox|ous w|th |ts rotton-ogg-||ko smo||, hydrogon su|t|do |s so tox|c |n
|argo concontrat|ons that |t doadons tho sonso ot smo||, potont|a||y
du|||ng tho ab|||ty ot poop|o to rospond to |nha||ng |t botoro |t |s too |ato.
lt wou|d tako cons|dorab|o ong|noor|ng |ngonu|ty and a good doa| ot
monoy to so|vo that prob|om. Othor prob|oms |nc|udod tho gonora||y
poor cond|t|on ot tho t|o|d and tho onormous |nvostmont that wou|d bo
roqu|rod. 1horo was an add|t|ona| prob|om that wou|d como to |oom
qu|to |argo-|ocat|on. 1ong|z was a tar-ott t|o|d w|th no roa|
transportat|on systom.
ln 1uno 1000, tho 3ov|ots s|gnod a pact w|th Chovron that gavo tho
company oxc|us|vo r|ghts to nogot|ato tor 1ong|z. lt was a vory h|gh-
pr|or|ty doa|. |or |n tho words ot Yogor Ga|dar, Voscow rogardod
1ong|z as tho 3ov|ot Un|on's trump card |n tho gamo tor tho tuturo.'
3ut tho 3ov|ot Un|on was oxpor|onc|ng what lazarbayov ca||od tho
d|st|nct|vo symptoms ot c||n|ca| doath throos. 1ho stato organ|sm sank
|nto a coma.' Whon |t co||apsod a|togothor, lursu|tan lazarbayov
bocamo pros|dont ot tho |ndopondont nat|on ot Kazakhstan. ||s
commun|st days woro ovor. |o was now a nat|ona||st, who wou|d now
|ook not to Varx or lon|n tor h|s ro|o modo|, but to loo Kuan Yow and
tho omorgonco ot modorn 3|ngaporo. And novor aga|n, ho sa|d, wou|d
Kazakhstan bo an appondago.'
1ho 1ong|z t|o|d |oomod as abso|uto|y cruc|a| to tho now nat|on's
tuturo, |t was what lazarbayov ca||od tho tundamonta| pr|nc|p|o'
undorp|nn|ng tho country's oconom|c transtormat|on. 3ut |t was |n vory
poor shapo. ln many parts ot tho o|| t|o|d, o|octr|c powor was ava||ab|o
on|y two hours a day. 1ons ot b||||ons ot do||ars ot |nvostmont wou|d bo
roqu|rod to br|ng tho t|o|d up to |ts potont|a|.
4
1EE P|PEL|NE BA11LE
Attor arduous nogot|at|ons, Kazakhstan and Chovron camo to
agroomont on how tho |mmonso and |mmonso|y oxpons|vo t|o|d wou|d
bo dovo|opod. lt wou|d bo a b0-b0 doa| |n torms ot ownorsh|p but not |n
torms ot tho oconom|cs. Evontua||y, attor var|ous costs woro
rocovorod, tho govornmont tako wou|d bo about 80 porcont ot tho
rovonuos. Chovron wou|d tund much ot tho ost|matod $20 b||||on
|nvostmont unt|| Kazakhstan startod roco|v|ng cash t|ow, wh|ch wou|d
tund |ts sharo. lazarbayov ha||od th|s as tru|y . . . tho contract ot tho
contury.' lt was corta|n|y a vory b|g doa|, w|th tho objoct|vo ot
|ncroas|ng output tonto|d. Extraord|nar||y comp|ox ong|noor|ng was
nocossary to produco trom vory doop, vory h|gh-prossuro structuros,
and thon to troat tho sour gas and soparato tho tox|c hydrogon su|t|do
trom potro|oum.
Goography prosontod an add|t|ona| cha||ongo-gott|ng tho o|| out ot
tho country to wor|d markots. 1ho routo was obv|ous-a 08b-m||o
putat|vo p|po||no that wou|d go north out ot Kazakhstan, curvo wost
ovor tho top ot tho Casp|an 3oa, and thon stra|ght wost tor 4b0 m||os
to tho luss|an port ot lovoross|ysk on tho northorn coast ot tho 3|ack
3oa. |rom thoro o|| wou|d bo transsh|ppod by tankor across tho 3|ack
3oa through tho 3osporus 3tra|t and |nto tho Vod|torranoan. ln othor
words, tho p|po||no wou|d havo to travorso luss|an torr|tory.
What was not obv|ous was how to got |t dono-not phys|ca||y, but
commorc|a||y, and ovon moro so, po||t|ca||y. 1ho batt|o wou|d bo no
|oss contont|ous than tho strugg|o ovor tho p|po||nos out ot Azorba|jan,
no |oss comp||catod |n tho c|ash ot amb|t|ons and po||t|cs. lt wou|d a|so
bo caught up |n tho comp|ox post-Co|d War goopo||t|ca| strugg|o to
rodot|no tho tormor 3ov|ot spaco' and tho ro|at|onsh|ps among
Voscow, tho loar Abroad, and tho rost ot tho wor|d. 1ho p|ayors horo
wou|d |nc|udo Kazakhstan, luss|a, tho Un|tod 3tatos, and, |ator,
Ch|na, Chovron and othor o|| compan|os, as wo|| as tho lors|an Gu|t
o||produc|ng nat|on ot Oman. lmprobab|y, at tho contor ot |t a||, at |oast
tor a t|mo, was a t|amboyant 0utch o|| trador, 1ohn 0ouss, whoso
ponchant tor h|gh ||v|ng |nc|udod stab|os w|th champ|on jump|ng
horsos, two Gu|tstroam jots, yachts, sk| rosorts, and a var|oty ot
homos. ||s |nvo|vomont |n Kazakhstan was bankro||od by Oman, w|th
wh|ch ho had dovo|opod a vory c|oso ro|at|onsh|p.
Chovron, so tocusod on tho 1ong|z t|o|d |tso|t and a|so tho r|sks that
wont w|th |t, had |ott |t to Kazakhstan to t|nanco and organ|zo tho
p|po||no. Wo hadn't p|annod on bu||d|ng a p|po||no,' sa|d l|chard
Vatzko, tho hoad ot Chovron Ovorsoas lotro|oum. Wo to|t that tho
p|po||no wou|d bo a nat|ona| assot, and thoro wou|d bo objoct|ons to
toro|gn ownorsh|p across luss|an torr|tory.'
Kazakhstan, st||| bu||d|ng |ts |nst|tut|ona| capab|||ty as an
|ndopondont nat|on-stato, had turnod to 0ouss, who, w|th Oman, wou|d
bo tho pr|nc|pa| sponsor' ot tho p|po||no. What, ono m|ght ask, was a
0utch o|| trador w|th Oman| monoy do|ng try|ng to bu||d a p|po||no
across luss|a? 0ouss had boon tunct|on|ng as a son|or o|| adv|sor to
tho now|y |ndopondont nat|on ot Kazakhstan and had ho|pod arrango
an Oman| ||no ot crod|t tor Kazakhstan |n |ts t|rst months ot
|ndopondonco. 0ouss had won tho Kazakhs' trust. ||s Oman| backor
put up tho monoy to |n|t|ato what wou|d bo ca||od tho ClC-tho
Casp|an l|po||no Consort|um.
0ouss and Chovron woro soon at |oggorhoads. Chovron now
roa||zod that 0ouss wou|d bo ab|o to oxtract h|gh tar|tts and mako a
hugo prot|t on tho p|po||no and a|so got what ho was roa||y attor-
contro| ot tho p|po||no. 1hat wasn't go|ng torward,' sa|d Vatzko.
What to||owod has boon ca||od ono ot tho most pro|ongod and b|ttor
controntat|ons ot tho ora.'
Kazakhstan |oomod |argo to luss|a. 1ho two countr|os sharod a
4,2b0-m||o bordor, and tho |argo othn|c luss|an popu|at|on tost|t|od to
Kazakhstan's c|oso ||nks. 1ho luss|ans rosontod tho growth ot U.3.
|nt|uonco |n tho now|y |ndopondont statos, |nc|ud|ng |n Kazakhstan, and
what thoy saw as an Amor|can |n|t|at|vo to cut thom out ot tho act|on |n
tho|r natura| sphoro, tho loar Abroad.
Voro spoc|t|ca||y, tho luss|ans rogardod 1ong|z as tho|r o||.' 1hoy
had tound |t, thoy had dr|||od tor |t, thoy had bogun to dovo|op |t, thoy
had put monoy and |ntrastructuro |nto |t-and |t wou|d havo boon tho
groat now t|o|d. 3ut |t had boon snatchod trom tho|r hands by tho
co||apso ot tho 3ov|ot Un|on. 1hoy woro dotorm|nod to oxtract
max|mum rocomponso and onsuro that thoy part|c|patod |n 1ong|z.
1ho two s|dos woro constant|y at odds. lt took s|x yoars to ta|k tho
luss|an s|do round to bu||d|ng tho o|| p|po||no,' roca||od lazarbayov.
1ho o|| |obby |n luss|a put tromondous prossuro on 3or|s Yo|st|n to
got h|m to convoy tho ownorsh|p ot tho 1ong|z o|| t|o|d to luss|a. l had
many d|sagrooab|o convorsat|ons . . . about th|s.'
Onco, at a moot|ng |n Voscow, Yo|ts|n sa|d to lazarbayov, G|vo
1ong|z to mo.'
lazarbayov |ookod at tho luss|an pros|dont and roa||zod that ho
was not jok|ng. Wo||,' lazarbayov rop||od, |t luss|a g|vos us
Oronburg lrov|nco. Attor a||, Oronburg was onco tho cap|ta| ot
Kazakhstan.'
0o you havo torr|tor|a| c|a|ms on luss|a?' Yo|ts|n shot back.
Ot courso not,' lazarbayov rop||od.
W|th that, tho pros|donts ot |ndopondont countr|os, both ot whom
had r|son up togothor |n tho 3ov|ot h|orarchy, burst out |augh|ng. 3ut
lazarbayov had no |ntont|on ot g|v|ng way. |or, |t ho d|d, Kazakhstan
wou|d havo bocomo luss|a's oconom|c hostago'-and, onco aga|n,
an appondago.'
b
1EE NA|N 1E|NC |5 1EA1 1EE O|L CONE5
Ou1"
3ut w|th no progross on roso|v|ng tho ownorsh|p and oconom|cs ot tho
p|po||no, Kazakhstan's trustrat|on was grow|ng. lt noodod a go-ahoad
on o||, |ts oconom|c s|tuat|on was dosporato. G0l had shrunk a|most
40 porcont s|nco 1000, and |ts nascont ontorpr|sos cou|d not got
|ntornat|ona| crod|t. lazarbayov's angor ovor tho |mpasso botwoon
0ouss and Chovron mountod. 1ho prob|om |s that tho monoy has to
bo |nvostod,' tho |rato lazarbayov doc|arod. What d|ttoronco |s |t to
mo |t |t |s Amor|cans, Oman|s, luss|ans? 1ho ma|n th|ng |s that o||
comos out.'
0
As |t was, tho o|| was com|ng out, but on|y w|th groat d|tt|cu|ty and
|mprov|sat|on. As product|on roso, Chovron startod sh|pp|ng 100,000
barro|s a day by tankor across tho Casp|an to 3aku. 1hon, what
soomod to bo tho ont|ro Azorba|jan| and Goorg|an ra|| systoms woro
mustorod to movo tho o|| on to tho 3|ack 3oa. Chovron was a|so
|oas|ng s|x thousand luss|an ra|| tank cars to movo add|t|ona| o|| to tho
3|ack 3oa port ot Odossa, wh|ch, to mako th|ngs moro comp||catod,
was now part ot Ukra|no. Onco aga|n, |t soomod back to tho
n|notoonth contury |n torms ot |og|st|cs. And that just wou|d not do.
1ohn 0ouss had a part|cu|ar patron |n Oman, tho doputy pr|mo
m|n|stor. 3ut thon th|s m|n|stor was mystor|ous|y k|||od |n an auto
co|||s|on |n tho m|dd|o ot tho dosort. 1horoattor Oman's support tor
0ouss dw|nd|od away at romarkab|o spood. At tho samo t|mo,
Kazakhstan canco|od 0ouss's oxc|us|vo r|ghts to nogot|ato tor
t|nanc|ng tor tho p|po||no. 1ho Un|tod 3tatos was bocom|ng a|armod at
tho do|ay |n gott|ng tho transportat|on |ssuo sott|od and tho rosu|t|ng
r|sks to tho t|nanc|a| stab|||ty and thus tho nat|onhood ot Kazakhstan,
wh|ch had boon vory cooporat|vo on a numbor ot |ssuos-most notab|y
|n d|spos|ng ot tho nuc|oar woapons |ott boh|nd |n |ts torr|tory attor tho
co||apso ot tho 3ov|ot Un|on. W|thout tho o|| p|po||no, th|s part|cu|ar
now|y |ndopondont' stato was corta|n|y go|ng to bo |oss |ndopondont.
|av|ng a troobootor-o|| trador 1ohn 0ouss-ond|ng up w|th contro| ot
somoth|ng so stratog|c and s|gn|t|cant tor g|oba| onorgy socur|ty as tho
major oxport routo tor Kazakh's tuturo o|| was dot|n|to|y soon as a
prob|om. ||nanco wou|d bo koy to whothor 0ouss's p|an wou|d go
ahoad. lt bocamo c|oar that Wostorn |oans woro novor go|ng to bo
ava||ab|o to t|nanco 1ohn 0ouss to bocomo tho p|po||no arb|tor ot
Kazakh o||. W|th that, 0ouss tadod out ot tho p|cturo.
3ut Voscow st||| noodod to agroo to a p|po||no runn|ng through
luss|an torr|tory. Un|tod 3tatos v|co lros|dont A| Goro usod h|s co-
cha|rmansh|p ot a jo|nt U.3.-luss|an comm|ss|on to succosstu||y
conv|nco lrom|or v|ktor Chornomyrd|n that th|s was |n luss|a's
|ntorosts. lt a|so bocamo vory apparont that luss|an part|c|pat|on |n
tho projoct |tso|t wou|d bo an assot. luss|a's luko||, |n partnorsh|p w|th
tho Amor|can company AlCO, camo |n and purchasod a sharo ot
1ong|z.
Voanwh||o, Kazakhstan had askod Vob|| to ho|p put up monoy tor
tho p|po||no. l t|na||y sa|d wo woro not go|ng to ho|p on tho p|po||no |n
ordor to ho|p Chovron crudo to got out ot 1ong|z,' sa|d Vob||'s CEO,
luc|o loto. 1ong|z was an abso|uto|y wor|d-c|ass opportun|ty.' Vob||
pa|d a b||||on do||ars, part ot |t up tront, and bought a quartor ot tho o||
t|o|d |tso|t.
7
ln 1000 a now agroomont dramat|ca||y rostructurod tho or|g|na|
consort|um. 1ho o|| compan|os woro now mombors |n a b0-b0
partnorsh|p w|th tho luss|ans, tho Kazakhs, and Oman. 1ho
compan|os pa|d tor tho construct|on ot tho now p|po||no-$2.0 b||||on
-wh||o luss|a and Kazakhstan contr|butod tho r|ght-ot-way and such
p|po||no capac|ty as was a|roady |n p|aco. 1horo was st||| much that
was d|tt|cu|t to got dono, |nc|ud|ng socur|ng tho actua| routo.
Vatzko and vag|t A|okporov, tho CEO ot luko||, barnstormod by
p|ano, v|s|t|ng tho |ntorostod part|os a|| a|ong tho proposod p|po||no
routo. Each stop roqu|rod a banquot or a hoavy rocopt|on, wh|ch
somot|mos moant as many as o|ovon moa|s a day tor tho travo||ng o||
mon, |oav|ng thom stuttod and groggy by n|ghtt|mo. W|th tho door thus
oponod, tho Casp|an l|po||no Consort|um had to to||ow up and go |nto
ovory |oca||ty and to nogot|ato r|ght-ot-way agroomonts tor tho now
p|po||no.
8
lonotho|oss, |n 2001 tho t|rst o|| trom 1ong|z passod |nto tho
p|po||no. 1h|s was a |andmark. Kazakhstan now, too, was |ntogratod
|nto tho g|oba| o|| |ndustry. ln tho yoars that to||owod, thoro woro many
po|nts ot contont|on about 1ong|z, wh|ch cont|nuo to tho prosont day,
but thoy woro about tho trad|t|ona| |ssuos-about how much tho
govornmont's tako,' or sharo ot rovonuos and prot|ts, wou|d |ncroaso.
3y 2011 product|on was up to about 080,000 barro|s ot ||qu|ds por day
-ton t|mos what |t had boon whon Chovron had bogun to work |n tho
t|o|d a docado and a ha|t oar||or-and p|ann|ng was wo|| advancod tor
tho noxt stago ot |ncroaso. 1ho d|tt|cu|t|os ot doa||ng w|th tho sour gas,
|adon w|th hydrogon su|t|do, had, howovor, dr|von tho pr|co tag tor
1ong|z up trom tho ant|c|patod $20 b||||on to moro ||ko $80 b||||on.
1ong|z |s not tho on|y supp||or |nto tho Casp|an l|po||no. Anothor
s|gn|t|cant t|o|d, Karachaganak, toods |nto |t, as do othor sma||or
t|o|ds.
KA5EACAN
1ho |argost s|ng|o o|| t|o|d d|scovorod |n tho wor|d s|nco 1008 |s a|so |n
Kazakhstan. 1h|s |s tho |mmonso Kashagan t|o|d, t|tty m||os ottshoro |n
tho wators |n tho northoast ot tho Casp|an. 1ho 3ov|ot o|| |ndustry had
dono so|sm|c tost|ng thoro but d|d not havo tho tochno|ogy to oxp|oro
tho ottshoro rog|on. ln 1007 a consort|um ot Wostorn compan|os had
|nkod a doa| w|th tho Kazakh govornmont to oxp|oro and dovo|op tho
northorn Casp|an. ln 1u|y 2000 thoy struck o||. 3ubsoquont|y,
Kashagan's rocovorab|o rosorvos havo boon ost|matod at 18 b||||on
barro|s, as b|g as tho lorth 3|opo ot A|aska.
Kashagan's potont|a| may bo groat, but |t has a|so boon tho subjoct
ot cont|nu|ng contont|on and d|scord among tho |ntornat|ona| partnors
-Ell, 3ho||, ExxonVob||, 1ota|, Conocolh||||ps, and 1apan's lnpox-
and botwoon a|| ot thom and tho Kazakh govornmont. |or wh||o
Kashagan may bo |mmonso, so aro |ts cha||ongos. 1hoy dwart by tar
thoso ot 1ong|z. A who|o now product|on tochno|ogy has had to bo
dos|gnod tor tho comp|ox, tragmontod t|o|d |n what has boon
doscr|bod as tho wor|d's |argost o|| dovo|opmont.' 1ho potro|oum
rosourcos aro bur|od two and a ha|t m||os bonoath tho soabod, undor
onormous prossuro and suttusod w|th tho samo dangorous hydrogon
su|t|do tound onshoro at 1ong|z. Attor many d|tt|cu|t|os and sotbacks,
and |n tho taco ot ba||oon|ng costs and much acr|mony and dobato, tho
compan|os had to start ovor and roa||ocato ro|os. 1ho projoct has
takon a|most a docado |ongor than ant|c|patod to comp|oto, t|rst o|| |s
not oxpoctod botoro 2012, and ant|c|patod costs havo |ncroasod to
moro than $40 b||||on tor tho t|rst phaso. A|| ot th|s has |ntur|atod tho
Kazakh govornmont, wh|ch |s hav|ng to wa|t yoars |ongor than |t had
ant|c|patod tor Kashagan rovonuos to start t|ow|ng |nto |ts troasury. 3ut
whon Kashagan doos start up product|on, |t cou|d add 1.b m||||on
barro|s ot o|| a day to wor|d supp||os.
0
ONE NORE DEAL
1horo was ono othor notab|o Kazakh doa|, though not undorstood as
such at tho t|mo. ln 1007 Ch|na lat|ona| lotro|oum Corporat|on, a
stato-ownod o|| company ||tt|o known to tho outs|do wor|d at tho t|mo,
bought most ot a Kazakh o|| company ca||od Aktobo Vuna|gas, and
comm|ttod to bu||d a p|po||no to Ch|na. lroduct|on |n 1007 was on|y
about 00,000 barro|s a day, but tho Ch|noso havo s|nco doub|od |t.
l|tt|o attont|on was pa|d to that t|rst ontry ot Ch|na |nto Kazakhstan, and
ovon that attont|on was m|xod w|th much skopt|c|sm about tho p|po||no
and tho ovora|| prospocts. As ono koon obsorvor ot Casp|an o|| was to
noto a|most a docado and a ha|t |ator, |ow wrong wo woro.'
3ut, thon, contur|os oar||or a luss|an goographor had caught a
g||mpso ot tho tuturo. |o had wr|tton that tho poop|o ot tho stoppos
wou|d a|so nood to |ook to tho East tor tho markots tor tho|r natura|
rosourcos.
10
1uRKNEN|51AN AND 1EE P|PEL|NE 1EA1
NEVER WA5
Ono othor major sourco ot hydrocarbons was, at |oast potont|a||y,
un|oashod by tho broakup ot tho 3ov|ot Un|on-1urkmon|stan. 1horo,
too, a p|an omorgod tor major p|po||nos. lt wou|d connoct tho wor|d |n
now ways. 3ut that projoct, too, was comp||catod and ovon moro
cont|ngont, and ovor s|nco wrappod |n many |ogonds, |nc|ud|ng that |t
was part ot a grand stratogy. ln tact, |t was much moro ot a groat t|yor
-a |a|| Vary pass ot transcont|nonta| proport|ons.
1urkmon|stan s|ts on tho southoast cornor ot tho Casp|an,
|mmod|ato|y north ot Atghan|stan. lt was h|gh|y |so|atod |n 3ov|ot t|mos.
Endowod w|th s|gn|t|cant o|| rosourcos, |t |s tru|y r|ch |n natura| gas.
1h|s was rocogn|zod ovon |n tho oar|y 1000s-and ovon moro so
today, as 1urkmon|stan now ranks as tho tourth-|argost ho|dor ot
convont|ona| natura| gas rosourcos |n tho wor|d. lmmod|ato|y attor tho
broakup ot tho 3ov|ot Un|on, 1urkmon|stan managod to oarn somo
monoy and bartor tor goods by do||vor|ng gas |nto tho luss|an p|po||no
systom, just as |t had supp||od gas to tho 3ov|ot systom. 1h|s was tho
now country's major rovonuo sourco. 3ut thon, |n 1008, tho luss|ans
abrupt|y shut down such |mports. W|th tho|r oconomy |n troota||, tho
luss|ans d|d not nood tho 1urkmon gas. 1urkmon|stan managod to
stay at|oat oconom|ca||y-just baro|y-by so|||ng cotton and |ts ||m|tod
output ot o||.
1AP AND CAOP
1urkmon|stan's ont|ro ox|st|ng p|po||no systom, bu||t tor tho |ntogratod
3ov|ot oconomy, t|owod north |nto luss|a. An a|tornat|vo oxport routo
|ookod ||ko a vory good |doa. 3ut g|von tho goography and tho
no|ghbors, |t was just vory hard to soo what tho a|tornat|vo routo m|ght
bo. As ono Wostorn o|| man put |t at tho t|mo, Corta|n|y thoro |s no
oasy way out ot Contra| As|a.' 1ho U.3. govornmont |ont support to a
projoct to sh|p gas trom 1urkmon|stan across tho Casp|an 3oa to
Azorba|jan and on to Europo, but that novor ovontuatod.
1horo was ono poss|b|||ty that rocommondod |tso|t, but, a|ong w|th
a|| tho othor norma| |nputs ot monoy and ong|noor|ng capab|||t|os and
d|p|omat|c sk|||s, th|s part|cu|ar trans|t routo wou|d roqu|ro somoth|ng
o|so-vory substant|a| amounts ot po||t|ca| |mag|nat|on. |or tho
onv|s|onod track wou|d tako tho gas south through Atghan|stan and
|nto lak|stan, whoro somo ot |t wou|d bo usod domost|ca||y and somo
oxportod as ||quot|od natura| gas (llG). 1ho rost wou|d bo oxportod
tarthor south by p|po||no |nto lnd|a. Voroovor, tho proposod 1,040-m||o
o|| p|po||no cou|d ho|p movo tho |and|ockod potro|oum rosourcos ot
Contra| As|a south to g|oba| markots, c|osor to As|a, but w|thout hav|ng
to go through lran and tho lors|an Gu|t. On|y about 440 m||os ot tho
p|po||no wou|d bo |n Atghan|stan,' ono o|| man opt|m|st|ca||y sa|d |n
congross|ona| tost|mony. And tho routo had ono moro doc|dod
advantago: |t |ookod to bo tho choapost |n torms ot transport|ng o||.'
lt was a vory b|g |doa that appoa|od to a company ca||od Unoca|,
ono ot tho sma||or ot tho U.3. majors. 3tartod as a Ca||torn|a company,
|t had a|roady dovo|opod a s|gn|t|cant pos|t|on as a natura| gas
producor |n 3outhoast As|a, and had a|so boon ono ot tho p|onoors ot
tho AlOC, ot wh|ch |t ownod about 10 porcont. Onco tho 3aku-1b|||s|-
Coyhan l|po||no projoct got go|ng, roca||od 1ohn lm|o, Unoca|'s
pros|dont, Wo askod ourso|vos, What's tho noxt projoct?
1urkmon|stan had a |ot ot gas, but a|| tho p|po||nos woro go|ng north,
and tho luss|ans woro not tak|ng tho gas. Our prom|so was that
Contra| As|a noodod an out|ot to tho lnd|an Ocoan.' 3o conv|ncod was
Unoca| ot tho potont|a| ot add|t|ona| transport routos that |t ombracod
what bocamo a tamous s|ogan, |app|noss ls Vu|t|p|o l|po||nos.'
|or Unoca|, a projoct w|th 1urkmon|stan cou|d bo tho gamo changor,
an onormous opportun|ty that cou|d |oaptrog Unoca| |nto tho tront ranks
ot |ntornat|ona| compan|os. Varty V|||or, tho Unoca| oxocut|vo w|th tho
rospons|b|||ty tor tho projoct, doscr|bod |t as tho moon shot' |n tho
company's portto||o ot poss|b|o tuturo projocts. lt was an $8 b||||on
|doa, tor |t wou|d a|so bo a twotor'-tw|n natura| gas and o|| p|po||nos.
1ho natura| gas ||no was dubbod tho 1rans-Atghan l|po||no, and tho
o||, tho Contra| As|an O|| l|po||no.
1ogothor 1Al and CAOl (tho |attor pronouncod as cap') wou|d
opon g|oba| markots to 1urkmon rosourcos, thoy wou|d prov|do
s|gn|t|cant trans|t rovonuos to Atghan|stan, an a|tornat|vo to tho
rovonuos that tho nat|on dor|vod trom op|um cu|t|vat|on. 1Al wou|d
do||vor natura| gas to tho grow|ng oconom|os ot lak|stan and lnd|a,
whoro, tho oconom|cs |nd|catod, |t wou|d bo choapor than |mportod
llG. CAOl wou|d movo a m||||on barro|s por day ot o|| south trom
1urkmon|stan and o|sowhoro |n Contra| As|a, porhaps ovon luss|a.
11
Unoca| cou|d a|roady c|oar|y soo that tho groat growth markots ot tho
twonty-t|rst contury wou|d bo |n that rog|on. Yot rot|oct|ng tho
porspoct|vos ot tho t|mos, tho ma|n markots tor 1urkmon o|| woro
thought to bo 1apan and Koroa. Ch|na, as a markot at that po|nt, was
st||| ||tt|o moro than a tootnoto. Attor a||, |t was on|y two yoars oar||or that
Ch|na had stoppod oxport|ng o|| and bocomo an |mportor. 1ho gas
projoct was part|cu|ar|y compo|||ng to somo po||cymakors |n lnd|a, who
hopod that a natura| gas ||nk wou|d t|o lnd|a and lak|stan togothor w|th
common |ntorosts that wou|d ho|p to ottsot docados ot cont||ct and
r|va|ry. 1hoy ca||od |t a poaco p|po||no.'
1o say tho projoct was cha||ong|ng' was an undorstatomont.
1uRNO|L EN ROu1E
1ho ma|n trans|t country tor 1Al and CAOl was Atghan|stan, but
Atghan|stan |n tho m|d-1000s was hard|y a tunct|on|ng country. |or ton
yoars tho country had boon torn apart by a war botwoon 3ov|ot troops,
wh|ch had |nvadod |n 1070, and Atghan mujahodoon, supportod by
lak|stan, tho Un|tod 3tatos, and 3aud| Arab|a, among othors. 1ho
groatost m|stako [ot tho 3ov|ot |ntorvont|on| was ta|||ng to undorstand
Atghan|stan's comp|ox|ty-|ts patchwork ot othn|c groups, c|ans and
tr|bos, |ts un|quo trad|t|ons and m|n|ma| govornanco,' 3ov|ot pros|dont
V|kha|| Gorbachov |ator sa|d. 1ho rosu|t was tho oppos|to ot what wo
had |ntondod-ovon groator |nstab|||ty, a war w|th thousands ot v|ct|ms
and dangorous consoquoncos tor our own country.' Gorbachov know
ot what ho spoko. 1ho rotroat ot tho |ast 3ov|ot troops ovor tho 1ormoz
3r|dgo back |nto tho 3ov|ot Un|on |n |obruary 1080 was tho t|na| act |n
tho projoct|on ot 3ov|ot m|||tary powor boyond |ts bordors, and |t had
ta||od-that rotroat wou|d bo a gr|m |andmark on tho way toward tho
co||apso ot tho 3ov|ot Un|on.
12
3ut, thon, w|th tho war ovor, and tho wor|d caught up |n both tho
co||apso ot commun|sm and tho Gu|t War, Atghan|stan s||ppod ott tho
|ntornat|ona| agonda and was torgotton-an om|ss|on that wou|d havo
onormous g|oba| consoquoncos a docado |ator. 1ho country
dogonoratod |nto c|v|| war and |aw|ossnoss as war|ords strugg|od tor
pr|macy. ln 1004 a group ot ls|am|sts-tho studonts' or 1a||ban'-
camo togothor as v|g||antos to tako mattors |nto tho|r own hands and
rostoro ordor, but a|so, as |t turnod out, to ostab||sh a vory str|ct ls|am|c
ordor. 1hoy ra|||od supportors |n a campa|gn aga|nst corrupt|on and
cr|mo and hatod war|ords. vory qu|ck|y, oporat|ng w|th a cava|ry ot
1oyota p|ckup trucks oqu|ppod w|th mach|no guns, thoy turnod
thomso|vos |nto a zoa|ous m|||t|a, a|roady batt|o-hardonod by tho war
aga|nst tho 3ov|ots. 1hoy ga|nod contro| ovor much ot tho southorn
part ot tho country, |argo|y dom|natod by tho lashtuns, wh|ch thoy
ronamod tho ls|am|c Em|rato ot Atghan|stan.
18
1horo was yot anothor obstac|o to 1Al and CAOl-tho h|stor|c
onm|ty, somot|mos punctuatod by war, botwoon lnd|a and lak|stan,
tho two countr|os that woro |ntondod to bo tho ma|n out|ot tor tho gas
and o|| t|ow|ng trom 1urkmon|stan. 1ho|r m|||tar|os woro dos|gnod
ma|n|y to t|ght oach othor, and cont||ct too otton soomod |mm|nont.
lak|stan |tso|t, w|th |ts vory contont|ous po||t|cs, was |n a stato ot
cont|nuous po||t|ca| turmo||. 1ho l3l, tho lak|stan| socur|ty sorv|cos,
was sponsor|ng tho 1a||ban to pursuo what |t saw as lak|stan's own
stratog|c |ntorosts-|n part|cu|ar, as a lashtun buttor aga|nst what thoy
toarod wou|d bo an lnd|a-dom|natod govornmont |n Kabu|. Evonts
wou|d |ator domonstrato that th|s was a m|stako ot h|stor|c proport|ons.
|or A| Oaoda and a comb|nod Atghan and lak|stan 1a||ban wou|d, a
docado and ha|t |ator, cha||ongo tho vory |og|t|macy ot lak|stan as a
nat|on and sook to dostab|||zo and ovorturn |t and rop|aco |t w|th an
ls|am|c ca||phato.
1EE 1uRKNENBA5E|"
ln 1urkmon|stan |tso|t, thoro was ono add|t|ona| |ssuo: tho rosourcos
had to bo socurod. And that moant doa||ng w|th ono ot tho most
unusua| t|guros to omorgo trom tho co||apso ot tho 3ov|ot Un|on-
3aparmurat l|yazov, tho tormor t|rst socrotary ot tho 1urkmon|stan
Commun|st larty, who had, attor tho 3ov|ot broakup, takon ovor as
pros|dont and abso|uto ru|or. |o had a|so ano|ntod h|mso|t
1urkmonbash|'-tho loador ot A|| tho 1urkmon.' ||s cu|t ot
porsona||ty r|va|od any |n tho twont|oth contury. (|o onco pr|vato|y
oxp|a|nod that |t was part ot h|s dr|vo to croato |dont|ty and |og|t|macy
tor tho now 1urkmon nat|on.) ||s p|cturo was ovorywhoro, h|s statuos,
p|ont|tu|. |o ronamod tho days ot tho month attor h|s mothor and othor
mombors ot h|s tam||y, a|| ot whom had boon k|||od |n a 1048
oarthquako. l|yazov h|mso|t had boon ra|sod |n an orphanago. |o had
boon so|octod as hoad ot tho Commun|ty larty |n 3ov|ot t|mos attor
h|s prodocossor was romovod bocauso ot a nopot|sm scanda|
|nvo|v|ng many ro|at|vos, |t was sa|d that l|yazov's accoss|on was
ho|pod bocauso ho had no ro|at|vos. Onco 1urkmon|stan bocamo
|ndopondont, l|yazov ompt|od schoo| ||brar|os, rot||||ng thom w|th h|s
a ramb||ng comb|nat|on ot autob|ography and
ph||osoph|ca| rum|nat|on on 1urkmon nat|ona||ty. Vod|ca| doctors had
to ronounco tho ||ppocrat|c oath and |nstoad swoar a||og|anco to h|m.
|o a|so ordorod a roduct|on |n tho numbor ot schoo| yoars tor ch||dron,
bannod opora and ba||ot as a||on,' and proh|b|tod toma|o to|ov|s|on
nows anchors trom woar|ng cosmot|cs on a|r.
Wh||o h|gh|y author|tar|an |n most ways, l|yazov was rathor ||bora| |n
ono way-and that was w|th tho country's phys|ca| rosourcos. |or
1urkmon|stan was thought to so|| tho samo natura| gas to moro than
ono buyor. ln th|s part|cu|ar caso, Unoca| thought |t had obta|nod r|ghts
to oxport koy gas rosourcos. 3ut so d|d 3r|das, an Argont|no
company, wh|ch had add|t|ona| support trom lak|stan. Unoca| worr|od
that l|yazov d|d not undorstand, as ono Unoca| nogot|ator put |t, what
was roqu|rod to |mp|omont a projoct ot such magn|tudo.'
14
EOPE AND EXPER|ENCE
lovortho|oss, by tho autumn ot 100b, Unoca| had a pro||m|nary
agroomont w|th 1urkmon|stan. l|yazov was |n low York C|ty tor tho
t|tt|oth ann|vorsary ot tho Un|tod lat|ons, and Unoca| organ|zod a
s|gn|ng coromony at tho Amor|cas 3oc|oty on lark Avonuo. 1ho
coromony was |mmod|ato|y to||owod by a |unch |n tho grand 3a|on
3imon 3o||var. 0om|nat|ng tho room was a |argo map ot tho rog|on,
sot up on oaso|s, that showod tho proposod routos tor 1Al and
CAOl. 1ho |unch was pros|dod ovor by 1ohn lm|o, Unoca|'s pros|dont,
a man ot somo onthus|asm. 3trugg||ng to t|nd common ground w|th tho
1urkmonbash|, wh|ch was not at a|| an oasy th|ng to do, lm|o camo up
w|th at |oast ono th|ng thoy abso|uto|y and |ndub|tab|y sharod |n
common-both woro t|tty-t|vo yoars o|d, ho doc|arod w|th a b|g sm||o.
1ho guost ot honor was tormor 3ocrotary ot 3tato |onry K|ss|ngor,
who was oscortod to tho map, wh|ch ho spont somo t|mo oxam|n|ng,
|nc|ud|ng tho routo by wh|ch 1Al and CAOl wou|d snako down trom
1urkmon|stan through Atghan|stan, ovor tho mounta|ns |nto lak|stan,
and thon branch to tho soa and down tarthor |nto lnd|a. Attor tho moa|,
K|ss|ngor do||vorod tho |unchoon addross. |o ottorod bost w|shos on
tho projoct. |o thon addod h|s own assossmont ot |ts prospocts. l am
rom|ndod,' ho sa|d, ot 0r. 3amuo| 1ohnson's tamous commont on
socond marr|agos-that thoy aro 'tho tr|umph ot hopo ovor
oxpor|onco.' '
lm|o turnod a ||tt|o wh|to. |o wasn't suro |t |t was a joko or a
prophocy.
NO POL|CY"
1horo was ||tt|o |ntorost |n tho projoct on tho part ot tho U.3.
govornmont, wh|ch was much moro prooccup|od w|th tho broakup ot
tho 3ov|ot Un|on and tho othor onorgy |n|t|at|vos |nvo|v|ng Azorba|jan
and Kazakhstan and that poss|b|o gas p|po||no across tho Casp|an.
1h|s m|rrorod tho |argor d|s|ntorost toward Atghan|stan, so d|ttoront
trom just a tow yoars oar||or, whon |t had boon tho |ast batt|oground ot
tho Co|d War. Onco that strugg|o was ovor |n 1080, tho Un|tod 3tatos
just packod up and soomod to torgot about Atghan|stan and |ts
postwar roconstruct|on. Vuch ot Atghan|stan's oducatod m|dd|o c|ass
was |ong gono, and tho country to|| back |nto batt|o among tho war|ords
who had |od tho mujahodoon. As tho U.3. ambassador to lak|stan
|ator sa|d, 1horo bas|ca||y was no po||cy' toward Atghan|stan |n tho
1000s.
Unoca| rocogn|zod that |t cou|d not oporato |n a vacuum. lt noodod
somoono to nogot|ato w|th-that a cond|t|on tor tho |mp|omontat|on ot
tho p|po||no projoct |s tho ostab||shmont ot a s|ng|o, |ntornat|ona||y
rocogn|zod ont|ty' runn|ng tho country that |s author|zod to act on
boha|t ot a|| Atghan part|os.' Who wou|d |t bo ? 1ry|ng to |mp|omont
th|s transtormat|vo projoct both tor tho rog|on and |tso|t, Unoca| was
strugg||ng to undorstand tho compot|ng tact|ons, ospoc|a||y tho
1a||ban. Woro tho 1a||ban p|ous poop|o' who wou|d br|ng somo ordor
and stab|||ty to tho chaot|c, v|o|onco-wrackod country? Or woro thoy
m|||tants and tanat|ca| zoa|ots w|th an a|togothor |ncompat|b|o
agonda?
lt otton happons that whon a U.3. o|| company |s ontor|ng a now
country, tho company w||| |nv|to roprosontat|vos trom that country to tho
Un|tod 3tatos to tour |ts tac|||t|os and |oarn moro about how tho
company and tho |ndustry oporatos-and to bog|n to ostab||sh tho k|nd
ot work|ng d|a|oguo that |s roqu|rod whon hundrods ot m||||ons and
thon b||||ons ot do||ars start gott|ng |nvostod. 3ut |n Atghan|stan, th|s
was much moro cha||ong|ng than |s typ|ca||y tho caso. ln an ottort to
bu||d somo bonds-thoso guys had novor soon tho ocoan,' sa|d lm|o
-Unoca| brought a do|ogat|on ot 1a||ban to tho Un|tod 3tatos.
lnc|udod was a tr|p to |ouston to show thom tho modorn o|| and gas
|ndustry, and to Wash|ngton tor a v|s|t to tho 3tato 0opartmont. 3ut
Unoca| rocogn|zod at tho t|mo, no h|gh |ovo| U3 |nvo|vomont [had|
mator|a||zod.' Unoca| s|m||ar|y ho|pod sponsor a v|s|t by tho 1a||ban's
hatod r|va|, tho lorthorn A|||anco, that to||owod tho samo routo. lm|o
gavo a s|m||ar mossago to both groups. Wo can on|y doa| w|th you
whon you stop t|ght|ng, torm a govornmont that |s roprosontat|vo ot a||
tact|ons, and rocogn|zod by tho Un|tod lat|ons.' Unoca| a|so gavo
both s|dos tho samo prosont, a p|oco ot commun|cat|on tochno|ogy
that was a vory pract|ca| symbo| ot tho advanc|ng tochno|ogy ot tho
1000s-a tax mach|no. 1ho mossago to both groups was tho samo:
3tay |n touch.
1b
WE|CE 5CENAR|O?
ln tho spr|ng ot 1000, Unoca| oxam|nod a roport out||n|ng sovora|
sconar|os, w|th a rango ot probab|||t|os, tor tho tuturo ot Atghan|stan.
lono ot thom woro prom|s|ng. 1ho h|ghost probab|||ty was a
cont|nuat|on ot tho war|ord|sm sconar|o.' ln anothor tho non-lashtuns
wou|d broak ott and torm tho|r own stato, Khorastan, wh|ch wou|d
or|ont |tso|t toward Contra| As|a. 1horo was a|so a sconar|o |n wh|ch
lran and lak|stan wou|d bocomo much moro d|roct|y |nvo|vod on tho
ground |n Atghan|stan.
1ho |oast ||ko|y sconar|o |n tho roport was a tr|umphant 1a||ban.'
Undor that un||ko|y sconar|o, |t was thought, tho 1a||ban wou|d nood
oconom|c dovo|opmont to conso||dato |ts ho|d and ga|n popu|ar
support'-wh|ch, rat|ona||y, wou|d |oad |t to sook toro|gn a|d and
|nvostmont.' 3ut that ottort wou|d bo hamporod by tho 1a||ban's major
human r|ghts v|o|at|ons |n tho|r doa||ngs w|th womon, 3h||tos, and
1aj|ks.' Yot a 1a||ban v|ctory soomod dub|ous, |mpodod among othor
th|ngs by tact|ona||sm and |nt|ght|ng among tho 1a||ban. 3ut tho
1a||ban's odds m|ght |mprovo tor a var|oty ot roasons, |nc|ud|ng |t |t
woro to roco|vo a substant|a| |ncroaso |n outs|do ass|stanco w|thout
s|m||ar |ncroaso |n support' tor tho govornmont |n Kabu|.
Ono sourco ot support was tho l3l, lak|stan' |nto||ogonco agoncy,
wh|ch stoppod up to ottor tho 1a||ban un||m|tod covort a|d.' 3ut |n tho
spr|ng ot 1000, anothor sourco mator|a||zod. Unboknownst to most ot
tho wor|d, tho v|rtua||y unknown Osama b|n ladon, avo|d|ng oxtrad|t|on
by 3aud| Arab|a, had movod h|s rot|nuo trom 3udan to Atghan|stan
and sot up shop. |o bogan to substant|a||y bankro|| tho 1a||ban. 1horo
ho a|so bu||t h|s own organ|zat|on, A| Oaoda. lt was trom h|s now
rodoubt |n Atghan|stan that, |n tho summor ot 1000, ho |ssuod h|s thon-
obscuro tatwah-h|s doc|arat|on ot 1|had aga|nst Amor|cans
Occupy|ng tho 1wo 3acrod l|acos' and an attack on tho 3aud| roya|
tam||y as tho agont' ot an a|||anco ot |mpor|a||st|c 1ows and Chr|st|ans
-a documont that was taxod to nowspapors |n london, though w|th
||tt|o not|co.
Vonths |ator, |n tho |argost mosquo |n Kandahar, Vu||ah Omar, tho
onooyod |oador ot tho 1a||ban, wou|d, dur|ng h|s sormon, ombraco 3|n
ladon as ono ot ls|am's most |mportant sp|r|tua| |oadors.'
10
1EE END OF 1EE ROAD
3y tho oar|y autumn, tho tormor|y |oast ||ko|y ot tho sconar|os oxam|nod
by Unoca| now soomod tho most ||ko|y. On 3optombor 27, 1000, tho
1a||ban capturod Kabu|. 1hoy wastod no t|mo |mpos|ng tho|r str|ct
vors|on ot ls|am|c |aw. lo c|garottos, no toothpasto, no to|ov|s|on, no
k|to t|y|ng. E|ght thousand womon woro summar||y oxpo||od trom Kabu|
Un|vors|ty, and ro||g|ous po||co wou|d boat womon podostr|ans who
woro unaccompan|od by mon.
3ut tho batt|o tor Atghan|stan was not ovor. 1ho 1a||ban was st||| at
war w|th tho lorthorn A|||anco, tho country was not conso||datod, and
porhaps thoro was st||| tho opportun|ty to ongago w|th somo tact|ons
w|th|n tho 1a||ban. At tho samo t|mo, 1urkmon|stan pros|dont l|yazov
was stok|ng Wash|ngton's a|arm by throaton|ng to turn to lran as a
major oxport markot and transport routo tor 1urkmon gas. 1oward tho
ond ot 1000, Unoca| mustorod |ts cont|donco and, |n an ottort to bu||d
momontum and d|p|omat|c support, announcod that, w|th partnors trom
3aud| Arab|a, 3outh Koroa, 1apan, and lak|stan, |t hopod to start
bu||d|ng a p|po||no by tho ond ot 1008.
3ut th|s p|an was bocom|ng |ncroas|ng|y prob|omat|c. ln tho Un|tod
3tatos, tho ont|ro projoct was bocom|ng a targot ot cr|t|c|sm, |nc|ud|ng
trom a movomont, wh|ch was |od by tho w|to ot ta|k-show host 1ay
lono, that attackod Unoca| tor assoc|at|ng w|th a rog|mo so ropross|vo
ot womon. Unoca| sponsorod sk||| tra|n|ng tor Atghan womon as wo||
as mon. lt rota|nod an ls|am|c scho|ar to try to commun|cato w|th tho
1a||ban what tho Koran roa||y sa|d about womon, but tho 1a||ban
wasn't |ntorostod. Onco wo undorstood who tho 1a||ban woro, and
how rad|ca|, th|s projoct d|dn't |ook so good,' sa|d Varty V|||or.
Vany yoars oar||or, |n 1081, a 3r|t|sh scho|ar ot Contra| As|a had
obsorvod: ln Atghan|stan, both Europoan c|oth|ng and unvo|||ng aro
anathoma, and thoro has boon a strong roact|on |n tavor ot ls|am, tho
o|d customs and tho o|d abusos.' 1hat st||| soomod truo 0b yoars |ator.
1ho Wostornors cou|d not tu||y grasp how doop-soatod woro tho
cu|tura| antagon|sms |nto wh|ch thoy woro troad|ng-and how much
thoso antagon|sms rosonatod across h|story-and what was ahoad.
lor d|d thoy know how much monoy Osama b|n ladon was a|roady
spond|ng on tho 1a||ban-nor what ho was brow|ng |n tho Atghan c|ty
ot Kandahar.
On August 7, 1008, two toams ot su|c|do bombors h|t U.3.
ombass|os |n Konya and 1anzan|a. 1ho attacks woro h|gh|y
coord|natod, just n|no m|nutos apart. Konya was worst h|t, w|th 211
doad and 4,000 woundod. 1ho attack had boon mastorm|ndod trom
Atghan|stan by A| Oaoda. A tow days |ator, tho Un|tod 3tatos
rota||atod w|th cru|so m|ss||os a|mod at a suspoctod chom|ca|
woapons tac|||ty |n 3udan and at an A| Oaoda tra|n|ng camp |n
Atghan|stan.
lt d|dn't tako us t|vo m|nutos to know that |t was a|| ovor,' sa|d
Unoca|'s 1ohn lm|o. Wo woro |n rogu|ar contact w|th tho U.3. ombassy
|n lak|stan, and no ono had ovor sa|d anyth|ng about torror|sm. 3ut
now wo undorstood what 3|n ladon was do|ng |n Kandahar.' lm|o
ca||od Unoca|'s ch|ot roprosontat|vo, who happonod to bo on vacat|on
|n tho Un|tod 3tatos, and to|d h|m to torgot about go|ng back to
ls|amabad, lak|stan, |ot a|ono to Kandahar. lt was too dangorous tor
any U.3. bus|nossman promot|ng a projoct that so c|oar|y was
anathoma to tho 1a||ban. A tow months |ator, |nstoad ot start|ng
construct|on, Unoca| doc|arod that |t was w|thdraw|ng a|togothor trom
tho projoct.
1hus, 1Al and CAOl woro t|n|shod botoro thoy startod. A projoct
that wou|d havo oponod a who||y now routo tor Contra| As|an rosourcos
to tho groat growth markot ot As|a was novor to bo. 1ho moon shot
novor got ott tho ground. lt was abortod botoro |aunch by tho 1a||ban
and |ts a||y, A| Oaoda, both armod w|th a m|||tant |doo|ogy and a
vors|on ot ro||g|on that was dotorm|nod to roturn to tho m|dd|o agos.
17


What happonod |n tho 1000s-w|th tho ottshoro t|o|d |n Azorba|jan and
tho 3aku-1b|||s|-Coyhan l|po||no, and 1ong|z and tho Casp|an
p|po||no-was vory s|gn|t|cant tor tho supp||os thoy brought to tho
markots. 1oday tho tota| output ot Azorba|jan and Kazakhstan |s 2.8
m||||on barro|s ot o||-oqu|va|ont to moro than 80 porcont ot lorth 3oa
product|on, and tour t|mos what thoy woro produc|ng a ||tt|o moro than
a docado oar||or. 3ut thoso doa|s woro s|gn|t|cant as turn|ng po|nts-
tor tho way |n wh|ch thoy rodrow tho map ot wor|d o||, tor tho|r
goopo||t|ca| |mpact, tor tho conso||dat|on thoy prov|dod to tho now|y
|ndopondont statos, and tor tho way |n wh|ch thoy roconnoctod tho
hydrocarbons ot tho Casp|an to tho wor|d oconomy-on a sca|o that
cou|d novor havo boon |mag|nod dur|ng tho t|rst groat boom a contury
oar||or.
Voro than a docado |ator, 1urkmon|stan |s st||| nogot|at|ng w|th
Wostorn compan|os ovor tho dovo|opmont ot |ts natura| gas rosourcos.
lak|stan |s strugg||ng w|th a domost|c 1a||ban |nsurgoncy. And lA1O
torcos, pr|mar||y Amor|can, aro t|ght|ng |n Atghan|stan.
4
5uPERNAJOR5"
As|a had boon tho targot markot tor 1Al and CAOl-tho p|po||nos
that novor woro.' |or As|a was boom|ng. 3ut |n 1u|y ot 1007, ono ot tho
most buoyant ot tho oconom|os, that ot 1ha||and, was s|ammod by a
t|nanc|a| cr|s|s that throatonod to dostroy much ot tho country's rocont
oconom|c progross. 3oon tho cr|s|s sproad, throaton|ng tho who|o
rog|on and tho ont|ro As|an Econom|c V|rac|o, w|th tar-roach|ng
|mpact on g|oba| t|nanco and tho wor|d oconomy. lt wou|d a|so
dotonato a transtormat|on |n tho o|| |ndustry.
1EE A5|AN ECONON|C N|RACLE"
1ho t|t|o ot a popu|ar bus|noss book, 7bo Boroor|oss or|o, capturod
tho abound|ng opt|m|sm about tho procoss ot g|oba||zat|on |n tho
1000s that was kn|tt|ng togothor tho d|ttoront parts ot tho wor|d
oconomy. Wor|d trado was grow|ng tastor than tho wor|d oconomy
|tso|t.
1
As|a was at tho torotront. 1ho As|an t|gors'-3outh Koroa,
1a|wan, |ong Kong, and 3|ngaporo, and boh|nd thom tho now t|gors'
ot Va|ays|a, lndonos|a, 1ha||and, and tho lh|||pp|nos, p|us Ch|na's
Guangdong lrov|nco-woro omu|at|ng 1apan's groat oconom|c
succoss.
1ho As|an Econom|c V|rac|o was prov|d|ng a now p|aybook tor th|rd
wor|d oconom|c dovo|opmont. lnstoad ot tho |nward-|ook|ng so|t-
sutt|c|oncy and tho h|gh trado barr|ors that had boon tho canon ot
dovo|opmont |n tho 10b0s and 1000s, tho t|gors' ombracod trado and
tho g|oba| oconomy. ln turn, thoy woro rowardod w|th rap|d|y r|s|ng
|ncomos and romarkab|y tast growth. 3|ngaporo was a bo|oaguorod
c|ty-stato whon |t ga|nod |ndopondonco |n 100b. 3y 1080 |ts por cap|ta
G0l, on a purchas|ng powor par|ty bas|s, was h|ghor than that ot
3r|ta|n, wh|ch, as tho b|rthp|aco ot tho lndustr|a| lovo|ut|on, had a
twohundrod-yoar hoad start. As|a a|so bocamo tho toundat|on tor
supp|y cha|ns,' oxtond|ng trom raw mator|a|s to compononts to t|na|
goods. 1ho wor|d was tru|y bo|ng kn|t togothor |n ways not |mag|nod
ovon a docado oar||or.
1ho h|gh growth ratos |n As|a moant r|s|ng domand tor onorgy, and,
spoc|t|ca||y, tor o||. 1hoso countr|os bocamo tho growth markot tor
potro|oum, and thoro was ovory roason to th|nk that th|s As|an
oconom|c growth wou|d cont|nuo at |ts tovorod paco.
JAKAR1A: OPEC'5 ECONON|C 51AR5"
OlEC potro|oum m|n|stors convonod tor ono ot tho|r rogu|ar soss|ons
|n 1akarta, lndonos|a, |n lovombor 1007. As|a's buoyant prospocts
woro much on tho m|nds ot tho do|ogatos. Vany ot thom woro
cons|dor|ng how to roor|ont tho|r trado moro to tho East. |oro, attor a||,
|t soomod, was tho|r tuturo. 3ut, as |t to symbo||zo how bumpy tho road
to tast growth cou|d bo, thoy tound thomso|vos bookod |nto a not-qu|to-
t|n|shod |uxury hoto| |n wh|ch tho wator supp|y was qu|to unprod|ctab|o.
Attor tour days ot d|scuss|on |n 1akarta, thoy agrood to ra|so tho|r
product|on quota by two m||||on barro|s por day. 1h|s doc|s|on was
|ntondod to ond tho wrang||ng ovor quotas and ovorproduct|on among
mombors. lt was road by somo as a bot on As|a's tuturo, but |t a|so
had anothor, much moro spoc|t|c purposo. 3omo ot tho countr|os,
notab|y 3aud| Arab|a, woro qu|to aggravatod that othor countr|os,
part|cu|ar|y vonozuo|a, woro produc|ng at tho|r max|mum capac|ty, not
at tho|r quotas, and thus tak|ng markot sharo at 3aud| Arab|a's
oxponso. la|s|ng tho quota at 1akarta wou|d |ovo| tho p|ay|ng t|o|d.
low a|| tho oxportors cou|d ott|c|a||y ossont|a||y produco at tho|r
max|mum. Varkot cond|t|ons soomod to nocoss|tato tho |ncroaso.
Wor|d consumpt|on had r|son moro than two m||||on barro|s por day
botwoon 1000 and 1007, and tho lntornat|ona| Enorgy Agoncy was
prod|ct|ng that tho wor|d's consumpt|on wou|d r|so by anothor two
m||||on barro|s por day |n 1008. lr|co w||| ho|d up,' tho o|| m|n|stor trom
Kuwa|t sa|d cont|dont|y attor tho doc|s|on was announcod. 1ho r|so |s
a vory roasonab|o ono.'
1hat judgmont was w|do|y sharod. An obsorvor doscr|bod markot
cond|t|ons as noth|ng |oss than tho a||gnmont ot OlEC's oconom|c
stars.' 3ut, |n tho hoavons abovo, tho stars woro s||ont|y mov|ng.
2
E55EN1|ALLY ALL CONE": 1EE A5|AN
F|NANC|AL CR|5|5
0ur|ng tho courso ot tho 1akarta contoronco, two ot tho do|ogatos to
tho moot|ng woro takon to d|nnor by tho hoad ot tho |oca| lntornat|ona|
Vonotary |und ott|co. |o to|d thom |n no uncorta|n torms that tho
curroncy cr|s|s that had bogun a tow months oar||or was on|y tho
bog|nn|ng ot a tar moro dovastat|ng cr|s|s-and that tho As|an
oconom|c m|rac|o was about to crash on tho rocks. 1ho two do|ogatos
woro shakon by what thoy hoard. 3ut tho doc|s|on to ra|so product|on,
basod upon an opt|m|st|c oconom|c sconar|o, had a|roady boon takon.
lt was too |ato.


As|a was tho dar||ng ot toro|gn cap|ta| dur|ng tho m|d-1000s,' and |t
bocamo tho bonot|c|ary ot a cap|ta| |nt|ow bonanza,' a groat t|ood ot
|ond|ng by |ntornat|ona| banks. As a rosu|t, As|an compan|os and
proporty dovo|opors had takon on much too much dobt-and much ot
|t dangorous|y short-torm and donom|natod |n toro|gn curroncy.
lt was ovor|ovorago |n tho ovorhoatod and ovorbu||t condo and ott|co
bu||d|ng soctors |n 3angkok that causod tho co||apso |n 1u|y 1007 ot
1ha||and's curroncy, wh|ch |n turn tr|ggorod tho ta|| ot curroncy and
stock markots |n othor As|an countr|os. 3y tho ond ot 1007, a vast
pan|c was rag|ng ovor |argo parts ot As|a. Compan|os tumb|od |nto
bankruptcy, bus|nossos c|osod, govornmonts tootorod, poop|o woro
thrown out ot work, and tho h|gh oconom|c growth ratos gavo way to a
v|rtua| oconom|c dopross|on |n many countr|os.
At tho ond ot 1007, 3tan|oy ||schor, tho doputy d|roctor ot tho
lntornat|ona| Vonotary |und, hurr|od|y t|ow to 3oou|. |o was takon |nto
tho vau|t ot tho 3outh Koroan contra| bank so ho cou|d soo w|th h|s own
oyos tho stato ot tho country's t|nanc|a| rosorvos-that |s, how much
monoy was |ott. |o was stunnod by what ho d|scovorod. lt was
ossont|a||y a|| gono,' ho sa|d.
3y thon tho pan|c and contag|on was sproad|ng boyond As|a. ln
August 1008, attor tootor|ng on tho odgo ot cr|s|s, tho luss|an
govornmont dotau|tod on |ts sovoro|gn dobt, sond|ng that country |nto a
suddon downward sp|ra|. 1ho rub|o p|ummotod |n va|uo, and tho
luss|an stock markot to|| by an astound|ng 08 porcont. 1ho now
luss|an o|| majors cou|d not pay tho|r workors and supp||ors. 3a|ar|os
woro s|ashod, somo ot tho most son|or managors woro down to $100
a month.
Wa|| 3troot tootorod on tho odgo whon tho h|gh|y |ovorod hodgo tund
long-1orm Cap|ta| Vanagomont co||apsod. lan|c |n tho Un|tod 3tatos
was avortod by tast act|on by tho low York |odora| losorvo. ln oar|y
1000 tho contag|on soomod about to swoop ovor 3raz||, throaton|ng
what U.3. 1roasury 3ocrotary lobort lub|n ca||od an ongu|t|ng wor|d
cr|s|s.' An |mmonso roscuo ottort, mob|||z|ng vory |argo t|nanc|a|
rosourcos, was mountod to provont 3raz|| trom go|ng down. lt workod.
3raz|| was sparod. 3y tho spr|ng ot 1000, tho pan|c and contag|on
woro ovor.
8
1EE JAKAR1A 5YNDRONE
1ho As|an t|nanc|a| cr|s|s had gonoratod onormous oconom|c ru|n. As
a rosu|t, tho assumpt|ons at tho ond ot 1007, ombod|od |n tho 1akarta
agroomont, woro a|| wrong. 3y |mp|omont|ng tho 1akarta agroomont,
OlEC had boon |ncroas|ng |ts output-just as domand was ta|||ng.
low thoro was way too much o|| |n tho wor|d. Whon thoro was no
moro room |n storago tanks, soago|ng tankors that norma||y
transportod o|| woro turnod |nstoad |nto t|oat|ng storago. And st||| thoro
was too much o||. And not onough domand. 1ho pr|co co||apsod to $10
a barro| and, tor somo grados ot o||, to as |ow as $0. 1hoso woro tho
k|nds ot pr|cos that had boon soon dur|ng tho 1080 co||apso and had
boon thought wou|d novor bo soon aga|n.
1ho 1007 moot|ng |n 1akarta wou|d bo romomborod thoroattor by
tho oxportors as a caut|onary ta|o-tho 1akarta 3yndromo'-tho
dangor ot |ncroas|ng product|on whon domand was woakon|ng or
ovon just uncorta|n. lt was a m|stako thoy |ntondod novor to ropoat.
1EE 5EOCK
1ho pr|co co||apso d|d somoth|ng o|so as wo||. lt sot ott tho most tar-
roach|ng roshap|ng ot tho structuro ot tho potro|oum |ndustry s|nco tho
broakup ot tho 3tandard O|| 1rust by tho U.3. 3upromo Court |n 1011.
1ho rosu|t was somoth|ng that wou|d havo boon un|mag|nab|o w|thout
tho c|rcumstancos croatod by tho pr|co crash.
As o|| pr|cos p|ummotod, tho t|nancos ot tho o|| |ndustry co||apsod.
'3|oodbath' may bo an undorstatomont,' sa|d ono Wa|| 3troot ana|yst.
Compan|os s|ashod budgots and |a|d ott omp|oyoos. Ono ot tho major
compan|os shrank |ts annua| Chr|stmas party down to somo snacks |n
tho catotor|a. 0lOWlllG |n Oll was tho |oad ||nos a tho covor ot 7bo
Ecooomlst. W|th somo oxaggorat|on, that capturod what had bocomo
tho w|dosproad conv|ct|on that pr|cos woro go|ng to bo |ow tor tho
torosooab|o tuturo and that tho tuturo ot tho |ndustry was b|oak.
4
1o somo, though, |t was an opportun|ty, not an oasy ono by any
moans, but a w|ndow through wh|ch to got th|ngs dono. Attor a||,
poop|o wou|d st||| nood potro|oum, and, |ndood, thoy wou|d nood moro
potro|oum whon oconom|c growth rosumod, wh|ch wou|d moan h|ghor
pr|cos. 3ut tho |ndustry wou|d nood to bo moro ott|c|ont, manag|ng |ts
costs bottor, and |ovorag|ng sk|||s and tochno|ogy across a |argor
span. 1hat po|ntod |n ono d|roct|on-toward groator sca|o. And tho
way to got thoro was through morgors.
WERE EE AL|VE 1ODAY . . ."
3andorsto|on |s a rust|c mounta|n rosort |n contra| lorway, roachod
on|y by a tw|st|ng two-|ano h|ghway that has to bo |abor|ous|y p|owod
dur|ng tho w|ntor. ln tho yoars attor d|scovory ot lorth 3oa o|| |n
lorway's ottshoro, |t bocamo tho vonuo tor tho lorwog|an govornmont
and tho o|| compan|os oporat|ng |n tho lorwog|an soctor to got
togothor and thrash out |ndustry |ssuos-ta|k |n tho morn|ng, cross-
country sk||ng |n tho attornoon.
Ono morn|ng |n |obruary 1008, two |nvostmont bankors, 1osoph
loro||a and lobort Vagu|ro, ottorod a v|ow ot tho |ndustry that caught
tho attont|on ot tho oxocut|vos gathorod thoro that yoar. 1ho rostor ot
tho top pub||c|y tradod t|rms |n tho o|| |ndustry |s |argo|y tho samo as |t
has boon s|nco tho broakup ot tho 3tandard O|| 1rust,' thoy sa|d |n
tho|r prosontat|on. Woro ho a||vo today, 1ohn 0. lockoto||or wou|d
rocogn|zo most ot tho ||st. Carnog|o, vandorb||t, and Vorgan, on tho
othor hand, wou|d havo d|tt|cu|ty w|th s|m||ar ||sts tor tho|r |ndustr|os.'
1ho bankors and tho|r co||oaguos had boon ta|k|ng about somoth|ng
moro than morgors'-about tho |mm|nont omorgonco ot what thoy
had startod to ca|| tho supormajors.' |or a yoar, 0oug 1orroson, an
ana|yst at Vorgan 3tan|oy, had boon |abor|ng ovor a papor that
doc|arod tho Era ot tho 3upor-Vajor' was at hand. Unpara||o|od
g|oba||zat|on and sca|o'rosu|t|ng trom morgors-comb|nod w|th
groator ott|c|oncy and a much w|dor book ot opportun|t|os-wou|d |oad
to supor|or roturns and prom|or va|uat|ons.' ln short, |argor compan|os
wou|d bo moro h|gh|y va|uod by sharoho|dors. And, by |mp||cat|on,
thoso compan|os that woro sma||or and |oss h|gh|y va|uod wou|d bo at
r|sk.
b
3omoono wou|d nood to go t|rst. 3ut how cou|d morgors bo dono?
|ost||o takoovors |ookod vory d|tt|cu|t to do, so compan|os wou|d havo
to agroo on a pr|co. 1horo was a|so a torm|dab|o obstac|o-what |s
var|ous|y ca||od ant|trust |n tho Un|tod 3tatos and compot|t|on po||cy |n
Europo. Attor a||, tho most tamous ant|trust caso |n h|story was that
|nvo|v|ng 1ohn 0. lockoto||or's 3tandard O|| 1rust that tho 3upromo
Court had doc|dod |n 1011.
3og|nn|ng |n tho m|d-1800s, lockoto||or had marchod out ot
C|ovo|and w|th our p|an,' a concopt tor transtorm|ng tho vo|at||o,
chaot|c, and |nd|v|dua||st|c now Amor|can o|| |ndustry |nto ono h|gh|y
ordorod company, oporat|ng undor h|s |oadorsh|p. Vothod|ca| to an
oxtromo,' |n tho tosty words ot a tormor partnor, lockoto||or had
procoodod w|th co|d-oyod and s|ng|o-m|ndod dotorm|nat|on, a
mastory ot stratogy and organ|zat|on, and a bookkoopor's |ovo ot
numbors. 1ho rosu|t was a mass|vo company, tho 3tandard O|| 1rust,
that contro||od up to 00 porcont ot tho U.3. o|| |ndustry and dom|natod
tho g|oba| markot. ln do|ng a|| th|s, lockoto||or roa||y croatod tho
modorn o|| |ndustry. |o a|so |nvontod tho |ntogratod' o|| company |n
wh|ch tho o|| t|owod w|th|n tho corporato boundar|os trom tho momont
|t camo out ot tho ground unt|| t|na||y |t roachod tho consumor.
lockoto||or bocamo not on|y tho r|chost man |n Amor|ca but a|so
ono ot tho most hatod, and, |ndood, tho vory ombod|mont ot monopo|y
|n tho robbor baron ago. ln 1000 tho adm|n|strat|on ot tho trust-bustor,
lros|dont 1hoodoro loosovo|t, |aunchod tho momontous caso
charg|ng tho 3tandard O|| 1rust w|th rostra|nt ot trado undor tho
3horman Ant|trust Act. ln Vay 1011, tho U.3. 3upromo Court upho|d
|owor court doc|s|ons and ordorod tho 3tandard O|| 1rust brokon up
|nto th|rty-tour soparato compan|os.
0
Evor s|nco tho d|sso|ut|on ot tho 3tandard O|| 1rust, v|rtua||y ovory
Amor|can |aw studont |ntorostod |n ant|trust has stud|od that caso.
And, aga|n and aga|n, |n tho docados s|nco 1011, tho |ndustry had
boon |nvost|gatod tor a||ogat|ons and susp|c|ons ot co||ud|ng and
rostra|n|ng trado. Wou|dn't comb|nat|ons, croat|ng |argor compan|os,
on|y tan tho t|amos ot susp|c|on? 3ut t|mos had changod. 1ho g|oba|
p|ay|ng t|o|d was much |argor. A|togothor, tho |argo |ntornat|ona| o||
compan|os now contro||od |oss than 1b porcont ot wor|d product|on,
most ot |t was |n tho hands ot tho nat|ona| o|| compan|os, wh|ch had
takon contro| |n tho 1070s. 3omo ot thoso govornmont-ownod
compan|os, such as 3aud| Aramco, woro bocom|ng ottoct|vo and
capab|o compot|tors |n tho|r own r|ghts, backod up by thoso |mmonso
rosorvos that dwartod anyth|ng ho|d by tho trad|t|ona| |ntornat|ona| o||
compan|os.
ln ordor to ga|n ott|c|oncy and br|ng down costs-and w|th tho
approva| ot ant|trust author|t|os-somo ot tho compan|os had
comb|nod, |n koy markots, tho|r rot|nor|os and notworks ot gaso||no
stat|ons. 3ut nono ot thoso had sought to ovorturn tho ostab||shod |ay
ot tho |and, tho domarcat|ons ot corporato boundar|os so c|oar|y sot |n
p|aco by tho 1011 3upromo Court doc|s|on.
1EE NERCER 1EA1 WA5N'1
1ho ch|ot oxocut|vo ot 3l, 1ohn 3rowno, was among thoso who woro
conv|ncod that somoth|ng rad|ca| noodod to bo dono. 1ra|nod t|rst as a
phys|c|st at Cambr|dgo Un|vors|ty and thon subsoquont|y as a
potro|oum ong|noor, 3rowno had cons|dorod a caroor |n acadom|c
rosoarch. 3ut, |nstoad, ho had gono to work |n 3l, whoro h|s tathor
had boon a m|dd|o-|ovo| 3l oxocut|vo, tor somo t|mo basod |n lran.
||s mothor was a surv|vor ot tho Auschw|tz concontrat|on camp,
a|though th|s was known on|y to a vory tow unt|| attor hor doath |n 2000.
3rowno had ontorod 3l on what was ca||od an appront|co
program.' |o qu|ck|y provod h|mso|t what tho 3r|t|sh ca||od a h|gh-t||or,
mov|ng rap|d|y up |n tho organ|zat|on. ln 100b ho bocamo ch|ot
oxocut|vo. |o was conv|ncod, ho sa|d, that wo had to chango tho
gamo. 3l was stuck as a 'm|dd|owo|ght |nsu|ar 3r|t|sh company.' lt
was o|thor up or out.'
0ur|ng a 3l board moot|ng, 3rowno |a|d out tho rat|ona|o tor a
morgor: 3l was not b|g onough. lt |t d|d not tako ovor anothor
company, |t was |n dangor ot bo|ng takon ovor. 3l noodod to bocomo
b|ggor to ach|ovo oconom|os ot sca|o, br|ng down costs, and tako on
|argor projocts and r|sks. And |t noodod tho c|out that camo trom sca|o
to bo takon sor|ous|y' by tho nat|ona| compan|os. 3rowno was
approhons|vo that tho board mombors wou|d conc|udo that just ono
yoar attor choos|ng h|m as CEO, ho had takon |oavo ot h|s sonsos.
3ut, somowhat to h|s surpr|so, tho board gavo a cont|ngont go-ahoad.
1ho bost t|t tor 3l soomod to bo Vob||, tho socond-|argost ot tho
succossor compan|os to tho 3tandard O|| 1rust. ln tho many docados
s|nco tho broakup, |t had turnod |tso|t |nto ono ot tho |argost
|ntornat|ona| |ntogratod o|| compan|os |n |ts own r|ght. lt was a|so ono
ot tho most v|s|b|o. lts t|y|ng horso |ns|gn|a was known around tho
wor|d, |t had |nvontod tho advortor|a|' |n tho r|ght-hand bottom cornor
ot tho Now York 7lmos, and |t was ono ot tho b|ggost supportors ot
l33, pub||c broadcast|ng |n tho Un|tod 3tatos, most notab|y, ot
Vostorploco 7bootor. Voroovor, 3l had a|roady ostab||shod a jo|nt
vonturo w|th Vob|| |n Europoan rot|n|ng and markot|ng oporat|ons that
had savod $000 m||||on and had provod that tho two compan|os cou|d
work togothor.
Vob||'s CEO was luc|o loto. Known throughout tho |ndustry as
lou,' ho had w|do |ntornat|ona| oxpor|onco and h|s avocat|ons woro
notab|y broad, oxtond|ng trom tho opora to robu||d|ng tho ong|nos ot
o|d sports cars.
Vob|| tacod b|g stratog|c prob|oms. A s|gn|t|cant part ot |ts |ncomo
camo trom ono sourco-tho Arun llG projoct on tho |s|and ot
3umatra, |n lndonos|a. 3ut, as loto put |t, Arun was go|ng downh|||.' lt
was |n doc||no and wou|d roqu|ro now |nvostmont, and that moant that
thoro wou|d bo a |argo gap |n prot|tab|||ty unt|| now projocts camo on
stroam. 1h|s throatonod Vob|| w|th |ts sharoho|dors and wou|d mako |t
vu|norab|o to a host||o takoovor.
1ho company noodod t|mo. 1o havo ono roa||y good upstroam
assot,' loto sa|d, you havo to havo s|x projocts |n tho try|ng pan to
br|ng oxpor|onco, monoy, and ta|ont to boar.' Voroovor, Vob||'s now
growth projocts woro |n l|gor|a, Kazakhstan, and Oatar, as wo|| as
lndonos|a, moan|ng that tho company's tuturo prospocts wou|d bo
suscopt|b|o to goopo||t|ca| r|sks ot ono k|nd or anothor.
Oatar's vast ottshoro natura| gas t|o|d, at tho northorn ond ot tho
lors|an Gu|t, wou|d bo a part|cu|ar cha||ongo. 3ocauso ot tho t|o|d's
|mmonso s|zo, tho |nvostmont b||| wou|d bo onormous. 1ho moro wo
|oarnod about Oatar,' sa|d loto, tho moro wo roa||zod that |t wou|d bo
boyond tho capac|ty ot a s|ng|o company.'
Wo had to do somoth|ng,' roca||od loto. Wo cou|d surv|vo. 3ut wo
cou|dn't roa||y thr|vo.'
Vob|| was roady to ta|k to 3l. 3ocrocy was ossont|a|. lt any nows
|oakod, |t wou|d bo damag|ng to tho compan|os |nvo|vod and cou|d
wroak havoc w|th tho stock pr|co. 3rowno and loto skotchod p|ans tor
a two-hoadod company, w|th ||st|ngs on both tho low York and london
stock oxchangos. ||na||y, attor |ongthy nogot|at|ons and much
cons|dorat|on, Vob|| conc|udod that wh||o 3l wou|d bo tak|ng ovor
Vob||, thoro wou|d bo no prom|um to sharoho|dors.
loto mot 3rowno at tho Car|y|o |oto| |n low York C|ty. ||s
mossago was vory s|mp|o: W|thout a prom|um, thoro cou|d bo no doa|.
l can't do |t,' loto sa|d. 3rowno was stunnod. 1ust to bo suro that
thoro was no m|sundorstand|ng, loto handod h|m a short, carotu||y
drattod 0oar 1ohn' |ottor, wh|ch oxprossod groat approc|at|on tor tho
d|scuss|ons but mado c|oar, abso|uto|y c|oar, that thoy woro ovor.
1horo was not much o|so to say as thoy stood thoro. 3ut loto had
ono othor thought. l don't know what w||| happon,' ho sa|d.
3rowno t|ow homo |n s||onco. What wou|d h|s own board, wh|ch ho
had workod so hard to conv|nco, th|nk whon ho broko tho nows ?
Vaybo thoy wou|d conc|udo that ho roa||y had takon |oavo ot h|s
sonsos .
7
1EE BREAKOu1: BP AND ANOCO
As soon as ho was back |n london, 3rowno ca||od lauranco |u||or,
tho CEO ot Amoco, wh|ch was hoadquartorod |n Ch|cago. 1ho tormor
3tandard O|| ot lnd|ana, Amoco was ono ot tho |argost Amor|can-
basod o|| compan|os. A|though |ts assots woro hoav||y wo|ghtod to tho
Un|tod 3tatos, |t had boon ono ot tho p|onoor|ng o|| compan|os to go
|nto tho Casp|an attor tho co||apso ot tho 3ov|ot Un|on, and |t was now
ono ot tho major partnors, a|ong w|th 3l, |n Azorba|jan.
|u||or and 3rowno chattod t|rst about tho stato ot tho|r projoct |n
Azorba|jan. 1hat was tho warm-up. 1hon 3rowno poppod tho quost|on.
What aro your thoughts about tho tuturo ot Amoco?' 3rowno askod.
3ocauso |t sooms to mo |t's a good t|mo tor a tow o|| compan|os to
got togothor.'
|u||or showod no surpr|so ovor tho phono. |u||or rom|ndod 3rowno
that |n tho oar|y 1000s, Amoco and 3l had d|scussod comb|n|ng tho|r
potrochom|ca| oporat|ons, but 3l had brokon ott tho ta|ks.
What's now ?' |u||or askod.
3tratog|ca||y,' 3rowno rop||od, a morgor |s somoth|ng wo ought to
do.'
Wo||, |t's not on my agonda,' |u||or sa|d. 3ut why don't wo ta|k?'
Whon wou|d bo convon|ont?'
|ow about tho day attor tomorrow ?'
1wo days |ator thoy mot |n 3r|t|sh A|rways' Concordo |oungo at 1|K
A|rport |n low York. Amoco had gono through a sor|os ot
rostructur|ngs and major stratogy projocts to try to t|nd a way torward
but w|thout c|oar succoss, |u||or, a |awyor who had boon CEO tor
a|most a docado, was porsona||y poss|m|st|c about tho tuturo ot tho
|ndustry. 3l was b|ggor than Amoco, so |t was go|ng to bo a 00-40
doa|. 3ut tho nogot|at|ons toundorod on structuro-whothor |t wou|d bo
a two-hoadod company, w|th hoadquartors |n both Ch|cago and
london, and whothor |u||or wou|d sharo powor w|th 3rowno.
ln oar|y August 1008, 3rowno, surroundod by h|s toam, ca||od |u||or
trom h|s homo on 3outh Eaton l|aco |n london. 1h|s on|y works |t |t's
a 3r|t|sh company, basod |n london, and wo got ono moro d|roctor on
tho board,' sa|d 3rowno. 1hat's |t.' |o askod |u||or to |ot h|m know
w|th|n tho noxt twonty-tour hours. 3ovora| hours |ator, |u||or ca||od
back. lt was a go, ho sa|d. |o was gott|ng on h|s p|ano.
A tow days |ator, August 11, 1008, 3l convonod a pross
contoronco |n tho |argost vonuo |t cou|d t|nd, on short not|co, |n london
-tho |onourab|o Art|||ory Company, |n tho c|ty ot london-|n ordor to
accommodato a hugo pross corps. lt was c|oar that somoth|ng vory b|g
was about to bo announcod. london was |n tho m|dst ot a hoat wavo,
and |t was anothor hot day, b|az|ng hot, and tho c|rcu|ts |n tho bu||d|ng
woro ovor|oadod by tho tomporaturo and a|| tho to|ov|s|on camoras. As
3rowno stood up to announco tho doa|, a tuso b|ow. 1ho who|o room
wont dark. lot an ausp|c|ous start tor what was, up to that po|nt, tho
|argost |ndustr|a| morgor |n h|story. 3ut tho sonsat|ona| nows got out tar
and w|do-a $48 b||||on morgor, a potont|a||y transtormat|vo stop tor
tho wor|d o|| |ndustry. And, a|though not sa|d pub||c|y, |t was what 3l
noodod |t |t was to bocomo a hoavywo|ght.
1ho |mp|omontat|on procoodod qu|ck|y. 1ho |odora| 1rado
Comm|ss|on tound no major ant|trust |ssuos. 1ho bus|nossos ot tho
two compan|os raro|y ovor|ap,' sa|d tho cha|rman ot tho |1C, and
consumors w||| cont|nuo to onjoy tho bonot|ts ot compot|t|on.' 1ho 3l-
Amoco doa| c|osod on tho |ast day ot 0ocombor 1008.
8
1OO COOD 1O BE 1RuE
1ohn 3rowno was schodu|od to spoak |n |obruary 1000 at a major
|ndustry contoronco |n |ouston. 1wo days botoro tho contoronco, ho
ca||od tho organ|zors. |o was vory apo|ogot|c. 3omoth|ng urgont had
como up |n london and untortunato|y ho wou|dn't bo ab|o to mako |t.
|o wou|d sond ono ot h|s son|or co||oaguos to road h|s spooch |n h|s
p|aco.
lt was an oxcuso. 1ho roa| roason was that 3rowno was schodu|od
to bo tho koynotor on 1uosday, and tho koynotor on Wodnosday was
V|chao| 3ow||n, tho pros|dont ot ono ot tho major U.3. o|| compan|os,
AlCO. And 3rowno cou|d not tako tho r|sk ot bo|ng on tho samo
program w|th 3ow||n, not g|von what both woro thon ongagod |n.
A month oar||or, |n 1anuary 1000, 3ow||n had ca||od 3rowno trom
los Ango|os, wh|ch was AlCO's homotown. 3ow||n had a s|mp|o
mossago: Wo wou|d ||ko 3l to buy AlCO,' ho sa|d.
Un||ko 3rowno, 3ow||n d|d appoar at tho |ouston contoronco. ||s
spooch was on tho tuturo ot natura| gas, wh|ch was a ||tt|o |ron|c: tor
3ow||n, |t soomod, had conc|udod that o|| d|d not havo much tuturo.
3ow||n and tho AlCO board had |ost cont|donco |n tho company's
prospocts. AlCO's major assot was |ts sharo ot tho lorth 3|opo o|| |n
A|aska, and w|th o|| around $10 a barro| am|d tho pr|co co||apso,
managomont worr|od that |t wou|d not bo ab|o to surv|vo.
lt soomod too good to bo truo,' 3rowno |ator obsorvod. AlCO
s|mp|y wantod to drop |nto tho |ap ot 3l.' 1h|s was a suporb
opportun|ty tor 3l, ospoc|a||y bocauso ot tho ott|c|onc|os that wou|d
como through comb|n|ng ownorsh|p and oporatorsh|p ot tho|r |argo
lorth 3|opo o|| rosourcos. 1ho lorth 3|opo was tho |argost o|| t|o|d
ovor d|scovorod |n lorth Amor|ca, but |ts product|on had ta||on trom a
poak ot 2 m||||on barro|s por day to a m||||on, and a comb|nod
oporatorsh|p wou|d savo sovora| hundrod m||||on do||ars a yoar.
0
lt AlCO had hung on tor anothor s|x wooks, |t wou|d havo soon tho
bog|nn|ng ot a rocovory |n |ts tortuno. |or, |n Varch 1000, OlEC
startod to cut back product|on, wh|ch |n turn wou|d bog|n to ||tt tho o||
pr|co ott tho t|oor. 3ut by thon tho doa| was just about dono. 1ho
purchaso ot AlCO tor $20.8 b||||on by 3l Amoco (as |t was thon) was
ott|c|a||y announcod on Apr|| 1, 1000.
EA5Y CLuN, EA5Y CLOW": EXXON AND
NOB|L
1ho announcomont ot tho 3l-Amoco doa| tho prov|ous August provod
to bo a h|stor|c juncturo. 1ho taboo aga|nst |argo-sca|o morgors had
boon brokon, or so |t appoarod. lorhaps tho groator r|sk, roa||y, was
to oot morgo.
loo laymond, tho CEO ot Exxon, was at a contoronco at tho
G|onoag|os go|t courso |n 3cot|and whon tho 3l-Amoco
announcomont broko |n August 1008. |o know oxact|y what ho shou|d
do: got |n touch w|th lou loto.
la|sod |n 3outh 0akota, laymond had jo|nod Exxon attor oarn|ng a
lh.0. |n chom|ca| ong|noor|ng |n throo yoars trom tho Un|vors|ty ot
V|nnosota. ||s t|rst jobs woro |n rosoarch. ln tho m|d-1070s, ho was
drattod to work on a projoct tor tho CEO. 1ho o||-oxport|ng countr|os
woro nat|ona||z|ng Exxon's rosorvos, and tho company noodod a
stratog|c d|roct|on go|ng torward. 1horoattor, laymond bogan to p|ay
an |ncroas|ng|y koy ro|o |n roshap|ng tho company. |rom tho m|d-
1070s onward, tho dom|nant |ssuo tor tho company had bocomo not
on|y how many barro|s ot rosorvos d|d |t havo, a|though that was st|||
cr|t|ca||y |mportant, but how t|nanc|a||y ott|c|ont |t was. And how much
moro t|nanc|a||y ott|c|ont cou|d |t bo, comparod w|th |ts compot|tors?
3uccoss on thoso cr|tor|a wou|d onab|o |t to do||vor stoad||y grow|ng
roturns to pons|on tunds and a|| tho othor sharoho|dors. 1ho |ndustry
had to ox|st,' laymond |ator oxp|a|nod. lt you woro tho bost ot tho |ot,
you'|| a|ways bo thoro.'
laymond bocamo pros|dont ot Exxon |n 1087 and |ts cha|rman and
CEO |n 1008. 0ur|ng tho yoars that laymond |od tho company,
Exxon's |nvostmont procoss bocamo known tor |ts h|gh|y d|sc|p||nod
and |ong-torm tocus. lndood, Exxon's d|sc|p||no' bocamo a
bonchmark aga|nst wh|ch tho rost ot tho |ndustry was moasurod. 1ho
|ong-torm tocus moant that |t kopt |ts |nvostmont vory stoady, whothor
tho pr|co was h|gh or |ow. lt d|d not suddon|y |ncroaso |ts spond|ng
whon pr|cos wont up or abrupt|y cut |t whon pr|cos to||. 1h|s rot|octod
laymond's own stoad|noss. Ono ot h|s tavor|to max|ms, whothor |n
boom t|mos or a pr|co co||apso, was Easy g|um, oasy g|ow.' 0on't got
ovoroxc|tod and hyporact|vo whon pr|cos aro shoot|ng up, or ovor|y
doprossod and cataton|c whon thoy'ro hoadod down.
3ut by tho m|d-1000s, laymond was com|ng to tho conc|us|on that
t|nanc|a| ott|c|oncy |n |tso|t had ||m|ts. 3omoth|ng moro was noodod,
and that somoth|ng was a morgor. Vob|| was a cand|dato. And as lou
loto ||kod to say, 3us|noss |s about mak|ng somoth|ng happon.'
A coup|o ot months attor tho broakdown ot nogot|at|ons w|th 3l,
loto had run |nto loo laymond at a contoronco. Attor chatt|ng about
var|ous cha||ongos tac|ng tho |ndustry, laymond had sa|d, |n h|s own
stoady, moasurod way ot spoak|ng, 3omoth|ng w||| happon.' lot |ong
attor, laymond phonod loto and sa|d ho was com|ng to Wash|ngton
and hopod thoy cou|d havo |unch. 3uro, loto rop||od. Attorward, loto
happonod to ask what wou|d bo br|ng|ng laymond to Wash|ngton.
1o havo |unch w|th you,' ho was to|d.
On 1uno 10, 1008, ovor tho moa| at Vob||'s hoadquartors |n |a|rtax,
v|rg|n|a, laymond turnod to tho |mmoad|ato subjoct ot tho jo|nt vonturo
thoy sharod w|th a 1apanoso company. Evontua||y thoy got to tho
subjoct ot comb|n|ng tho|r own compan|os. 1hoy conc|udod that throo
quost|ons wou|d havo to bo answorod |n tho att|rmat|vo: ||rst, cou|d
thoy work out a sat|stactory doa|? 3ocond, wou|d such a doa| w|n tho
approva| ot tho |odora| 1rado Comm|ss|on |n tho Un|tod 3tatos and
tho compot|t|on d|roctorato at tho Europoan Un|on |n 3russo|s? 1ho
th|rd was tho most daunt|ng: Woro wo w|so onough to mo|d ono
organ|zat|on out ot two bus|nossos?' A numbor ot c|oso|y ho|d
convorsat|ons to||owod. 3ut |t bocamo apparont that tho two
compan|os woro tar apart on tho a||-|mportant quost|on ot va|uat|on,
that |s, on what prom|um wou|d bo pa|d to Vob|| sharoho|dors. 1ho
d|scuss|ons potorod out. On August 0, loto to|d tho Vob|| board tho
ho and laymond had mutua||y agrood to d|scont|nuo d|scuss|ons.'
||vo days |ator, 3l and Amoco announcod tho|r morgor.
As soon as laymond hoard tho nows, ho p|acod that ca|| to loto
trom G|onoag|os. 1ho va|uat|ons |n tho 3l-Amoco doa| prov|dod an
oxtorna| yardst|ck tor roso|v|ng tho|r d|ttoroncos on tho ro|at|vo pr|cos
ot Exxon and Vob|| sharos.
Your no|ghbor just so|d h|s houso,' |s tho way laymond put |t. And
now wo havo anothor bonchmark tor what housos aro so|||ng tor.'
1ho two compan|os qu|ck|y movod |nto ovordr|vo on nogot|at|ng
what was codo-namod lrojoct ||ghway.' A koy doc|s|on was to
croato a who||y now structuro so that |t wou|d bo a now company tor
ovorybody.
Ant|trust was a major concorn. 3l's comb|n|ng w|th Amoco was ono
th|ng. Exxon and Vob|| was qu|to anothor: |t wou|d bo a much b|ggor
company, and |t wou|d br|ng togothor tho two |argost compan|os to
havo omorgod trom tho 1011 broakup ot tho 3tandard O|| 1rust, wh|ch
moant |t wou|d bo a vory b|g nows story-and a much b|ggor subjoct
tor rogu|ators.
loto was doop|y worr|od about tho |mpact on Vob|| |t thoy tr|od to
do a morgor and |t ta||od bocauso ot rojoct|on by tho |odora| 1rado
Comm|ss|on. Exxon wou|d bo okay,' sa|d loto, but wo wou|d bo
doad moat.'
3ut laymond roassurod h|m. 1h|s morgor |s go|ng to happon,' sa|d
laymond. Como ho|| or h|gh wator.'
1horo was an unwr|tton undorstand|ng w|th|n tho tratorn|ty ot ant|trust
|awyors that 1b porcont ot tho tota| U.3. gaso||no markot was tho ||m|t
that tho |1C wou|d a||ow tor any comb|nat|on, and th|s doa| wou|d ta||
bo|ow that ||no.
3ut what |mmod|ato|y prooccup|od tho two s|dos was tho th|rd
quost|on-gott|ng to a va|uat|on and thon t|gur|ng out who wou|d own
what sharo. Vonths ot hard nogot|at|on to||owod, otton conductod by
laymond and loto w|th just a coup|o ot a|dos. ||na||y, on tho ovon|ng
ot lovombor 80, tho two CEOs camo to agroomont: Exxon wou|d
account tor 80 porcont ot tho now company, and Vob||, 20 porcont.
(1h|s proport|on was romarkab|y s|m||ar to tho|r ro|at|vo proport|ons |n
tho or|g|na| broakup ot tho 3tandard O|| 1rust |n 1011.) Vob||'s
sharoho|dors wou|d got about a 20 porcont prom|um on tho|r stock.
1ho nogot|at|ons woro vory |ntonso, |ndood, so |ntonso that tho t|na|
va|uat|on on a sharo ot stock wont out to s|x doc|ma| p|acos.
On 0ocombor 1, 1008, ovon botoro tho |1C had ru|od on tho 3l-
Amoco doa|, Exxon and Vob|| announcod tho|r |ntont|on to morgo. lt
was a vory b|g doa|. 1ho low O|| 3ohomoth,' hoad||nod tho Now York
7lmos.
At tho hugo pross contoronco prosont|ng tho doa|, loto was askod
|t |t was truo that, pr|or to th|s doa|, thoro had boon d|scuss|ons w|th 3l
and othor compan|os. loto |ookod out on tho aud|onco w|th what
soomod a vory |ong pauso.
l'|| to|| you what my mothor to|d mo,' ho sa|d. 1hat you novor ta|k
about your o|d t|amos on tho day you announco your ongagomont.'
1ho room oruptod |n |aughtor. ln gonora|, tho managomonts ot tho
two compan|os woro proparod tor just about ovory quost|on dur|ng tho
pross contoronco-oxcopt tor ono. What wou|d happon, laymond was
askod, to Vob||'s |ongt|mo support ot Vostorploco 7bootor on |r|day
n|ghts on l33? |o uncharactor|st|ca||y tumb|od tor an answor.
At anothor pross contoronco a tow hours |ator, ho was askod tho
samo quost|on. 1h|s t|mo ho answorod w|th a strong att|rmat|on about
cont|nu|ng tho comm|tmont. As a to||ow-up, ho was askod what had
changod s|nco tho prov|ous pross contoronco.
l ta|kod to my w|to,' laymond sa|d.
10
1EE CEO51 OF JOEN D. ROCKEFELLER
3ut thoro roma|nod a hugo potont|a| barr|or to thoso doa|s, and that
was tho U.3. govornmont-spoc|t|ca||y tho |odora| 1rado
Comm|ss|on, wh|ch wou|d ru|o whothor thoy v|o|atod ant|trust |aws. 1ho
sp|r|ts ot 1ohn 0. lockoto||or and tho 1011 U.3. 3upromo Court
hovorod ovor tho conso||dat|ons that woro transtorm|ng tho |ndustry,
but tho wor|d had changod onormous|y |n tho yoars s|nco.
1ho |1C's tocus was prodom|nant|y on rot|n|ng and tho notworks ot
gaso||no stat|ons and whothor any ot tho compan|os wou|d havo unduo
markot powor, wh|ch moant tho ab|||ty to contro| tho pr|co, |n tho words
ot tho |1C, ovon a sma|| amount.' What was ot |ntonso |ntorost' to
tho rogu|ators was pr|c|ng |n tho downstroam-that |s, tho cost ot tuo|
com|ng out ot tho rot|nor|os and gaso||no at tho pump.
11
3ut tho contra| rat|ona|o ot thoso doa|s was not about rot|n|ng and
markot|ng-tho downstroam-|n tho Un|tod 3tatos. lt was about tho
g|oba| upstroam-oxp|orat|on and product|on ot o|| and gas around tho
wor|d. 1ho compan|os woro sook|ng ott|c|oncy and cost roduct|on-
tho ab|||ty to sproad costs ovor a |argor numbor ot barro|s. lo |oss
|mportant was tho quost tor sca|o-tho ab|||ty to tako on |argor and
moro comp|ox projocts (lou loto's s|x projocts |n tho try|ng pan')-
and tho ab|||ty to mob|||zo tho monoy, poop|o, and tochno|ogy to
oxocuto thoso projocts. A|so, tho b|ggor and moro d|vors|t|od tho
company, tho |oss vu|norab|o |t was to po||t|ca| uphoava|s |n any
country. 3uch a company cou|d tako on moro and b|ggor projocts. lt
was a|roady c|oar that projocts thomso|vos woro gott|ng |argor. A
mogaprojoct |n tho 1000s m|ght cost $b00 m||||on. ln tho docado that
was com|ng, thoy wou|d bo $b b||||on or $10 b||||on or ovon moro. 1ho
3l-Amoco doa| sa||od through tho |1C |n a mattor ot months w|th on|y
m|nor roqu|romonts tor d|vost|turo. 3ut Exxon-Vob|| was ot ont|ro|y
d|ttoront sca|o-much |argor. And just to mont|on togothor tho namos
ot tho two |argost |ogatoos ot tho or|g|na| 3tandard O|| 1rust soomod
onough to ovoko tho ghost ot 1ohn 0. lockoto||or.
1ho |1C |aunchod an onormous probo |nto tho proposod morgor, |n
cooporat|on w|th twonty-ono stato attornoys gonora| and tho Europoan
Un|on's compot|t|on d|roctorato. As part ot |ts |nvost|gat|on, tho |1C
mandatod tho |argost d|sc|osuro projoct |n h|story, wh|ch a|togothor
roqu|rod m||||ons ot pagos ot documonts trom tho two compan|os trom
oporat|ons a|| ovor tho wor|d, rang|ng trom rot|nory oporat|ons |n tho
Un|tod 3tatos to a docado's worth ot documonts on a|| |ubr|cant sa|os
|n lndonos|a. lt took a|most a yoar, but t|na||y tho |1C camo to |ts
doc|s|on. ln ordor tor Exxon and Vob|| to morgo, thoy had to d|vost
2,481 gaso||no stat|ons, out ot a tota| ot about 10,000, and ono o||
rot|nory |n Ca||torn|a, p|us a tow othor th|ngs. 3ut to thoso who toarod
tho ro|ncarnat|on ot 1ohn 0. lockoto||or, tho |1C rop||od that th|s was
not 1011 but rathor a vory d|ttoront wor|d. 1ho 3tandard O|| 1rust,
oxp|a|nod |1C cha|rman lobort l|totsky, had 00 porcont ot tho U.3.
markot, wh||o th|s company attor tho morgor w||| havo about 12 or 18
porcont'-bo|ow that unstatod 1b porcont ||m|t. On lovombor 80,
1000, ExxonVob|| camo |nto ox|stonco as ono company.
3ut at tho samo t|mo, l|totsky sont out a warn|ng: a h|gh dogroo ot
markot concontrat|on wou|d sot ott ant|trust a|arms.'
12
1EE ALARN5
1hoso ant|trust a|arms' had a|roady boon sot ott by 3l's b|d tor
AlCO. 3l-Amoco had movod vory tast w|th |ts AlCO doa|-too tast
tor tho |1C, as |t turnod out. Attor a hoatod |ntorna| dobato, tho
comm|ss|on, by a 8-to-2 voto, doc|dod that tho absorpt|on ot AlCO
wou|d onab|o 3l to man|pu|ato tho pr|co ot A|askan o|| so|d |nto tho
Wost Coast and koop pr|cos h|gh.' What d|d h|gh' moan? Accord|ng
to tho mathomat|cs ot tho |1C's w|tnoss, a comb|nod company wou|d
havo boon ab|o to |ncroaso tho pr|co ot gaso||no by about ha|t a cont a
ga||on tor a tow yoars.
ln tho v|ow ot tho major|ty at tho |1C, 3l had ovorroachod, and
botoro |t cou|d c|oso tho doa|, |t wou|d bo roqu|rod to d|vost tho
prom|or assot, tho crown jowo|, tho who|o roason that |t had wantod
AlCO |n tho t|rst p|aco-tho lorth 3|opo o||. A chastonod 3l roa||zod
that |t had no cho|co. lt procoodod to c|oso tho doa| |n Apr|| 2000, but
w|thout tho lorth 3|opo.
1ho d|roctor ot tho |1C's 3uroau ot Econom|cs, wr|t|ng attorward
about tho doa|, ottorod a cons|dorod judgmont that oxtondod to tho
othor morgors ot tho ora: lt |s ta|r to say that |n oach ot thoso casos,
tho compan|os agrood to d|vost|turos that wont wo|| boyond what many
bo||ovod woro nocossary to protoct compot|t|on.' 3ut po||t|cs, tho
|nhoront susp|c|on ot tho o|| |ndustry, and tho sonso that tho morgors
woro com|ng too tast-a|| thoso woro doc|s|vo tactors.
18
1EE FRENCE RECONNEC1|ON : 1O1AL AND
ELF
lot ovoryono dopondod upon tho approva| ot tho |odora| 1rado
Comm|ss|on. ln |ranco, what countod was tho assont ot tho pr|mo
m|n|stor.
|ranco had two major o|| compan|os, 1ota| and E|t, both ot wh|ch
had boon stato contro||od but woro now tu||y pr|vat|zod. 1ho roason tor
tho two compan|os was, as 1h|orry 0osmarost, thon 1ota|'s CEO, put
|t, a h|stor|ca| acc|dont.' Attor Wor|d War ll, |ranco's pros|dont,
Gonora| Char|os do Gau||o, was |ntont on rostor|ng |ronch grandour.'
|o doc|dod that 1ota|, or C|l, as |t was known at tho t|mo, was too
c|oso to tho Amor|can and 3r|t|sh compan|os,' and ho orchostratod tho
croat|on ot a socond |ronch company, a now nat|ona| champ|on,
wh|ch ovontua||y bocamo E|t.
Wo woro a|roady conv|ncod at tho t|mo ot tho 3l-Amoco doa| ot
tho nood to grow through conso||dat|on,' roca||od 1ota|'s 0osmarost.
Whon wo hoard about tho 3l-Amoco doa|, |t cont|rmod tor us
|nto||octua||y that wo had to conso||dato, that wo had to grow.'
1ho t|rst stop, at tho ond ot 1008, was to acqu|ro tho 3o|g|an o||
company lotrot|na, wh|ch was pr|mar||y a Europoan downstroam
company. 3y 1uno 1000, 1ota| had workod out a takoovor p|an tor |ts
ma|n targot, E|t. 3y |r|day |uncht|mo, on 1u|y 2, a tow son|or E|t
oxocut|vos woro hoar|ng worry|ng rumors that 1ota| was about to
movo.
3ut noth|ng cou|d happon w|thout tho advanco approva| ot tho
govornmont. A|though E|t had boon pr|vat|zod |n 1080, tho govornmont
st||| ho|d what was ca||od a go|don sharo,' wh|ch gavo |t a voto ovor
any chango ot contro|. Evon |t thoro had boon no go|don sharo, tor a
|ronch company to procood w|thout a groon ||ght trom tho |ronch
govornmont wou|d havo boon caroor dostroy|ng tor tho managomonts
|nvo|vod.
1ho t|rst porson who noodod to bo conv|ncod was 0om|n|quo
3trauss-Kahn, tho t|nanco m|n|stor. An oconom|st by protoss|on,
3trauss-Kahn qu|ck|y undorstood tho compot|t|vo oconom|c
|mporat|vos ot conso||dat|on. Worso, |t tho |ronch compan|os d|d not
morgo, ono ot thom m|ght wo|| bo absorbod by a non-|ronch company,
wh|ch wou|d bo oo solcloo po|ltlqoo' tor any govornmont that a||owod
|t to happon.
1ho |ronch pr|mo m|n|stor, l|ono| 1osp|n, was anothor mattor. A
onot|mo 1rotsky|to and ono ot tho toundors ot tho modorn |ronch
3oc|a||st larty, ho was not at a|| tam|||ar w|th tho o|| bus|noss and |ts
c|rcumstancos. lt was mado c|oar to 0osmarost that ho wou|d
porsona||y havo to mako tho caso to tho pr|mo m|n|stor about tho
|mportanco to |ranco' ot a morgor.
1|mo was vory short, as 1ota| was on tho vory ovo ot |aunch|ng |ts
takoovor b|d. 3ut tho pr|mo m|n|stor was |n Voscow.
On |r|day ovon|ng, 0osmarost t|ow to Voscow and wont d|roct|y to
tho lat|ona| |oto|, oppos|to tho Krom||n, tor a m|dd|o-ot-tho-n|ght
moot|ng w|th tho pr|mo m|n|stor and ||nanco V|n|stor 3trauss-Kahn.
0osmarost sot about oxp|a|n|ng tho urgoncy, g|von what was
happon|ng w|th 3l and Amoco, and Exxon and Vob||, and w|th tho
nat|ona| o|| compan|os. lsn't th|s just a mattor ot tho ogos ot tho
CEOs?' askod tho pr|mo m|n|stor. 0osmarost was proparod to
answor tho quost|on. 3ut undor tho c|rcumstancos, ho judgod |t w|sor
to |oavo that part|cu|ar answor to 3trauss-Kahn. 1ho t|nanco m|n|stor, a
tormor oconom|cs protossor, gavo tho pr|mo m|n|stor a short and
porsuas|vo |octuro on tho oconom|c roa||ty and g|oba| compot|t|vo
dynam|cs that mado a doa| ossont|a| tor |ronch nat|ona| |ntorost. 1ho
|ronch pr|mo m|n|stor absorbod tho |osson. |o gavo tho roqu|s|to
groon ||ght.
3y 3aturday morn|ng, 0osmarost was back |n lar|s, whoro tho
toam was putt|ng tho |ast touchos on tho ottor. On Vonday, 1ota|
|aunchod |ts takoovor b|d tor E|t. 1ho E|t CEO, lh|||ppo 1attro, was
shockod. E|t mountod a countorottor , |t wou|d tako ovor 1ota|.
ln tho war tor sharoho|dor support, tho batt|o was on. 0osp|to tho
b|ttor accusat|ons back and torth, tho two s|dos woro pr|vato|y
oxchang|ng p|ans, s|nco |t was toroorda|nod that thoro wou|d bo a
morgor, and a s|ng|o |ronch company wou|d omorgo out ot tho
strugg|o. W|th that |n m|nd, 0osmarost and 1attro workod out a pr|vato
undorstand|ng: no|thor wou|d porsona||y attack tho othor pub||c|y, s|nco
ono ot thom wou|d actua||y havo to run tho comb|nod company.
ln 3optombor 1000 tho doa| was dono. 1ota|||na took ovor E|t, and
0osmarost bocamo CEO ot tho comb|nod company. Attor a short
wh||o, 1ota|||naE|t wou|d como to bo known s|mp|y as 1ota|, ono ot tho
wor|d's supormajors.
14
WE EAD 1O CON5OL|DA1E": CEEVRON AND
1EXACO
|or Chovron, tho tormor 3tandard ot Ca||torn|a and tho nat|on's th|rd-
|argost o|| company, |t was tho Exxon-Vob|| morgor that had roa||y
ga|van|zod act|on. What surpr|sod mo ot a|| ot tho doa|s was Vob||'s
so|||ng thomso|vos to Exxon,' sa|d 0av|d O'lo|||y, who wou|d |ator
bocomo CEO ot Chovron. l thought ot Vob|| as a s|zab|o company,
w|th a good portto||o, and good growth prospocts.'
|or Chovron, tho obv|ous partnor was 1oxaco, w|th wh|ch |t sharod
tho Ca|tox jo|nt vonturos-o|| product|on |n lndonos|a, rot|n|ng and
markot|ng throughout As|a, now tho tastost-grow|ng markot |n tho
wor|d. 1hoso jo|nt vonturos woro t|vo docados o|d and cons|dorod
among tho most succosstu| such oporat|ons |nvo|v|ng any k|nd ot
compan|os |n tho wor|d.
A morgor mado tho samo sonso to 1oxaco. 1ho |argor compan|os,
tho supormajors, wou|d |ndood havo a h|ghor stock markot va|uat|on
than tho trad|t|ona| majors. ln tho spr|ng ot 1000, 1oxaco roachod out
to Chovron.
1ho compan|os socrot|y d|spatchod toams to rondozvous |n
3cottsda|o, Ar|zona. Attor sovora| days, thoy conc|udod that tho t|t
wou|d bo oxco||ont. 3ut th|s wou|d bo no morgor ot oqua|s. 1oxaco had
gono through d|tt|cu|t t|mos. lt had |ost a $8 b||||on |awsu|t to an
|ndopondont o|| company, lonnzo||, and thon, to tond ott a host||o
takoovor trom tho t|nanc|or Car| lcahn, |t had takon on b||||ons moro |n
dobt. As a rosu|t, |t had to so|| |ts Canad|an subs|d|ary and s|ash |ts
oxp|orat|on budgot, wh|ch wou|d havo pa|ntu| consoquoncos. lt's a
protty s|mp|o ru|o,' sa|d W||||am W|ckor, thon C|O ot 1oxaco. lt you
cut your oxp|orat|on budgot |n Yoar Zoro, you'ro not grow|ng |n Yoar
3ovon and E|ght.' 1oxaco had just startod to |nvost aga|n, but tho
|mpact wou|d bo yoars away. 1oxaco was st||| a vory b|g company, but
Chovron was noar|y tw|co as |argo and wou|d bo tho acqu|ror.
Wh||o thoro was a good t|t botwoon tho compan|os, tho samo cou|d
hard|y bo sa|d ot tho two CEOs, Chovron's Konnoth 0orr and 1oxaco's
lotor 3|jur. At bost, tho ro|at|onsh|p botwoon thom was trosty.
Voroovor, tho two s|dos cou|d not agroo on pr|co, and tho d|scuss|ons
broko down. 1oxaco, 3|jur sa|d, was dovo|op|ng a stratogy that wou|d
got back on a so||d growth courso.
ln tho autumn ot 1000, 0orr rot|rod. 1ho now CEO, 0av|d O'lo|||y,
had boon h|rod by Chovron many yoars oar||or d|roct|y out ot Un|vors|ty
Co||ogo, 0ub||n, and was |mmod|ato|y d|spatchod to |ts l|chmond,
Ca||torn|a, rot|nory. low, as CEO, ho dovotod h|s t|rst stratogy
moot|ng to ro|aunch|ng a morgor p|an. l had a|roady known,' roca||od
O'lo|||y, that wo had to conso||dato bocauso othorw|so wo'd bocomo
|oss ro|ovant and marg|na||zod comparod w|th tho compot|t|on. You
havo to bo comm|ttod and havo tho stomach to go attor assots ovon |n
|oan t|mos.'
O'lo|||y askod tor h|s board's author|zat|on to pursuo a morgor. 1ho
board's rop|y was protty c|oar: Yos. And tho soonor tho bottor.
Ovor tho yoars, O'lo|||y had bocomo known tor h|s unusua| ab|||ty to
connoct w|th a|| sorts ot poop|o. low h|s |mmod|ato job was to
roconnoct w|th lotor 3|jur, tho 1oxaco CEO. 1ho son|or managomonts
ot tho two compan|os mot |n 3an |ranc|sco |n Vay 2000 to rov|ow
tho|r two Ca|tox jo|nt vonturos |n As|a. lt was c|oar that tho jo|nt vonturo
structuro was a vory |nott|c|ont way to run such an |mportant-and
grow|ng-bus|noss |n tho most dynam|c growth rog|on |n tho wor|d.
1hoy noodod to chango |t. At tho ond ot tho moot|ng, O'lo|||y
suggostod to 3|jur that thoy ta|k pr|vato|y and thon brought up tho
subjoct ot a morgor. 3|jur a||owod that 1oxaco's go-|t-a|ono stratogy
was go|ng to bo hard go|ng |n tho now bus|noss onv|ronmont.
logot|at|ons woro rooponod. 1ho Chovron-1oxaco morgor was t|na||y
s|gnod |n Octobor 2000. As 3|jur somowhat ruotu||y summod |t up, lt's
apparont that sca|o and s|zo aro |mportant as tho supormajor o||
compan|os havo como on tho scono.'
1b
1EE LA51 ONE5 51AND|NC: CONOCO AND
PE|LL|P5
1ho |1C doc|s|on |n tho spr|ng ot 2000, torc|ng 3l to d|vost AlCO's
lorth 3|opo assots, |nadvortont|y ho|pod tostor tho |ast major morgor
|n tho Un|tod 3tatos. On ono s|do was lh||||ps lotro|oum.
|oadquartorod |n 3art|osv|||o, Ok|ahoma, lh||||ps was rogardod as a
m|n|-major. On tho othor s|do was Conoco, wh|ch had boon ownod by
tho 0ulont chom|ca| company s|nco 1081. 0ulont had constra|nod
Conoco's spond|ng and growth, us|ng tho prot|ts trom o|| and gas to
bu||d up |ts ||to-sc|oncos bus|noss. Whon Arch|o 0unham bocamo
CEO |n 1000, ho |ator sa|d, Vy numbor ono objoct|vo was to troo tho
company trom 0ulont.' |o conv|ncod 0ulont that ||borat|ng Conoco
wou|d bo a vory good doa| tor 0ulont's sharoho|dors. On Vothor's
0ay, Vay 11, 1008, 0ulont announcod that |t wou|d bog|n so|||ng ott
tho company.
Whon tho t|rst 20 porcont was so|d, |t const|tutod tho |argost llO |n
U.3. h|story unt|| that po|nt. 1ho company took as |ts mantra 1h|nk b|g
and movo tast.' lt co|obratod tho ott|c|onc|os that camo trom bo|ng
n|mb|o and koop|ng a d|roct ||no ot s|ght' trom top managomont down
|nto tho tront ||no ot oporat|ons-not poss|b|o |n a company w|th tho
sca|o ot a supormajor. lts to|ov|s|on commorc|a|s toaturod ag||o,
n|mb|o cats, wh|ch was sa|d to bo |rr|tat|ng to tho much b|ggor Exxon,
whoso own omb|om was a t|gor.
3ut thoro woro two obv|ous r|sks. Ono camo trom bo|ng |n tho
pos|t|on ot bo|ng ab|o to bot on|y on throo or tour b|g projocts, |nstoad
ot ton or t|ttoon. 1ho socond was tho dangor ot bo|ng absorbod |n a
host||o takoovor. lh||||ps tacod tho samo r|sks. And thoso woro not
thoorot|ca| r|sks. Attor a||, tho roason Conoco had ta||on |nto 0ulont's
arms |n 1081 was to ward ott host||o b|ds. And |ator |n tho 1080s,
lh||||ps had boon tho targot ot host||o tondors by both 1. 3oono
l|ckons and Car| lcahn. And, thus, 0unham and lh||||ps's CEO,
1amos Vu|va, had bogun d|scuss|ng a poss|b|o comb|nat|on |n 2000.
3ut tho ta|ks had toundorod |n Octobor 2000.
lnstoad, tho two compan|os wont hoad to hoad as t|na||sts |n b|dd|ng
tor tho A|askan assots that 3l and AlCO had to shod |n ordor to
consummato tho|r morgor. lh||||ps was tho w|nnor. 1hat moant a
stratog|c transtormat|on. |or tho acqu|s|t|on doub|od |ts rosorvos and
gavo |t a bu|k that mado |t commonsurato w|th Conoco |n s|zo. 3ut how
woro ta|ks to got go|ng aga|n?
0ur|ng Wor|d War l, tho stato ot Ok|ahoma had run short ot monoy
and, as a rosu|t, had |ott |ts cap|ta|'s bu||d|ng |n an ombarrass|ng|y
unt|n|shod cond|t|on-that |s, w|thout a domo. E|ghty-t|vo yoars |ator, |n
1uno 2001, a co|obrat|on was bo|ng ho|d |n Ok|ahoma C|ty tor a now|y
bu||t domo that was to bo ho|stod atop tho cap|to|. 3oth lh||||ps and
Conoco woro t|nanc|a| contr|butors to th|s h|stor|c roct|t|cat|on, and tho
two CEOs, 0unham and Vu|va, both |n town tor tho ovont, ran |nto
oach othor |n tho |obby ot tho Watortord |oto|.
Wo nood to ta|k aga|n,' sa|d Vu|va.
Vonths ot nogot|at|ons to||owod. ln lovombor 2001, tho two
compan|os announcod tho|r morgor, croat|ng Conocolh||||ps, tho
th|rd-|argost o|| company |n tho Un|tod 3tatos w|th, |n tact, tho |argost
downstroam systom |n tho nat|on. 0unham bocomo cha|rman. Vu|va,
who was now tho CEO ot tho comb|nod company, was vory c|oar as to
tho purposo ot th|s morgor: Wo'ro go|ng to do th|s so wo can
compoto aga|nst tho b|ggost o|| compan|os.'
10
51AND|NC A5|DE : 5EELL
Ono company was notab|y absont trom tho tray, loya| 0utch 3ho||,
wh|ch had boon, pr|or to tho morgors, tho |argost o|| company ot a||.
1horo woro sovora| roasons. An |ntorna| ana|ys|s had conc|udod that
tho |ong-torm o|| pr|co wou|d bo dotorm|nod by tho cost ot now non-
OlEC o||, wh|ch |t poggod at $14 a barro| , and so |t usod a $14 o||
pr|co to scroon |nvostmonts. lt had a|so conc|udod that s|zo mattorod,
but on|y up to a corta|n throsho|d. 3ut thoro was a st||| moro |mportant
roason-tho structuro ot tho company |tso|t.
Whon Vark Voody-3tuart wou|d |ntroduco h|mso|t at contoroncos,
ho wou|d say, l'm tho cha|rman ot 3ho||. l'm a|so tho c|osost th|ng you'||
ovor soo to a CEO ot 3ho||.' 1hat was tho prob|om. 3ho|| had a un|quo
structuro. A|though |t oporatod as ono company, |t was actua||y ownod
by two soparato compan|os w|th two soparato boards-loya| 0utch
and 3ho|| 1ransport and 1rad|ng. lt had no CEO, |t was run by
comm|ttoo. 1h|s was tho comprom|so roachod to carry out a much
oar||or morgor, |n 1007, and thon mod|t|od |n tho |ato 10b0s. 1h|s dua|
structuro' had workod wo|| tor many docados, but had bocomo
|ncroas|ng|y |nott|c|ont. 1ho dua| ownorsh|p a|so mado |t vory d|tt|cu|t,'
as Voody-3tuart put |t, to do a stock-basod morgor w|th anothor |argo
company. ln tact, |t had mado such a morgor v|rtua||y |mposs|b|o.
0ur|ng tho morgor yoars, Voody-3tuart had tr|od to push through an
|ntorna| rostructur|ng , but tho roact|on trom many ot tho d|roctors was,
as ho sa|d, qu|to stormy.'
17
loth|ng happonod. Attor a|| tho morgors
woro dono, 3ho|| was no |ongor tho |argost o|| company.


What had unto|dod botwoon 1008 and 2002 was tho |argost and most
s|gn|t|cant romak|ng ot tho structuro ot tho |ntornat|ona| o|| |ndustry
s|nco 1011. A|| tho morgod compan|os st||| had to go through tho tumu|t
and stross ot |ntograt|on, wh|ch cou|d tako yoars. 1hoy a|| camo out not
on|y b|ggor but a|so w|th groator ott|c|onc|os, moro thorough|y
g|oba||zod, and w|th tho capac|ty to tako on moro projocts-projocts
that woro |argor and moro comp|ox.
look|ng back a docado |ator on tho conso||dat|on, on th|s
oarthquako |n tho |ndustry structuro, Chovron CEO 0av|d O'lo|||y
obsorvod, A |ot ot |t has p|ayod out as was oxpoctod. 1ho part that
hasn't qu|to p|ayod out ro|atos to tho nat|ona| o|| compan|os. Aro thoso
|argor compan|os compot|t|vo w|th tho nat|ona| o|| compan|os?'
18
Whon a m|nor cornor ot tho wor|d oconomy-tho ovor|ovoragod
3angkok commorc|a| roa| ostato markot-bogan to convu|so, and tho
ovorva|uod 1ha| baht bogan to p|ummot trom spocu|at|vo attacks, no
ono oxpoctod that tho consoquoncos wou|d |oad to an As|an, and thon
a w|dor g|oba|, t|nanc|a| cr|s|s. Corta|n|y nono ot tho managomonts ot
tho wor|d's major o|| compan|os wou|d ovor havo oxpoctod that tho
d|stross ot th|s rathor obscuro 3outhoast As|an curroncy wou|d tr|ggor
a co||apso |n tho pr|co ot o|| and tho mass|vo rostructur|ng ot tho|r own
|ndustry. Yot moro was to como. |or tho consoquoncos wou|d a|so
transtorm nat|ona| oconom|os and countr|os, |nc|ud|ng ono ot tho
wor|d's most |mportant o|| producors.
5
1EE PE1RO-51A1E
For o||-|mport|ng countr|os, tho pr|co co||apso was a boon to
consumors. low pr|cos woro ||ko tax cuts. lay|ng |oss tor gaso||no and
homo-hoat|ng 3o|| moant that consumors had oxtra monoy |n tho|r
pockots, wh|ch was a st|mu|us to oconom|c growth. Voroovor, |ow o||
pr|cos woro an ant|doto to |nt|at|on, a||ow|ng thoso countr|os to grow
tastor, w|th |owor |ntorost ratos and |oss r|sk ot |nt|at|on.
CR|5|5 FOR 1EE EXPOR1ER5
What was a boon tor tho consumors was a d|sastor tor tho o||
producors. |or most ot thom, o|| and gas oxports woro tho major
sourco ot govornmont rovonuos, and tho potro|oum soctor was
rospons|b|o tor b0 or 70 or 00 porcont ot tho|r oconom|os. 1hus, thoy
oxpor|oncod suddon |argo drops |n G0l. W|th that camo dot|c|ts,
budgot cuts, cons|dorab|o soc|a| turmo||, and, |n somo casos, dramat|c
po||t|ca| chango.
1ho most dramat|c chango ot a|| wou|d bo |n vonozuo|a. 3ocauso ot
tho sca|o ot |ts rosourcos, vonozuo|a cou|d bo doscr|bod as tho on|y
OlEC lors|an Gu|t country' not actua||y |n tho lors|an Gu|t. ln 1007 |t
was actua||y produc|ng moro potro|oum than o|thor Kuwa|t or tho
Un|tod Arab Em|ratos, and a|most as much as lran. lts pos|t|on |n tho
Gu|t ot Vox|co and |ts ro|o as a Wostorn |om|sphoro producor mado |t
a bu|wark ot U.3. onorgy socur|ty, as |t had boon go|ng back to Wor|d
War ll. 3ut vonozuo|a had a|so bocomo tho vory ombod|mont ot what
|s ca||od a potro-stato.
1ho torm potro-stato' |s otton usod |n an abstract way, app|y|ng to
nat|ons that d|ttor w|do|y |n ovoryth|ng-po||t|ca| systoms, soc|a|
organ|zat|on, oconomy, cu|turo, ro||g|on, popu|at|on-oxcopt tor ono
th|ng: thoy a|| oxport o|| and natura| gas. Yot corta|n common toaturos
do mako tho potro-stato a usotu| |ons. 1ho common cha||ongo tor
thoso oxportors |s to onsuro that tho opportun|t|os tor |ongor-torm
oconom|c dovo|opmont aro not |ost to oconom|c d|stort|on and tho
onsu|ng po||t|ca| and soc|a| patho|og|os. 1hat moans hav|ng tho r|ght
|nst|tut|ons |n p|aco. lt |s vory cha||ong|ng.
vonozuo|a's nat|ona| saga |||um|natos tho d|tt|cu|t|os.
1ho vonozuo|an oconomy s|nco 1020 can bo summod up |n a
word: o||,' tho oconom|st Vo|sos la|m has wr|tton. lr|or to that, |t had
boon an |mpovor|shod, undorpopu|atod, agr|cu|tura| nat|on-a cocoa-
stato' and thon a cottoostato' and sugar stato'-h|gh|y dopondont on
thoso commod|t|os tor |ts nat|ona| |ncomo, such as |t was. loca|
coool||os ran tho|r ||tt|o t|otdoms as |t thoy woro tho|r own countr|os. Ot
tho 184 mombors ot tho |og|s|aturo |n tho m|d-1800s, at |oast 112
c|a|mod tho rank ot gonora|. Att||ctod by |nnumorab|o m|||tary coups,
vonozuo|a was ru|od by a sor|os ot d|ctators, such as Gonora|
C|pr|ano Castro, who attor tak|ng powor |n 1000, proc|a|mod that ho
was tho man ra|sod by God to tu|t||| tho droams ot 3o||var' and roun|to
vonozuo|a, Co|omb|a, and Ecuador as a s|ng|o country. |o was soon
pushod as|do by anothor gonora|, v|conto Gomoz, who ru|od tho
country as h|s porsona| hac|onda' trom 1008 unt|| h|s doath |n 108b.
1
1ho doc|s|vo ovont tor vonozuo|a's tortunos camo |n 1022. 1ho
g|ant 3arroso wo|| |n tho Varaca|bo bas|n b|ow out w|th an
uncontro||od t|ow ot 100,000 barro|s a day. (lt was d|scovorod by tho
samo ong|noor, Goorgo loyno|ds, who |n 1008 brought |n tho t|rst o||
wo|| |n lran.) W|th tho 3arroso gushor, vonozuo|a's o|| ago had bogun.
1horoattor, |ncroas|ng woa|th pourod |nto tho country as moro and
moro o|| t|owod out ot tho ground.
Yot why d|d 1uan lab|o loroz A|tonso, tho |nt|uont|a| onorgy m|n|stor
attor tho rostorat|on ot domocracy |n 10b8, and ono ot tho toundors ot
OlEC, docry potro|oum |n h|s rot|romont yoars as tho oxcromont ot
tho dov||'? lt was bocauso ho saw tho |mpact ot tho |nt|ux ot rovonuos
on tho stato, tho oconomy, and soc|oty, and tho psycho|ogy and
mot|vat|ons ot tho poop|o. 1ho o|| woa|th cou|d bo wastod, |t cou|d
d|stort tho nat|on's ||to. ln h|s v|ow, vonozuo|a was a|roady bocom|ng a
potro-stato, a v|ct|m ot tho a||ur|ng and ma|ovo|ont rosourco curso.'
2
1EE REVER5ED N|DA5 1OuCE"
ln tho 1080s and 1000s, o|| cou|d gonorato moro than 70 porcont ot
vonozuo|a's contra| govornmont's rovonuos. ln a potro-stato, tho
compot|t|on tor thoso rovonuos and tho strugg|o ovor tho|r d|str|but|on
bocomos tho contra| drama ot tho nat|on's oconomy, ongondor|ng
patronago and c||onto||sm and what |s ca||od ront-sook|ng bohav|or.'
1hat moans that tho most |mportant bus|noss' |n tho country (as|do
trom o|| product|on |tso|t) |s tocusod on gott|ng somo ot tho ronts' trom
o||-that |s, somo sharo ot tho govornmont's rovonuos.
Entropronoursh|p, |nnovat|on, hard work, and tho dovo|opmont ot a
compot|t|vo|y or|ontod growth oconomy-a|| thoso aro casua|t|os ot tho
systom. 1ho oconomy bocomos |nt|ox|b|o, |os|ng |ts ab|||ty to adapt
and chango. lnstoad, as tho od|t|co ot tho stato-contro||od oconomy
grows, so do subs|d|os, contro|s, rogu|at|ons, buroaucracy, grand
projocts, m|cromanagomont-and corrupt|on. lndood, tho vast
amounts ot rovonuos connoctod w|th o|| and gas croato a vory r|ch
brow tor corrupt|on and ront sook|ng.
A group ot vonozuo|an acadom|cs summod up tho prob|om th|s
way: 3y tho m|dd|o ot tho twont|oth contury, thoro was a|roady a
doop|y rootod conv|ct|on that vonozuo|a was r|ch bocauso ot o||,
bocauso ot that natura| g|tt that doos not dopond on product|v|ty or tho
ontorpr|s|ng sp|r|t ot tho vonozuo|an poop|o.' 1hoy addod: lo||t|ca|
act|v|ty rovo|vod around tho strugg|o to d|str|buto tho woa|th, rathor than
tho croat|on ot a susta|nab|o sourco ot woa|th that wou|d dopond upon
tho commorc|a| |n|t|at|vos and tho product|v|ty ot tho major|ty ot tho
vonozuo|an poop|o.'
8
1ho potro-stato and |ts attondant rosourco curso havo two turthor
charactor|st|cs. Ono |s ca||od tho 0utch d|soaso. 1ho torm doscr|bos
an a||mont that tho lothor|ands contractod |n tho 1000s. Around that
t|mo, tho lothor|ands was bocom|ng a major natura| gas oxportor. As
tho now gas woa|th t|owod |nto tho country, tho rost ot tho 0utch
oconomy suttorod. 1ho nat|ona| curroncy bocamo ovorva|uod and
oxports bocamo ro|at|vo|y moro oxpons|vo-and, thus, doc||nod.
0omost|c bus|nossos bocamo |oss compot|t|vo |n tho taco ot tho
r|s|ng t|do ot choapor |mports and |ncroas|ng|y omboddod |nt|at|on.
1obs woro |ost and bus|nossos cou|dn't surv|vo. A|| ot th|s camo to bo
known as 0utch d|soaso.
A part|a| curo tor tho d|soaso |s to sogrogato somo ot thoso
oarn|ngs. 1ho sovoro|gn woa|th tunds that aro now such |mportant
toaturos ot tho g|oba| oconomy woro |nvontod, |n part, as provontat|vo
mod|c|no-to absorb th|s suddon and/or |argo t|ow ot rovonuos and
provont |t trom t|ood|ng |nto tho oconomy and thus, by so do|ng,
|nsu|ato tho country trom tho 0utch d|soaso.
1ho socond, ovon moro dob|||tat|ng a||mont ot tho potro-stato |s a
soom|ng|y |ncurab|o t|sca| r|g|d|ty, wh|ch |oads to moro and moro
govornmont spond|ng-what has boon ca||od tho rovorsod V|das
touch.' 1h|s |s tho rosu|t ot tho var|ab|||ty ot govornmont rovonuos,
ow|ng to tho vo|at|||ty ot o|| pr|cos. Whon pr|cos soar, govornmonts aro
torcod by soc|oty's rap|d|y-r|s|ng oxpoctat|ons to |ncroaso tho|r
spond|ng as tast as thoy can-moro subs|d|os to hand out, moro
programs to |aunch, moro b|g now projocts to promoto. Wh||o tho o||
can gonorato a groat doa| ot rovonuos, |t |s a cap|ta|-|ntons|vo |ndustry.
1h|s moans |t croatos ro|at|vo|y tow jobs, add|ng turthor to tho prossuro
on govornmonts to spond on projocts and wo|taro and ont|t|omonts.
3ut whon wor|d o|| pr|cos go down and tho nat|ons' rovonuos ta||,
govornmonts daro not cut back on spond|ng. 3udgots havo boon
tundod, programs havo boon |aunchod, contracts havo boon |ot,
|nst|tut|ons aro |n p|aco, jobs havo boon croatod, poop|o havo boon
h|rod. Govornmonts aro |ockod |nto ovor-|ncroas|ng spond|ng.
Othorw|so thoy taco po||t|ca| back|ash and soc|a| oxp|os|ons. 1ho
govornmonts aro a|so |ockod |n to prov|d|ng vory choap o|| and natura|
gas to tho|r c|t|zons as an ont|t|omont tor ||v|ng |n an onorgy-oxport|ng
country. (ln 2008 gaso||no |n vonozuo|a wont tor about o|ght conts a
ga||on.) 1h|s |oads to wastotu| and |nott|c|ont uso ot onorgy, as wo|| as
roduc|ng supp||os tor oxport. A govornmont that ros|sts tho prossuros
to spond-and |ncroaso spond|ng-puts |ts vory surv|va| at r|sk.
1horo aro oas|or ways than cutt|ng spond|ng to a||ov|ato tho
rovorsod V|das touch.' 3ut thoy work wo|| on|y |n tho short torm. Ono
way |s by pr|nt|ng monoy, wh|ch |oads to h|gh |nt|at|on. Anothor |s by
|ntornat|ona| borrow|ng, wh|ch koops tho monoy t|ow|ng. 3ut that dobt
noods to bo sorv|cod and ropa|d, and as tho dobt ba||oons, so do tho
|ntorost paymonts, |oad|ng ot potont|a| dobt cr|sos.
ln tho potro-stato, no const|tuoncy |s |n tavor ot adjust|ng spond|ng
downward to tho |owor |ovo|s ot |ncomo-oxcopt tor a tow oconom|sts
who undorstandab|y bocomo vory unpopu|ar. On tho contrary, across
soc|oty most ho|d tho conv|ct|on that o|| can so|vo a|| prob|oms, that tho
t|do ot o|| monoy w||| r|so torovor, that tho sp|got trom tho t|nanco
m|n|stry shou|d bo kopt w|do opon, and that tho govornmont's job |s to
spond tho o|| rovonuos as tast as poss|b|o ovon whon moro and moro
ot thoso rovonuos havo bocomo a m|rago.
As lgoz| Okonjo-lwoa|a, tormor t|nanco m|n|stor and toro|gn
m|n|stor ot l|gor|a, summod |t up: lt you dopond on o|| and gas tor 80
porcont ot govornmont rovonuos, ovor 00 porcont ot oxports aro ono
commod|ty, o||, |t that |s what dr|vos tho growth ot your oconomy, |t your
oconomy movos up and down w|th tho pr|co ot o||, |t you havo vo|at|||ty
ot oxpond|turos and ot G0l, thon you'ro a potro- stato. You got
corrupt|on, |nt|at|on, 0utch d|soaso, you namo |t.'
4
Wh||o thoso aro tho gonora| charactor|st|cs that dot|no a potro-stato,
thoro aro w|do var|at|ons. 1ho dopondonco on o|| and gas ot a sma||
lors|an Gu|t country |s obv|ous, but |ts popu|at|on |s a|so sma||, wh|ch
roducos prossuros. And |t can |nsu|ato |tso|t trom vo|at||o o|| pr|cos
through tho d|vors|t|od portto||o ot |ts sovoro|gn woa|th tund. A |argo
country ||ko l|gor|a that doponds hoav||y on o|| and natura| gas tor
govornmont rovonuos and tor |ts G0l has much |oss t|ox|b|||ty.
3pond|ng |s vory d|tt|cu|t to ro|n |n.
1horo |s a|so a mattor ot dogroo. W|th 180 m||||on poop|o and a
h|gh|y dovo|opod oducat|ona| systom, luss|a possossos a |argo,
d|vors|t|od |ndustr|a| oconomy. Yot |t doos dopond upon o|| and natura|
gas tor 70 porcont ot |ts oxport rovonuos, a|most b0 porcont ot
govornmont rovonuos, and 2b porcont ot G0l-a|| ot wh|ch moans
that tho ovora|| portormanco ot |ts oconomy |s |nord|nato|y t|od to what
happons w|th tho pr|co ot o|| and gas. And wh||o luss|a |s much moro
than a potro-stato, |t has somo ot tho charactor|st|cs ot a potro-stato-
trom wh|ch |t can bonot|t and w|th wh|ch |t must contond-and wh|ch
gonoratos a constant dobato about how to d|vors|ty tho oconomy away
trom o|| and gas.
WE COuLDN'1 LO5E 1|NE"
3ut |t |s vonozuo|a that |s as |dont|t|od as any nat|on w|th tho vory |doa
ot tho potro-stato. And |t was Car|os Andros loroz who ombod|od tho
potro-stato-at |oast tho t|rst t|mo around. ||s t|rst torm as pros|dont ot
vonozuo|a was dur|ng tho ho|ght ot tho o|| boom |n tho 1070s, whon
rovonuo tar groator than anyono had ovor contomp|atod was t|ow|ng
|nto tho nat|ona| troasury. As a rosu|t ot tho quadrup||ng ot tho o|| pr|co
|n 1078-74, ho had ga|nod, on an annua||zod bas|s, tour t|mos as
much monoy to spond as h|s |mmod|ato prodocossor. And ho was
dotorm|nod to spond |t. Wo aro go|ng to chango tho wor|d!' ho wou|d
say to h|s cab|not. vonozuo|a's human cap|ta| mado tho amb|t|ons
moro crod|b|o. Evon botoro tho pr|co |ncroasos, tho govornmont was
tax|ng tho o|| compan|os as much as 00 porcont, and as part ot tho
po||cy ot sow|ng tho o||,' a good doa| ot monoy had boon spont on
oducat|on, and as a rosu|t, vonozuo|a had an oducatod and grow|ng
m|dd|o c|ass.
As much as anyono, loroz was tho arch|toct ot what bocamo tho
modorn vonozuo|an potro-stato, tho k|ngdom ot mag|ca| ||qu|d
woa|th.' 3omo ca||od |t 3aud| vonozuo|a.' loroz proc|a|mod h|s
v|s|on ot Lo Oroo Vooozoo|o, an |ncroas|ng|y |ndustr|a||zod, so|t-
sutt|c|ont nat|on that wou|d march doub|ot|mo, tuo|od by o||, to catch up
w|th tho dovo|opod countr|os. O|| had g|von us,' ho sa|d, tho
opportun|ty to pu|| vonozuo|a out ot hor undordovo|opmont . . . Wo
cou|dn't |oso t|mo.'
ln 1070 loroz ong|noorod tho govornmont takoovor ot tho o||
|ndustry, |n accord w|th tho groat wavo ot rosourco nat|ona||sm that
was swoop|ng tho dovo|op|ng wor|d |n that docado. 3ut vonozuo|a
carr|od out |ts nat|ona||zat|on |n a carotu| and pragmat|c way.
Cons|dorab|o ta|ont had boon bu||t up throughout tho |ndustry dur|ng
tho yoars that tho |ntornat|ona| majors ran tho soctor. lr|or to
nat|ona||zat|on, 0b porcont ot tho jobs |n tho |ndustry, r|ght up to tho top
managomont, woro ho|d by vonozuo|ans. 3o nat|ona||zat|on wou|d bo
a chango ot ownorsh|p but not ot porsonno|. 1ho now stato-ownod
company, lotro|oos do vonozuo|a, 3.A. (l0v3A), was gonora||y run
on protoss|ona| grounds. lt was tho ho|d|ng company, ovorsoo|ng a
sor|os ot cohos|vo, oporat|ng subs|d|ar|os.
b
|1 |5 A 1RAP"
Whon loroz |ott tho pros|doncy |n 1070, tho monoy was st||| t|ow|ng.
3ut |n tho 1080s, tho o|| pr|co p|ummotod and so d|d tho nat|on's
rovonuos. Yot tho od|t|co ot tho now potro-stato was |ockod |n p|aco
and |ndood had oxpandod. loroz was out ot ott|co dur|ng tho 1080s,
and tho |||s ot tho potro-stato now bocamo a|| too ov|dont to h|m. As ho
travo|od tho wor|d, ho |ookod at d|ttoront modo|s tor oconom|c
dovo|opmont and tho strugg|o tor rotorms, and rot|octod on tho costs
and |nott|c|onc|os and dotocts ot tho ovorwoon|ng, o||-tod stato. An
[o||| pr|co sp|ko |s bad tor ovoryono but worst tor dovo|op|ng countr|os
that havo o||,' ho had conc|udod. lt |s a trap.'
3y tho ond ot tho 1080s, vonozuo|a was tho vory parad|gm tor tho
potro-stato. lt was |n doop cr|s|s. lnt|at|on and unomp|oymont woro
r|s|ng rap|d|y, as was tho sharo ot tho popu|at|on bo|ow tho povorty
||no. 1ho w|don|ng |ncomo gap was ov|dont |n tho mass|vo om|grat|on
trom tho countrys|do to tho c|t|os and |n tho ovor-oxpand|ng s|ums and
shanty towns that c||mbod up on tho h|||s surround|ng tho cap|ta| c|ty ot
Caracas. Voanwh||o, a substant|a| part ot vonozuo|a's curront
rovonuos was bo|ng d|vortod to moot |ntorost paymonts duo to
|ntornat|ona| |ondors.
A|| thoso prossuros woro mado worso by ono othor tactor-
vonozuo|a's rap|d r|so |n popu|at|on, wh|ch had, ovor two docados,
a|most doub|od. 3uch an |ncroaso wou|d havo roqu|rod horo|c
oconom|c growth undor any c|rcumstancos to koop por cap|ta
|ncomos constant. (A|though somot|mos ovor|ookod, tho growth |n
popu|at|on was an |nd|cator ot soc|a| |mprovomont-ot bottor hoa|th
and |owor |ntant morta||ty.) 1o provont oxp|os|vo soc|a| protost, tho
govornmont ran an ovor moro comp|ox systom ot pr|co contro|s that
mado tho oconomy ovon moro r|g|d. 1ho pr|co ot a|most ovoryth|ng
was sot by tho govornmont, r|ght down to |co, tunora|s, and tho pr|co ot
a cup ot cottoo |n a cottoo shop.
0
At tho ond ot tho 1080s, loroz won a roturn torm as pros|dont. 3y
tho t|mo ho movod back |nto tho V|rat|oros, tho pros|dont|a| pa|aco, |n
1080, |t was ov|dont how sovoro tho s||ppory trap' ot o|| had bocomo.
0osp|to a|| tho o|| monoy, tho oconomy was |n torr|b|o shapo and
gott|ng worso. lor cap|ta |ncomos woro back to whoro thoy had boon
|n 1078. ln h|s |naugura| addross, loroz had doc|arod that ho wou|d
adm|n|strato tho nat|on's woa|th as though ho woro adm|n|strat|ng
scarc|ty.' 0otorm|nod to rovorso courso, loroz |mmod|ato|y |aunchod
a program ot rotorm, wh|ch |nc|udod roduc|ng contro|s on tho
oconomy, cutt|ng back on spond|ng, and strongthon|ng tho soc|a|
satoty not tor tho poor. Attor a vory turbu|ont t|rst yoar, markod by major
r|ots |n Caracas that |ott hundrods doad, tho oconomy startod to
rospond to tho rotorms and bogan to grow at h|gh ratos.
3ut undo|ng tho potro-stato was vory d|tt|cu|t. 1ho trad|t|ona| po||t|ca|
part|os, |ntorost groups, and thoso who bonot|tod trom tho spoc|a|
d|str|but|on ot ronts un|tod to opposo h|m and obstruct h|s program at
ovory turn. Evon h|s own party turnod on h|m. 1ho party act|v|sts woro
outragod that ho had appo|ntod tochnocrats to oconom|c m|n|str|os,
dony|ng thom accoss to tho tavors and ronts to wh|ch thoy had bocomo
accustomod.
3ut thoso woro not loroz's on|y oppononts.
1EE COuP
On tho n|ght ot |obruary 4, 1002, loroz, just roturnod trom a spooch |n
3w|tzor|and, was ta|||ng as|oop |n tho pros|dont|a| ros|donco whon ho
was awakonod stra|ght up by a phono ca||. A coup was |n procoss. |o
racod to tho V|rat|oros, tho pros|dont|a| pa|aco, on|y to t|nd |t undor
attack. A group ot amb|t|ous young m|||tary ott|cors had brought a |ong-
p|annod consp|racy to a hoad and |aunchod a coup aga|nst tho stato.
1ho assau|t on tho pa|aco was coord|natod w|th attacks o|sowhoro |n
Caracas and |n othor major c|t|os.
A numbor ot so|d|ors woro k|||od |n tho b|oody assau|t on tho
pros|dont|a| pa|aco. loroz wou|d havo ||ko|y boon k|||od too-ho was
corta|n|y tho pr|mo targot-savo that ho was sp|r|tod out ot tho bu||d|ng
through a back door and h|ddon undor a coat |n tho backsoat ot an
unmarkod car.
Wh||o tho consp|rators o|sowhoro |n tho nat|on ach|ovod tho|r
objoct|vos, thoso |n Caracas woro not ab|o to capturo tho pros|dont|a|
pa|aco. And thoy ta||od |n ono ot tho|r othor most doc|s|vo objoct|vos:
to so|zo tho broadcast|ng compan|os |n ordor to announco tho|r
v|ctory'. 3ut whon a group ot tho robo|s arr|vod at what thoy thought
was ono ot tho to|ov|s|on stat|ons, thoy d|scovorod thoy had tho wrong
addross, tho stat|on had movod throo yoars oar||or. Anothor group
wont to tho r|ght addross ot anothor stat|on. 3ut tho stat|on managor
succoodod |n porsuad|ng thom that tho|r v|dootapo was tho wrong
tormat and that |t wou|d tako somo t|mo to convort tho tapo to
broadcast tormat-|ong onough, as |t turnod out, tor tho stat|on to bo
rocapturod by |oya| torcos. 3otoro tho n|ght was out, |t was ov|dont that
tho coup had ta||od, at |oast |n Caracas.
1ho noxt day, tho |oador ot tho Caracas part ot tho coup, tho th|rty-
o|ghtyoar-o|d l|outonant Co|ono| |ugo Chvoz, now |n custody, was
put on nat|ona| to|ov|s|on, |mpoccab|y drossod |n un|torm,' |n ordor to
do||vor a twom|nuto statomont urg|ng tho robo|s |n othor c|t|os, who
woro st||| ho|d|ng tho|r targots, to surrondor. 1ho mossago was
hoodod. 3ut Chvoz's two m|nutos on tho a|rwavos d|d somoth|ng
moro: thoy transtormod h|m trom a ta||od consp|rator |nto an |nstant
co|obr|ty, a char|smat|c coool||o, vory d|ttoront trom tho manouvor|ng
po||t|c|ans ot tho trad|t|ona| part|os that tho cyn|ca| pub||c was
accustomod to soo|ng. Untortunato|y, or oow, tho objoct|vos wo
sought woro not ach|ovod |n tho cap|ta| c|ty,' Chvoz ca|m|y to|d tho
othor robo|s-and tho nat|on. Wo w||| havo now s|tuat|ons. 1ho country
dot|n|to|y has to ombark on tho road to a bottor dost|ny.' 1ho tor now
rovorboratod around tho country.
At that part|cu|ar momont, howovor, Chvoz's own road was |oad|ng
to a pr|son co||.
7
EuCO CEVEZ
3on ot schoo|toachors, |ugo Chvoz |rias had grown up |n tho
sparso|y popu|atod savannah rog|on ot vonozuo|a. As a youth, ho had
provod h|mso|t a torm|dab|o basoba|| p|ayor, w|th droams ot s|gn|ng |n
tho Amor|can major |oaguos. |o was a|so a budd|ng art|st and
car|catur|st. 3ut thoso woro not h|s on|y |ntorosts. 1wo ot h|s bost
tr|onds |n tho c|ty ot 3ar|nas woro namod v|ad|m|r, |n honor ot lon|n,
and |odor|co, |n honor ot |r|odr|ch Engo|s, Kar| Varx's coauthor.
0ur|ng h|s toonago yoars, Chvoz spont hours |n tho ||brary ot tho|r
tathor, a |oca| commun|st, d|scuss|ng Kar| Varx and 3outh Amor|ca's
l|borator' 3|mon 3o|ivar, and rovo|ut|on and soc|a||sm. A|| th|s had a
|ast|ng |mpact, as ov|doncod by tho book ho carr|od w|th h|m on tho
day ho ontorod tho m|||tary acadomy as a cadot, 7bo Llory o Cbo
Ooovoro. And, a|roady, as a now cadot, ho was wr|t|ng |n h|s d|ary ot
h|s amb|t|on that ono day l w||| bo tho ono to boar rospons|b|||ty ot an
ont|ro lat|on, tho nat|on ot tho groat 3o||var.' At tho acadomy, ho
|mb|bod tho caroors ot othor amb|t|ous young ott|cors trom modost
c|rcumstancos-Ghaddatt| |n l|bya, 1uan vo|asco A|varado |n loru-
who had gono on to so|zo powor.
lt d|d not tako Chvoz |ong attor graduat|ng trom tho m|||tary
acadomy to connoct w|th othor ||ko-m|ndod consp|rators. As tar as
anyono knows,' h|s b|ographors havo wr|tton, |ugo Chvoz bogan to
|oad a doub|o ||to whon ho was around twonty-throo.' 3y day, ho was a
hardwork|ng , dut|tu|, and obod|ont ott|cor. At n|ght, ho was moot|ng
socrot|y w|th othor young ott|cors, as wo|| as oxtromo |ott-w|ng act|v|sts,
p|ott|ng h|s way to powor. Ono day, |n tho oar|y 1080s, Chvoz was out
jogg|ng w|th a group ot othor jun|or ott|cors whon thoy broachod tho
|doa that somo ot thom, |nc|ud|ng Chvoz, had boon harbor|ng tor
somo t|mo-that thoy socrot|y |aunch a rovo|ut|onary movomont. And
r|ght thoro, |n tront ot a troo much tavorod tor |ts shado by 3|mon
3o|ivar, thoy took an oath to that ottoct. |rom that momont onward,
Chvoz saw h|mso|t as tho tuturo |oador ot vonozuo|a. |o tormod a
c|andost|no ott|cors' group, tho 3o||var|an lovo|ut|onary Army, that
bu||t |ts notwork |n tho army.
8
lt was |n 1002, a docado or so attor that jog, that Chvoz and h|s
coconsp|rators |aunchod tho|r ta||od coup. ln tho subsoquont two yoars
that to||owod h|s arrost, Chvoz spont h|s t|mo |n pr|son road|ng,
wr|t|ng, dobat|ng, |mag|n|ng h|s v|ctory, roco|v|ng a cont|nu|ng stroam
ot v|s|tors who wou|d bo |mportant to h|s causo-and bask|ng |n h|s
now g|ory as a nat|ona| co|obr|ty.
lator |n 1002, a socond coup attompt, th|s by moro son|or ott|cors,
a|so ta||od. 3ut |ts vory tact domonstratod how unpopu|ar Car|os
Andros loroz had bocomo. loroz had a||onatod tho pub||c w|th h|s
po||c|os, ospoc|a||y tho cutbacks |n tho spond|ng that was tho ha||mark
ot tho potro-stato. |o a|so cont|nuod to |ntur|ato h|s oppononts w|th h|s
oconom|c rotorms and docontra||zat|on ot po||t|ca| powor. 1hoy got
tho|r rovongo: thoy |mpoachod h|m tor corrupt|on. 1ho spoc|t|c chargo:
ho had prov|dod $17 m||||on to tho now pros|dont ot l|caragua, v|o|ota
Chamorro, who had takon ovor trom tho Varx|st 3and|n|stas, and,
toar|ng tor hor ||to, had askod tor ho|p |n sott|ng up a pros|dont|a|
socur|ty sorv|co to provont hor assass|nat|on. |oro, w|th loroz's
romova| trom ott|co, was proot anow ot tho o|d max|m that no good
dood goos unpun|shod.
loroz's oppononts co|obratod tho|r v|ctory |n dopos|ng h|m. 3ut |t
wou|d ovontua||y provo a cost|y v|ctory tor thoso dotondors ot tho o|d
ordor ot tho potro-stato. |or tho |mpoachmont wou|d turthor d|scrod|t
tho po||t|ca| systom, u|t|mato|y |oad|ng to tho|r own ru|n.
On la|m 3unday, 1004, latao| Ca|dora, loroz's succossor and
|ongt|mo r|va|, trood Chvoz and tho othor p|ottors and prov|dod an
amnosty. lt |s poss|b|o that Ca|dora s|mp|y thought that thoso woro
young m|||tary ott|cors |od astray. 1horo |s a|so tho poss|b|||ty that
Ca|dora actod out ot a dogroo ot porsona| sont|mont. |ugo Chvoz's
tathor had boon a |oador ot Ca|dora's o|d party |n tho stato ot 3ar|nas
and was tho porson who wou|d havo roco|vod h|m whon ho
campa|gnod thoro. Cur|ous|y, Ca|dora d|d not add to tho amnosty what
m|ght havo boon tho norma| rostr|ct|on-pormanont|y bann|ng Chvoz
and tho othors trom po||t|ca| ||to. lt was a s|gn|t|cant om|ss|on. 3ut
Ca|dora corta|n|y novor |mag|nod that any ot tho p|ottors cou|d ovor
nav|gato tho|r way through vonozuo|an o|octora| po||t|cs.
low out ot pr|son, tho tormor consp|rator, gu|dod two soasonod
po||t|c|ans ot tho |ott, was dotorm|nod to w|n po||t|ca| powor not w|th
bu||ots but at tho ba||ot box. 1h|s t|mo, |nstoad ot guns and consp|racy,
Chvoz's woapons wou|d bo h|s now popu|ar|ty, organ|zat|on,
unstoppab|o porsona| dr|vo, and shoor char|sma. |o put h|mso|t at tho
hoad ot what ho ca||od tho 3o||var|an po||t|ca| movomont, and w|th
ond|oss onorgy, cr|sscrossod tho country donounc|ng corrupt|on,
|noqua||ty, and soc|a| oxc|us|on. |o a|so travo|od abroad. ln Argont|na,
ho spont t|mo w|th a soc|o|og|st who propoundod a thoory ot tho
myst|ca| un|on ot tho massos and tho char|smat|c |oador'-and a|so
don|od tho |o|ocaust.
0
3ut h|s most |mportant tr|p was to Cuba, whoro ho torgod a doop
bond w|th ono ot h|s horoos and anothor basoba|| tanat|c, ||do|
Castro. Castro wou|d bo h|s montor, and |ndood ombraco h|m as h|s
po||t|ca| son. |or h|s part, Chvoz wou|d como to soo h|mso|t as
Castro's |ogatoo |n tho |om|sphoro, but d|ttoront |n ono cruc|a| aspoct
-a Castro who wou|d bo bo|storod w|th tons ot b||||ons ot do||ars ot o||
rovonuos.

Voanwh||o, th|ngs had gotton worso tor vonozuo|a's oconomy, |oad|ng


to a sovoro bank|ng cr|s|s. 3y tho m|dd|o 1000s, |t was c|oar that
vonozuo|a urgont|y noodod to |ncroaso |ts o|| rovonuos to copo w|th
tho country's prob|oms. 3|nco wor|d potro|oum pr|cos woro not go|ng
up, tho on|y way to ra|so add|t|ona| rovonuos was to |ncroaso tho
numbor ot barro|s that vonozuo|a producod. 1ho now pros|dont ot
l0v3A, a potro|oum ong|noor namod lu|s G|ust|, ombarkod on a
campa|gn to rap|d|y stop up |nvostmont and output.
1ho most s|gn|t|cant |n|t|at|vo, and ono w|th g|oba| |mpact, was |o
oportoro-tho opon|ng' (roa||y, a roopon|ng )-|nv|t|ng |ntornat|ona| o||
compan|os to roturn to vonozuo|a to |nvost |n partnorsh|p w|th l0v3A,
to produco tho moro oxpons|vo and tochno|og|ca||y cha||ong|ng
rosorvos. 1h|s was not a w|nd|ng back ot nat|ona||zat|on, but rathor
rot|octod tho trond toward groator oponnoss |n tho now ora ot
g|oba||zat|on. lt was a|so a pragmat|c ottort to mob|||zo vory |argo-sca|o
|nvostmont that tho stato cou|d not shou|dor by |tso|t.
Lo oportoro was h|gh|y controvors|a|. 1o somo |t was anathoma,
horosy. Attor a||, tho trad|t|ona| routo that had boon to||owod-
nat|ona||zat|on, stato contro|, oxpu|s|on ot tho toro|gnor'-was
onormous|y popu|ar. 3ut to G|ust|, th|s was a|| |doo|ogy. What mattorod
was not appoarancos and symbo||sm, but rovonuos and rosu|ts. 1ho
stato d|d not havo tho rosourcos to tund tho tu|| rango ot roqu|rod
|nvostmont, and soc|a| programs woro a hugo compot|ng ca|| on tho
govornmont's monoy. Voroovor, dosp|to |ts compotonco, l0v3A d|d
not havo tho advancod tochno|ogy that was noodod. Lo oportoro wou|d
br|ng |n |ntornat|ona| cap|ta| and tochno|ogy. Output wou|d |ncroaso
trom o|dor t|o|ds. And, at |ast, vonozuo|a wou|d bo ab|o to uso
tochno|ogy and |argo-sca|o |nvostmont to ||borato tho hugo rosorvos ot
vory hoavy o|| |n what |s ca||od tho |aja, tho Or|noco rog|on, that up to
thon cou|d not bo oconom|ca||y producod. 1ho Or|noco was dormant,'
sa|d G|ust|. Wo had known tor ono hundrod yoars that tho o|| was
thoro, but noth|ng had boon dono.'
W|th |o oportoro, vonozuo|a m|ght bo ab|o to doub|o |ts product|on
capac|ty by t|vo m||||on barro|s ovor s|x or sovon yoars, and tho stato
wou|d capturo tho ||on's sharo ot tho add|t|ona| rovonuos through
taxat|on and partnorsh|p. 3ut nono ot th|s cou|d bo accomp||shod
w|thout toro|gn |nvostmont. As G|ust| summod |t up, 1horo was on|y so
much monoy, and wo had so much to do.'
10
PA|N1|NC 1EE P|C1uRE
1ho hardost part was tho po||t|cs, start|ng w|th lros|dont latao|
Ca|dora. G|ust| had to conv|nco tho pros|dont, who know tho
nat|ona||st|c po||t|cs a|| too wo||. G|ust| had tho dota||od p|an tor |o
oportoro pr|ntod |n two handsomo|y bound vo|umos, w|th b|uo covors
and go|d |ottors. At a moot|ng w|th tho pros|dont, ho saw that Ca|dora
had put papor c||ps on many, many pagos. 1h|s sont G|ust| |nto
somoth|ng ot a pan|c. |o know that Ca|dora was a vory sk|||od |awyor
and that ho wou|d |oso |t ho got |nto a dota||od |oga| d|scuss|on w|th tho
pros|dont.
|ow was ho go|ng to porsuado tho pros|dont to rovorso what was
ono ot tho most tundamonta| and popu|ar pr|nc|p|os ot nat|ona| po||t|cs
and pub||c op|n|on? 3omohow ho had to got to tho ossonco, ho had to
pa|nt tho who|o p|cturo tor Ca|dora. 1hon ho had an |doa. Why not
actua||y pa|nt a p|cturo ? |o know a br||||ant goo|og|st who was a|so a
ta|ontod |andscapo pa|ntor, 1|to 3oos|. On a 1hursday, G|ust| ca||od
3oos| and sa|d that ho wantod tho goo|og|st to pa|nt a |argo canvas
mura| that wou|d dop|ct ovory stago ot tho country's o|| tochno|ogy
dovo|opmont, trom tho soopagos that had ont|cod tho or|g|na|
oxp|orors to tho app||cat|on ot tho var|ous gonorat|ons ot tochno|og|os,
up to what m|ght bo |mag|nod tor tho tuturo ot tho Or|noco. 1ho
purposo wou|d bo to v|v|d|y domonstrato how |ncroas|ng|y comp||catod
and oxpons|vo wou|d bo tho turthor dovo|opmont ot vonozuo|a's
potro|oum patr|mony.
G|ust| to|d 3oos| that ho noodod tho pa|nt|ng r|ght away.
Aro you crazy?' sa|d 3oos|.
l nood |t,' |ns|stod G|ust|. l know you'ro a vory good art|st, 1|to. 3ut
|t doosn't havo to bo a mastorp|oco.'
3ummonod to tho pros|dont's houso tho to||ow|ng 3aturday, G|ust|
appoarod w|th 3oos|'s canvas pa|nt|ng ro||od up undor h|s arm. Whon
ca||od upon, ho askod tho pros|dont |t ho cou|d show h|m somoth|ng.
1o tho porp|oxod |ook ot many |n tho room, |nc|ud|ng tho pros|dont, ho
ro||od out tho canvas on tho |ong contoronco tab|o and oxp|a|nod |ts
story.
Whon G|ust| t|n|shod, ho cou|d soo that lros|dont Ca|dora was
angry. At t|rst ho thought |t was d|roctod at h|m, but thon roa||zod that
Ca|dora was angry w|th h|s own ontourago, wh|ch, tho pros|dont had
conc|udod, had not propor|y br|otod h|m on tho sca|o ot tho cha||ongo
tac|ng tho |ndustry on wh|ch vonozuo|a dopondod.
3ovora| days |ator, tho pros|dont approvod |o oportoro. Ovor tho
noxt tow yoars, as tho contracts woro nogot|atod and |mp|omontod, |o
oportoro wou|d br|ng tons ot b||||ons ot do||ars ot |ntornat|ona|
|nvostmont |nto tho country, jump-start|ng tho dovo|opmont ot tho vast
o|| sands, tho |aja, and roact|vat|ng' o|dor o|| t|o|ds, wh|ch noodod
|njoct|on ot now tochno|og|os to rovorso tho|r doc||no.
11
1EE O|L WAR
1horo was a socond vory |mportant aspoct to o|| po||cy as wo||.
vonozuo|a wou|d produco at |ts max|mum rato, |rrospoct|vo ot OlEC
output quotas, |ndood d|srogard|ng tho country's quota. vonozuo|a
arguod that |ts quota had boon sot a docado oar||or and d|d not rot|oct
changos |n |ts popu|at|on and soc|a| noods. Ot courso, othor OlEC
countr|os, want|ng to max|m|zo tho|r own output, vohomont|y
d|sagrood. 3otwoon 1002 and 1008, vonozuo|a |ncroasod |ts o||
product|on by an aston|sh|ng 40 porcont. 1hat ongondorod an
acr|mon|ous batt|o w|th|n OlEC. Obsorvors bogan to wr|to about an
o|| war' tor markot sharo botwoon tho two countr|os that had takon tho
|oad |n tound|ng OlEC-vonozuo|a, now |gnor|ng quotas, and 3aud|
Arab|a, |ns|st|ng that thoy bo obsorvod. 1hat was tho batt|o that
cu|m|natod |n tho lovombor 1007 1akarta moot|ng and was roso|vod
w|th tho agroomont that a|| oxportors cou|d produco t|at out, wh|ch by
now thoy woro a|| moro or |oss a|roady do|ng.
12
3ut by thon tho As|an t|nanc|a| cr|s|s had a|roady bogun to tr|ggor an
o|| pr|co co||apso, ravag|ng tho budgots ot tho o||-oxport|ng countr|os.
At th|s po|nt, vonozuo|a rocogn|zod that |t cou|d no |ongor attord |ts
markot sharo stratogy. ln Varch 1008 vonozuo|a, 3aud| Arab|a, and
non-OlEC Vox|co mot |n l|yadh and workod out a sot ot product|on
cutbacks tor oxportors, OlEC and non-OlEC a||ko. Vost ot tho othor
oxportors wont a|ong, out ot so|t-|ntorost and shoor pan|c. 3ut |t was
not onough to doa| w|th tho drop |n domond trom tho As|an cr|sos.
1hon tho o|| pr|cos, attor a br|ot rocovory, to|| to $10 and thon turthor to
somoth|ng that, tor tho oxportors, was |nto|orab|o-s|ng|o d|g|ts.
1EE ELEC1|ON : NO1 EVEN 1EE RENO1E51
CEANCE"
3y |ato 1008 vonozuo|a was doop |nto an oconom|c cr|s|s, povorty
was r|s|ng rap|d|y, and soc|a| tons|ons woro h|gh-and mount|ng.
Econom|ca||y, vonozuo|a |s roo||ng, w|th o|| pr|cos undor $10 a
barro|,' roportod tho Now York 7lmos |n 0ocombor 1008. lt was just at
th|s momont that vonozuo|a was go|ng to tho po||s to o|oct a now
pros|dont. 1ho two dom|nant part|os, Acc|on 0omocrt|ca and Copo|,
woro thorough|y d|scrod|tod. 1hoy woro a|so dop|otod, thoy soomod to
havo run out ot |doas, onorgy, and conv|ct|on. |or a t|mo, tho
pros|dont|a| trontrunnor was a mayor bost known tor hav|ng onco boon
V|ss Un|vorso, but sho tadod as tho campa|gn progrossod.
18
Chvoz, unro|ont|ng |n h|s attacks on tho po||t|ca| systom, had r|son
trom a tow porcontago po|nts to tho top ot tho po||s. As was customary
dur|ng a pros|dont|a| o|oct|on campa|gn, l0v3A prov|dod br|ot|ngs to
tho cand|datos. 3y th|s po|nt, G|ust| h|mso|t had bocomo a
controvors|a| t|guro bocauso ot h|s champ|on|ng ot |o oportoro and
w|do-opon product|on, and bocauso ho was soon by somo as
pursu|ng h|s own po||t|ca| agonda. Whon Chvoz arr|vod at l0v3A's
hoadquartors, ho to|d lu|s G|ust| ho wantod h|s br|ot|ng to bo ono-on-
ono, w|th oach just hav|ng ono a|do thoro. |or n|noty m|nutos, G|ust|
took h|m through tho |ndustry's s|tuat|on. At tho ond, Chvoz thankod
h|m tor an oxco||ont prosontat|on and thon, just botoro thoy wont
through tho door, grabbod h|m by tho arm and warm|y addod that ho
wantod to oxpross h|s approc|at|on and porsona| attoct|on. Chvoz
thon wont downsta|rs to tho wa|t|ng pross, ho announcod that as soon
as ho was o|octod pros|dont, ho was go|ng to t|ro G|ust|.
ln tho 0ocombor 1008 pros|dont|a| o|oct|on, w|th just a 8b porcont
turnout, tho doop oconom|c and soc|a| d|stross that camo w|th tho o||
pr|co co||apso gavo |ugo Chvoz, who had boon ro|oasod trom pr|son
on|y tour yoars oar||or, a b0 porcont v|ctory. ln h|s v|ctory spooch that
n|ght, Chvoz donouncod lu|s G|ust| as tho dov|| who had so|d tho sou|
ot vonozuo|a to tho |mpor|a||sts.
1ho noxt month, stand|ng noxt to Chvoz at tho |naugurat|on, was tho
outgo|ng pros|dont, latao| Ca|dora, who had amnost|od tho ||outonant
co|ono| |n 1004. Ca|dora |ookod noth|ng so much as stunnod. lobody
thought that Vr. Chvoz had ovon tho romotost chanco ot bocom|ng
pros|dont ot tho ropub||c,' ho |ator sa|d. As tor lu|s G|ust|, ho mado a
po|nt to ros|gn as pros|dont ot l0v3A botoro Chvoz cou|d t|ro h|m.
14
CEVEZ |N POWER
3ut how wou|d tho torty-two-yoar-o|d ||outonant co|ono| govorn? Was
ho a domocrat or an author|tar|an? ||s |n|t|a| commonts woro not
c|oar: lt you try to assoss mo by trad|t|ona| canons ot ana|ys|s, you'||
novor omorgo trom tho contus|on,' ho sa|d. lt you aro attompt|ng to
dotorm|no whothor Chvoz |s ot tho |ott, r|ght or contor, |t ho's a
soc|a||st, Commun|st or cap|ta||st, wo||, l am nono ot thoso, but l havo a
b|t ot a|| ot thoso.' At anothor t|mo ho addod, l abso|uto|y rotuso, and
w||| rotuso to my gravo, to |ot myso|t bo |abo|od or boxod |n. l cannot
accopt tho not|on that po||t|cs or |doo|ogy aro goomotr|c. 1o mo, r|ght
and |ott aro ro|at|vo torms. l am |nc|us|vo, and my th|nk|ng has a ||tt|o b|t
ot ovoryth|ng.'
Whatovor tho |doo|ogy, Chvoz movod sw|tt|y to conso||dato a||
powor |n h|s hands, koop|ng tho torma| |nst|tut|ons ot tho stato
-worm-oaton' though ho ca||od thom-but dopr|v|ng thom ot any
|ndopondont ro|o. |o qu|ck|y pushod through a now const|tut|on, wh|ch
o||m|natod tho uppor houso ot tho congross. |o turnod tho roma|n|ng
chambor |nto a rubbor stamp. |o |ncroasod tho numbor ot 3upromo
Court judgos trom twonty to th|rty-two, pack|ng |t w|th rovo|ocloolstos.
|o took d|roct contro| ot tho lat|ona| E|octora| Counc||, onsur|ng that
h|s porsona| po||t|ca| mach|no wou|d count tho ba||ots |n tuturo
o|oct|ons. |o romovod any congross|ona| ovors|ght ot tho army and
thon procoodod to sot up a socond para||o| m|||tary torco ot urban
rosorv|sts. And ho rochr|stonod vonozuo|a as tho 3o||var|an lopub||c.
|o mado a tr|umphant v|s|t to Cuba, whoro ho doc|arod, vonozuo|a
|s travo||ng toward tho samo soa as tho Cuban poop|o, a soa ot
happ|noss and roa| soc|a| just|co and poaco.' |o a|so p|ayod ba|| w|th
||do| Castro-|n th|s caso, basoba||. A|though Chvoz d|d tho p|tch|ng
tor tho vonozuo|an toam, tho Cubans won, b-4. 1ho Cubans won
somoth|ng o|so as wo||-a vonozuo|an subs|dy. W|th tho ond ot 3ov|ot
commun|sm, luss|a no |ongor had any |doo|og|ca| bonds w|th Cuba
and had stoppod prov|d|ng choap o||. Chvoz stoppod |n to bocomo
Castro's o|| bankor, do||vor|ng potro|oum at a stoop d|scount.
1b
ln turn, Cuba prov|dod adv|sors ot many d|ttoront k|nds-hoa|th
workors, toachors, gymnast|c |nstructors, and a w|do var|oty ot socur|ty
porsonno| oporat|ng undor var|ous gu|sos. |or Cuba, th|s was a roturn
to vonozuo|a, tor |t had prov|dod a|d to guorr|||as dur|ng tho v|o|ont
yoars' ot tho 1000s. Castro had ro||shod vonozuo|a's o|| woa|th, and
ho had ropoatod|y tr|od to opon a boachhoad. lndood, ono attompt to
|nsort Cuban m|||tary |nto vonozuo|a |n 1007 had |od to tho doath ot
Castro's porsona| ch|ot ot socur|ty. 1h|s t|mo, howovor, Cuba was
thoro to bo|stor tho govornmont-Chvoz's govornmont. Chvoz a|so
adoptod tho Cuban systom ot |oca| no|ghborhood contro|. And |n caso
|t was st||| not c|oar whoro ho stood, Chvoz c|ar|t|od mattors. 1horo |s
on|y rovo|ut|on and countorrovo|ut|on,' ho doc|arod, and wo aro go|ng
to ann|h||ato tho countorrovo|ut|on.' Whon loman Catho||c b|shops
urgod h|m to bo |oss controntat|ona|, ho d|sm|ssod thom as dov||s |n
vostmonts.'
10
Castro was a ro|o modo| |n many ways. As tho Cuban pros|dont
spoc|a||zod |n spoochos that wont t|vo or s|x hours, Chvoz adoptod a
var|ant w|th h|s 3undayattornoon to|ov|s|on broadcast, A|o Prosloooto.
Ovor tho courso ot tour hours or moro, |n a wook|y domonstrat|on ot h|s
man|c onorgy, ho wou|d joko, s|ng rovo|ut|onary songs, to|| anocdotos
trom h|s boyhood, and ta|k about basoba||. |o wou|d a|so donounco
h|s oppononts as tho corroptos and pos|t|on h|mso|t as tho |oador ot
tho rovo|ut|onary vanguard oppos|ng tho Un|tod 3tatos or what ho ca||s
tho lorth Amor|can omp|ro . . . tho b|ggost monaco on our p|anot.' At
ono and tho samo t|mo, ho wrappod h|mso|t |n tho c|oak ot tho
n|notoonth-contury ||borator 3|mon 3o|ivar and propoundod h|s now
thoory ot soc|a||sm tor tho twonty-t|rst contury.'
And thon thoro was o||, tho sou| ot tho vonozuo|an stato. 1ho
oconom|c ong|no was l0v3A and Chvoz qu|ck|y assortod h|s
contro|. |o was much |nt|uoncod by a Gorman-born onorgy oconom|st,
3ornard Vommor, who mado tho caso tor a h|gh|y nat|ona||st|c o||
po||cy and arguod that vonozuo|a had ta||on proy to ||bora| po||c|os'
that urgont|y noodod to bo rovorsod. Chavoz attackod l0v3A as a
stato w|th|n a stato' and thon procoodod to subord|nato |t to h|s stato,
po||t|c|z|ng what had boon tho protoss|ona||y run company. l0v3A's
troasury bocamo tho cash box ot tho stato, and Chvoz movod
t|nanc|a| contro| ot tho company |nto tho contra| govornmont, g|v|ng h|m
d|roct contro| ovor |ts vast rovonuos. 1horo was no accountab|||ty or
transparoncy. |o cou|d uso tho monoy as ho wantod, sh|tt|ng
|nvostmont trom tho o|| |ndustry to whatovor purposos ho thought bost,
whothor soc|a| spond|ng and subs|d|os tor tavorod groups at homo or
pursu|t ot h|s po||t|ca| objoct|vos w|th|n tho country and abroad. Voro
than ovor botoro, vonozuo|a was tru|y a potro-stato.
17
1EE RECOVERY OF O|L
Chvoz mado a doc|s|vo po||cy chango that wou|d rovorborato
throughout tho wor|d. vonozuo|a wou|d no |ongor pursuo a stratogy ot
|ncroas|ng rovonuos by |ncroas|ng outputs. lndood, |t now bocamo tho
strongost advocato |n OlEC tor cutt|ng back on product|on and
obsorv|ng quotas.
As pr|cos startod to rocovor, Chvoz |ott no doubt ot h|s oxp|anat|on:
1ho |ncroaso |n tho o|| pr|co has not boon tho rosu|t ot a war or tho tu||
moon,' ho sa|d. lo. lt |s tho rosu|t ot an agrood stratogy, a chango ot
180 dogroos |n tho po||cy ot prov|ous govornmonts and ot lotro|oos
do vonozuo|a . . . low tho wor|d knows that thoro |s a sor|ous
govornmont |n vonozuo|a.'
18
Chvoz had movod OlEC to tho contor ot vonozuo|an o|| po||cy, but
|n tact, vonozuo|a had a|roady startod to cut back on product|on botoro
Chvoz was o|octod, bog|nn|ng |n l|yadh |n Varch 1008. A|so,
vonozuo|a was ono o|omont |n a |argor tab|oau. |or tacod w|th
p|ummot|ng rovonuos, a|| tho OlEC countr|os-and somo non-OlEC
countr|os-had gotton ro||g|on about quotas and rostra|nt.
Voroovor, tho ovora|| p|cturo was corta|n|y chang|ng. Wh||o OlEC
was ro|n|ng |n product|on, As|a startod to rocovor. 0omand startod to
snap back. And so d|d pr|cos. 1h|s part|cu|ar o|| cr|s|s-tho cr|s|s ot
tho producors-was ond|ng.
1ho oxportors, who botoro had boon d|sma||y star|ng at $10 a barro|
or |oss, woro now ta|k|ng moro cont|dont|y about a $22-to-$28 pr|co
band' as tho|r targot. 3ut by tho autumn ot 2000, spurrod by oconom|c
rocovory |n As|a and OlEC's now po||cy, tho pr|co ot o|| had surgod
ovor tho band, abovo $80 a barro|, a throoto|d-p|us |ncroaso trom
whoro |t had boon just two yoars prov|ous|y. 1ho b|g |ncroaso |n
domand-a surgo ot 2.b m||||on barro|s por day botwoon 1008 and
2000-was hav|ng a doc|dod |mpact on tho o|| markot.
1ho soar|ng o|| pr|cos,' as thoy woro doscr|bod |n tho pross, woro
sott|ng ott a|arms |n consum|ng countr|os, wh|ch had rathor qu|ck|y
bocomo accustomod to |owor pr|cos. low thoy toarod a brow|ng
onorgy cr|s|s.' 3uch was tho a|arm that tho r|s|ng pr|cos-and tho
gaso||no and homo-hoat|ng o|| pr|cos thoy drovo-woro bocom|ng a
contont|ous |ssuo |n tho hot|y contostod 2000 U.3. pros|dont|a| batt|o
botwoon Goorgo W. 3ush and A| Goro. On 3optombor 22, 2000, two
days attor pr|cos sp|kod to what soomod a shock|ng $87 a barro| and
|n tho m|dst |t tho campa|gn, tho C||nton adm|n|strat|on ro|oasod somo
o|| trom tho 3tratog|c lotro|oum losorvo, a|mod at b|unt|ng pr|co
|ncroasos |n tho wooks botoro tho arr|va| ot w|ntor.
10


3y that po|nt |ugo Chvoz had a|roady ostab||shod h|mso|t as a torco
|n wor|d o|| and |n tho Wostorn |om|sphoro. Yot w|thout tho o|| pr|co
co||apso ot 1007-08, |t |s not at a|| c|oar that ho wou|d havo had tho
chanco, just sovon yoars attor h|s coup attompt had |andod h|m |n ja||,
to act on what ho had wr|tton |n h|s d|ary docados botoro, wh||o a
cadot |n tho m|||tary acadomy, and tako rospons|b|||ty' tor vonozuo|a.
low, ||ko tho d|ctator Gonora| C|pr|ano Castro a contury oar||or, ho
a|mod tor h|s 3o||var|an projoct to oxtond boyond vonozuo|a's
bordors, to tho rost ot lat|n Amor|ca. 3ut un||ko that gonora|, ho was
sook|ng g|oba| roach as wo||. And tho r|s|ng pr|co ot o|| wou|d g|vo h|m
tho whorow|tha| to try.
0
ACCRECA1E D|5RuP1|ON
As tho twonty-t|rst contury oponod, oxcopt tor tho br|ot pr|co sp|ko, o||
had tadod away as a po||cy |ssuo. Voroovor, tho roso|ut|on ot tho
1000-01 Gu|t cr|s|s appoarod to havo takon onorgy socur|ty ott tho
tab|o.
lnstoad attont|on was r|votod on now th|ngs and |n part|cu|ar on now
now th|ngs.' 1hat moant tho rovo|ut|on |n |ntormat|on tochno|ogy and |n
how poop|o commun|catod w|th ono anothor |n a wor|d that was now
cont|nua||y |ntorconnoctod twonty-tour hours a day. And |t moant, moro
than anyth|ng o|so, tho lntornot. 3|||con va||oy and cyborspaco-thoso
woro tho p|acos to bo. A|| th|s, a|ong w|th tho ond ot tho Co|d War and
rap|d|y grow|ng wor|d trado, |nauguratod a now so|t-cont|dont ora ot
g|oba||zat|on. 0|stanco' was d|sappoar|ng, a|ong w|th bordors, as
both t|nanco and supp|y cha|ns t|od product|on and commorco
togothor around tho p|anot. lt was an |ncroas|ng|y opon wor|d, troo|y
commun|cat|ng, troo|y trad|ng, troo|y travo||ng-and, as |t turnod out
vory dot|n|to|y, v|sa-||to.' lt was a wor|d ot r|s|ng ||v|ng standards and
ovor-w|dor poss|b|||t|os. lt was an opt|m|st|c t|mo.
1EE DAY 1EA1 CEANCED EVERY1E|NC
On 3optombor 11, 2001, two jots h|jackod by A| Oaoda oporat|vos
s|ammod |nto tho tw|n towors ot tho Wor|d 1rado Contor, and a th|rd
|nto tho lontagon. 1ho tourth, a|mod at tho Cap|to|, was brought down
by passongors |n a cornt|o|d |n lonnsy|van|a. |or tho t|rst t|mo s|nco
tho 1apanoso a|r ra|d on loar| |arbor, 0ocombor 7, 1041, wh|ch had
takon tho Un|tod 3tatos |nto Wor|d War ll, Amor|ca had boon d|roct|y
attackod, and w|th a groator |oss than on that unsuspoct|ng 3unday
morn|ng |n |awa||.
ln rotrospoct, tho warn|ngs had boon thoro w|th a sor|os ot attacks-
|n|t|a||y on tho Wor|d 1rado Contor |n 1008, thon on tho ombass|os |n
Konya and 1anzan|a |n 1008, whoro hundrods por|shod, and on tho
U.3. dostroyor Co|o |n a port |n Yomon |n 2000-a|ong w|th an attompt
to b|ow up los Ango|os lntornat|ona| A|rport on low Yoar's Evo 2000
that had boon abortod by an a|ort guard at tho Canad|an bordor. And
thoro woro a|so a|| tho p|ocos ot |nto|||gonco that woro not connoctod-
rang|ng trom tho ClA and |3l databasos that d|d not ta|k to oach othor,
to tho Arab studonts at t|y|ng schoo|s |n tho Un|tod 3tatos who woro
|ntorostod |n |oarn|ng on|y how to tako ott but not how to |and.
1hat morn|ng transtormod |ntornat|ona| ro|at|ons. 3ocur|ty now
bocamo tho contra| prooccupat|on. 3ordors and barr|ors wont up. 1ho
wor|d was no |ongor so opon a p|aco. ln tho autumn ot 2001, |n what
bocamo known as tho war on torror,' tho Un|tod 3tatos and |ts a|||os
countorattackod |n Atghan|stan, tho baso trom wh|ch A| Oaoda
oporatod. 1hoy pushod tho 1a||ban, A| Oaoda's a||y, trom powor, and
|n just a mattor ot wooks ach|ovod a doc|s|vo v|ctory. Or so |t soomod
at tho t|mo.
G|oba||zat|on suddon|y |ookod d|ttoront. 1ho wor|d m|ght bo much
moro |ntorconnoctod, but now vu|norab|||t|os aroso out ot tho much-
donsor notwork ot trado and commun|cat|on ||nos on wh|ch th|s
|ntorconnoctod wor|d ro||od. |omo|and socur|ty' wont trom bo|ng a
t|t|o tor th|nk-tank roports to tho namo ot a mass|vo now U.3. cab|not
agoncy. 3optombor 11 rovoa|od a dark undors|do to g|oba||zat|on.
Empoworod w|th tho too|s ot g|oba||zat|on, shadowy groups w|th
m|||tant |doo|og|os cou|d tako advantago ot tho oponnoss-oasy
travo|, oasy movomont, choap co||u|ar commun|cat|on, and oasy
lntornot accoss-to d|srupt g|oba||zat|on and sook to undorm|no tho
moro opon wor|d.
lotro|oum had, s|nco tho bog|nn|ng ot tho twont|oth contury, boon
ontw|nod w|th socur|ty and tho powor and pos|t|on ot nat|ons. 3ut 0/11
|od to a now omphas|s on o||'s r|sks, |nc|ud|ng tho tact that tho wor|d's
b|ggost o|| rog|on, tho V|dd|o East, was a|so tho rog|on trom wh|ch A|
Oaoda had omorgod. Ono ot A| Oaoda's or|g|na| gr|ovancos, |n
add|t|on to tho |mpact ot modorn|ty on tho rog|on, was tho prosonco |n
3aud| Arab|a ot U.3. troops, wh|ch had roma|nod attor tho 1001 Gu|t
War to ho|p conta|n 3addam |usso|n. 1ho m|||tant mossagos and
sormons |n somo ot tho V|doast mosquos woro vory s|m||ar to thoso ot
A| Oaoda, and rocru|ts and monoy camo trom that rog|on. 3omo
t|ttoon ot tho n|notoon su|c|do h|jackors on 0/11 had boon 3aud|
Arab|an nat|ona|s.
1ho spoc|a| ro|at|onsh|p' botwoon tho Un|tod 3tatos and 3aud|
Arab|a wont back to tho moot|ng botwoon lros|dont |rank||n
loosovo|t and K|ng lbn 3aud on tho Groat 3|ttor lako, |n tho 3uoz
Cana|, |n |obruary 104b. |rom |arry 1ruman onward, U.3. pros|donts
had mado tho socur|ty ot V|dd|o East, and |n part|cu|ar 3aud| Arab|a
and |ts o||, a tundamonta| nat|ona| |ntorost. 1|mmy Cartor mado tho
comm|tmont much moro oxp||c|t |n rosponso to tho Chr|stmas Evo
1070 3ov|ot |nvas|on ot Atghan|stan, wh|ch was soon as a poss|b|o
stopp|ng stono' tor tho 3ov|ot Un|on to try to ga|n contro| ovor tho
lors|an Gu|t and much ot tho wor|d's o|| supp||os.'
An attompt by any outs|do torco to ga|n contro| ot tho lors|an Gu|t
rog|on,' sa|d tho Cartor 0octr|no, w||| bo rogardod as an assau|t on
tho v|ta| |ntorosts ot tho Un|tod 3tatos, and such an assau|t w||| bo
ropo||od by any moans nocossary, |nc|ud|ng m|||tary torco.' 3aud|
Arab|a, |n turn, had t|od |ts |ong-torm socur|ty to tho Un|tod 3tatos.
1horo woro many othor t|os as wo||. 0ur|ng tho |ato 1070s, tho 3aud|
cab|not was sa|d to havo moro mombors w|th Amor|can lh.0.s. than
tho U.3. cab|not.
1
1ho Cartor 0octr|no was po|ntod|y d|roctod at an outs|do torco,' tho
3ov|ot Un|on. 3ut what about |ns|do torcos' w|th|n tho Gu|t rog|on?
|oro, w|th tho attack ot 3optombor 11, was ov|donco that somo part ot
tho popu|at|on |n Arab countr|os was outr|ght|y, |ndood v|o|ont|y, host||o
to tho Un|tod 3tatos and tho rost ot tho |ndustr|a| wor|d. lo ono know
tho actua| proport|ons. Yot |n tho attormath ot 0/11, somo |n 3aud|
Arab|a |n|t|a||y don|od that t|ttoon ot tho h|jackors woro ovon 3aud|.
1h|s addod to tho tons|on botwoon tho Un|tod 3tatos and 3aud|
Arab|a that stra|nod tho onorgy and socur|ty ro|at|onsh|p. 1ho r|tt d|d
not tu||y ond unt|| Vay 2008, whon A| Oaoda-||nkod oporat|vos
|aunchod torror|st attacks |n tho 3aud| cap|ta| ot l|yadh, to||owod
w|th|n a yoar by othor attacks, |nc|ud|ng ono on a po||co hoadquartors
|n tho cap|ta| c|ty. 3aud| Arab|a rocogn|zod that |t was a pr|mo targot
and that A| Oaoda was |ts dangorous onomy.
|rom an onorgy porspoct|vo, tho |ast|ng |mpact ot 0/11 |n tho Un|tod
3tatos was a ronowod conv|ct|on that o|| consumpt|on and o|| |mports
|n part|cu|ar woro a socur|ty r|sk. At tho t|mo, V|doast o|| roprosontod
about 28 porcont ot |mports and 14 porcont ot tota| U.3. o||
consumpt|on. 3ut |t had bocomo symbo||c ot dopondonco' and tho
dangors thoroot. Vany Amor|cans thought that o|| U.3. |mports camo
trom tho V|doast. And thus tho mantra ot onorgy |ndopondonco,'
wh|ch had boon a t|xturo ot Amor|can po||t|cs s|nco tho 1078 o||
ombargo, took on now urgoncy.
3optombor 11 |tso|t d|d not havo much |mpact on o|| pr|co. (ln tho
months that |mmod|ato|y to||owod, o|| pr|cos actua||y to|| bo|ow $20 a
barro| and d|d not got back ovor $20 unt|| Varch 2002.) Evon |nto
2004, tho w|dosproad oxpoctat|on was that markot cond|t|ons wou|d
onsuro that pr|cos roma|n |n that modorato' rango. Yot ovor tour yoars,
botwoon 2004 and 2008, pr|cos wou|d shoot up, roach|ng a h|stor|c
h|gh ot $147.27, w|th tar-roach|ng |mpact on tho wor|d oconomy. 1hoy
wou|d rod|str|buto g|oba| oconom|c and po||t|ca| powor, and shako
poop|o's cont|donco and ra|so anx|oty about tho tuturo. 1ho
oxtraord|nary |ncroaso both roomphas|zod tho contra||ty ot o|| and at
tho samo t|mo gavo now |mpotus to movo boyond o||.
As w|th most groat dovo|opmonts |n human atta|rs, thoro |s not a
s|ng|o oxp|anat|on tor tho mass|vo |oap |n pr|cos. lt was dr|von t|rst by
supp|y and domand, and hugo but |argo|y unant|c|patod chango |n tho
wor|d oconomy. 0|srupt|ons and a roturn to rosourco nat|ona||sm woro
cr|t|ca| o|omonts. 3ut thon moro and moro momontum was prov|dod by
torcos and |nnovat|ons com|ng out ot tho t|nanc|a| markot. 1ho story ot
what happonod to pr|co |s a|so a narrat|vo about protound changos
both |n tho o|| |ndustry and |n tho w|dor wor|d.
3optombor 11 d|sruptod socur|ty and |ntornat|ona| atta|rs and
a|torod th|nk|ng about o|| and dopondonco and tho usos that cou|d bo
mado w|th o|| rovonuos. 3ut 0/11 d|d not |ntorrupt supp|y. ln tho autumn
ot 2002, moro than a yoar attor 0/11, thoro was ||tt|o h|nt that supp|y
prob|oms wou|d bog|n to tako a to|| on tho t|ow ot o||. lndood, anyth|ng
but. O|| lr|cos |a|| as G|oba| 3upp||os 3oar' hoad||nod an |ndustry
trado pub||cat|on. 3ut that wou|d vory short|y chango .
2
A sor|os ot cr|sos |n throo major oxport|ng countr|os wou|d spur
supp|y |ossos, compoundod by tho tho torcos ot Vothor laturo. lono
was |argo onough on |ts own to upsot tho ba|anco |n tho o|| markot. Yot
whon ta|||od togothor, thoy wou|d const|tuto a s|gn|t|cant |oss ot supp|y,
what addod up to an aggrogato d|srupt|on' that wou|d havo notab|o
|mpacts ovor tho noxt ha|t docado, roduc|ng supp||os that wou|d havo
othorw|so boon ava||ab|o to a grow|ng wor|d oconomy.
"ALO PRE8lEN1E~vENEZUELA
loo|octod pros|dont ot vonozuo|a |n 2000, |ugo Chvoz movod to
turthor conso||dato powor |n h|s hands. As ho d|d so, oppos|t|on
bocamo moro voca|. laronts protostod tho V|n|stry ot Educat|on's
p|ans to rov|so h|story toxtbooks |n a way that wou|d domon|zo
vonozuo|a's t|rst torty yoars ot domocracy-Cuban|z|ng' tho
toxtbooks, |t was sa|d. ln tho taco ot paronta| oppos|t|on, tho
govornmont rotroatod, tomporar||y. 1ho govornmont a|so ostab||shod
|oca| m|||t|as ca||od 3o||var|an c|rc|os, modo|od on Cuba's Comm|ttoos
tor tho 0otonso ot tho lovo|ut|on, |n ordor, as Chvoz announcod, to
croato a groat human notwork' to dotond tho rovo|ut|on. low contro|s
on tho mod|a |nc|udod a ru||ng that tho pross cou|d bo pun|shod tor
sproad|ng ta|so nows' or ha|t truths.' 3ut part|cu|ar|y a|arm|ng was a
packago ot 40 |aws that groat|y oxtondod stato powor and that was put
|nto ottoct w|thout approva| by tho lat|ona| Assomb|y. At tho samo
t|mo, Chvoz oxtondod h|s contro| ovor lotro|oos do vonozuo|a-
l0v3A-tho stato o|| company. 1ho cont|nu|ng po||t|c|zat|on ot
l0v3A was orod|ng tho ottoct|vonoss and protoss|ona||sm tor wh|ch
tho company had dovo|opod a wor|dw|do roputat|on.
3y th|s t|mo, a broad coa||t|on ot oppos|t|on had omorgod,
oncompass|ng both trado un|ons and bus|noss groups, as wo|| as tho
Catho||c Church. 3ogmonts ot tho son|or m|||tary |oadorsh|p woro
bocom|ng wary ot tho way |n wh|ch Chvoz was tak|ng powor |nto h|s
own hands and tho way ho was w|o|d|ng |t. On Apr|| 7, 2002, Chvoz
usod h|s 3unday to|ov|s|on ta|k show, A|o Prosloooto, to t|ro sovon
mombors ot tho board ot l3v3A. |o r|d|cu|od oach by namo and thon
d|sm|ssod thom ono by ono to tho choors ot tho stud|o aud|onco.
8
|our days |ator, on Apr|| 11, 2002, oppos|t|on to Chvoz and
popu|ar d|scontont oxp|odod |nto a mass march ot upwards ot a m||||on
poop|o |n Caracas. As tho march approachod V|rat|oros, tho
pros|dont|a| pa|aco, guards |oya| to Chvoz startod shoot|ng, k||||ng,
and wound|ng somo ot thoso at tho torotront ot tho crowd. Chvoz wont
on to|ov|s|on to donounco tho marchors. 3ut a sp||t scono on tho
scroon s|mu|tanoous|y showod tho carnago |n tront ot tho pros|dont|a|
pa|aco wh||o Chvoz oratod, turthor |nt|am|ng tho outrago.
CALL F|DELI"
As tons|on mountod, Chvoz ordorod tho |mp|omontat|on ot l|an Av||a,
what has boon doscr|bod as a h|gh|y ropross|vo socur|ty oporat|on.'
V|||tary un|ts bogan to robo| aga|nst both tho p|an and tho |doa that
so|d|ors wou|d turn tho|r guns on c|v|||ans. At 8:2b a.m., on Apr|| 12,
2002, tho nat|on's top m|||tary ott|cor wont on to|ov|s|on. ln ||ght ot tho
appa|||ng |nc|donts that occurrod yostorday |n tho nat|on's cap|ta|,' ho
sa|d, tho pros|dont ot tho ropub||c has boon askod to ros|gn, and ho
has agrood to do so.' 3y th|s t|mo Chvoz had boon takon |nto custody
and was bo|ng hust|od trom ono m|||tary baso and thon to anothor. At
ono po|nt ho managod to borrow a co|| phono trom a so|d|or, and
roach|ng ono ot h|s daughtors, askod hor to ca|| ||do| . . . 1o|| h|m l
havon't ros|gnod.' Ovor tho noxt sovora| hours, var|ous ros|gnat|on
|ottors woro prosontod to Chvoz and nogot|atod ovor, but ho novor
qu|to s|gnod any ot thom.
4
A|though doscr|bod as a coup, what had onsuod was not oxpoctod
or p|annod, and tho oppos|t|on scramb|od to t||| tho suddon powor
vacuum. A prom|nont bus|noss t|guro omorgod as hoad ot a
prov|s|ona| c|v|||an-m|||tary govornmont. |o procoodod to mako what
provod to bo a tundamonta| m|stako by d|sso|v|ng tho govornmont but
ta|||ng to announco that o|oct|ons wou|d bo ho|d soon, thus |os|ng tho
mant|o ot const|tut|ona||sm-a||onat|ng tho m|||tary, |n part|cu|ar. And
thoro was st||| no ros|gnat|on |ottor s|gnod by Chvoz.
Chvoz had boon movod to tho m|||tary |s|and ot la Orch||a, trom
whonco |t was thought ho was go|ng to bo t|own out ot tho country,
probab|y to ox||o |n Cuba. 3ut, on tho ma|n|and, contus|on and t|ssuro
startod to appoar among tho oppos|t|on, suddon|y thrust |nto powor.
1ho m|||tary bogan to wavor and sp||t. ||na||y, |n tho vory oar|y morn|ng
hours ot Apr|| 14, Chvoz had apparont|y agrood to a t|na| documont
that ombod|od h|s ros|gnat|on. |owovor, a coup|o ot hours oar||or, a
gonora|, ono ot tho or|g|na| mombors ot Chvoz's group ot
consp|rators, had a|roady d|spatchod ho||coptors carry|ng commandos
to la Orch||a. Wh||o tho |ottor was go|ng through rotyp|ng, tho
ho||coptors touchod down on tho |s|and, whoro thoy p|ckod up Chvoz.
|o was not go|ng to Cuba attor a||. lnstoad, ho hoadod back to tho
pros|dont|a| pa|aco |n Caracas.
b
loss than throo days attor h|s arrost, |ugo Chvoz was onco aga|n
|n contro| ot tho country, and ho sot out to qu|ck|y t|ghton h|s gr|p. 1hat
|nc|udod turthor oxtond|ng h|s d|roct contro| ovor tho managomont ot
l0v3A, tho ong|no ot tho oconomy and by tar tho |argost sourco ot
govornmont rovonuos. 1ho months that to||owod woro turbu|ont, tor
Chvoz showod no |ntorost |n roconc|||at|on. 1ho country was doop|y
d|v|dod, and tho oppos|t|on was vory rost|vo.
1EE CENERAL 51R|KE
lator |n 2002, w|th tho norma| channo|s ot po||t|ca| oppos|t|on c|osod |n
what was |ncroas|ng|y bocom|ng a ono-party govornmonta| systom, tho
un|ons and bus|noss commun|ty jo|nod togothor to ca|| a gonora| str|ko
|n ordor to try to torco Chvoz |nto a rotorondum on h|s govornanco.
Vuch ot tho country shut down. l0v3A just stoppod work|ng. Ovor
tho noxt tow wooks, tho country's o|| output p|ummotod trom 8.1 m||||on
barro|s a day to around 200,000 barro|s a day-porhaps ovon |oss.
vonozuo|a was torcod to |mport gaso||no on an omorgoncy bas|s. 1ho
|oss ot a|most throo m||||on barro|s a day sh|ttod tho wor|d markot trom
surp|us to shortago. O|| pr|cos, wh|ch had boon doc||n|ng, startod to
r|so sharp|y aga|n and soon woro h|ghor than any pr|cos soon s|nco
tho Gu|t cr|s|s |n 1000.
ln Wash|ngton, tho d|srupt|on |gn|tod a sharp dobato w|th|n tho U.3.
govornmont as to whothor to ro|oaso o|| storod |n tho U.3. 3tratog|c
lotro|oum losorvo to componsato tor tho o|| |ost trom ono ot
Amor|ca's b|ggost supp||ors. 1ho 0opartmont ot Enorgy
rocommondod uso ot tho 3ll. 3ut tho t|na| doc|s|on was not to do so.
1ho o|| |n tho stratog|c rosorvo noodod to bo rota|nod, |t was sa|d, tor
tho poss|b|||ty ot a much groator d|srupt|on that cou|d occur
somowhoro o|so-|n tho V|dd|o East.
Voanwh||o |n Caracas, Chvoz wou|d not budgo: as tho wooks wont
on, tho gonora| str|ko orodod, poop|o dr|ttod back to work and attor
s|xty-throo days, tho str|ko ondod a|togothor. 3y m|d-|obruary 2008,
l0v3A was back up to about ha|t |ts prostr|ko |ovo|. ln tho attormath ot
tho shutdown, Chvoz was now ovon moro |ntont on o||m|nat|ng any
po||t|ca| oppos|t|on to h|s march toward h|s soc|a||sm tor tho twonty-
t|rst contury.' |o was dotorm|nod to ond whatovor |ndopondonco
l0v3A st||| had |ott. About twonty thousand workors-a|most ha|t tho
worktorco-woro summar||y t|rod and rop|acod w|th |oss-oxpor|oncod
workors, trom thon on, tho company wou|d bo oporatod not as a stato-
ownod company, but as an arm ot tho stato. 1ho vast amounts ot
monoy that tho company gonoratod wou|d bocomo |nsoparab|o trom
tho stato.
1ho cr|s|s ot product|on was ovor. 3ut duo to tho haphazard way |n
wh|ch product|on was shut down, and tho |noxpor|onco ot many now
managors brought on attor Chvoz's purgo, vonozuo|a wou|d not
roga|n |ts prostr|ko |ovo|s ot output, |ot a|ono approach what had boon
|ts amb|t|ous oxpans|on goa|s. 3t||| by m|d-Apr|| 2008, onough o|| was
bo|ng producod and rot|nod that vonozuo|a cou|d onco aga|n start
oxport|ng potro|oum to |ts customors. 3ut by thon supp|y was bo|ng
d|sruptod o|sowhoro on tho wor|d markot.
N|CER|A: YOu'RE A PE1RO-51A1E"
l|gor|a, tho o|ghth-|argost oxportor |n OlEC and ono ot tho major
sourcos ot U.3. potro|oum |mports, corta|n|y has tho attr|butos ot a
potro-stato. O|| and natura| gas account tor 40 porcont ot G0l.
As t|nanco m|n|stor trom 2008 to 2000, lgoz| Okonjo-lwoa|a sought
to sot tho budgot basod on a |owor o|| pr|co assumpt|on, |mposo t|sca|
d|sc|p||no, and bu||d up tho govornmont's t|nanc|a| rosorvos. A|| that
mado hor h|gh|y unpopu|ar-and a po||t|ca| ||ab|||ty. 1ho prossuros
woro onormous, wh|ch |s part ot tho roason l'm not thoro today,' sho
|ator roca||od. lo||t|c|ans woro not happy w|th mo. l was qu|to
controvors|a| tor ma|nta|n|ng d|sc|p||no. l'm suro that on tho day l
ros|gnod thoro woro moro than a tow h|gh-t|vos.'
0
E1EN|C CONFL|C1
3ut o|| |s on|y part ot tho p|cturo. l|gor|a |s a dom|nant torco |n Atr|ca.
W|th 1bb m||||on poop|o, |t |s tho most popu|ous country on tho
cont|nont, ono out ot ovory sovon Atr|cans |s l|gor|an. 3ut many ot
thom do not th|nk ot thomso|vos as l|gor|an but rathor dot|no
thomso|vos by |anguago, ro||g|on, and tr|ba| group.
l|gor|a |s a country ot 2b0 othn|c groups, sp||t among an ls|am|c
north and a Chr|st|an south, w|th turthor d|v|s|ons botwoon oast and
wost |n tho southorn part. lt was dot|nod as a un|t by tho 3r|t|sh co|on|a|
adm|n|strat|on, but |s a nat|on t|od togothor w|th woak |nst|tut|ons and a
woak sonso ot nat|ona| un|ty, and d|v|dod by strong ro||g|ous and
othn|c |dont|t|os. l|gor|a bocamo |ndopondont |n 1000, tour yoars attor
tho d|scovory ot o|| thoro. lts h|story has thoroattor boon dot|nod by
v|o|ont cont||ct ovor tho d|str|but|on ot powor and rosourcos and ovor
tho stato |tso|t. ln 1007 tho southoastorn part tr|od to socodo and
bocomo a soparato nat|on ot 3|atra. Attor throo yoars ot c|v|| war, and
tho |oss ot moro than throo m||||on ||vos, tho north won, and tho country
stayod who|o.
l|gor|a has gono through t|vo const|tut|ons and sovon m|||tary
coups. 1ho country's oxpor|onco domonstratos tho 0utch d|soaso |n
many ways. 1ho onco-v|brant agr|cu|tura|-oxport soctor has co||apsod,
and tho country |s a not |mportor ot tood. An ottoct|vo and dod|catod
c|v|| sorv|co, ono ot tho |ogac|os ot co|on|a| ru|o, was woakonod,
contr|but|ng to tho poor govornanco. O|| rovonuos woro sto|on and
squandorod on a mass|vo sca|o. 1ho hugo Ajaokouta stoo| comp|ox |s
tho postor ch||d tor rovonuos wastod. 3u||t |n tho 1070s, |t has yot to
produco commorc|a| stoo|. 3otwoon 1070 and 2000, l|gor|a's
popu|at|on moro than doub|od, ovor tho samo por|od, on a por cap|ta
bas|s, |ncomo actua||y doc||nod .
7
1hrough a|| th|s, tho country's o|| |ndustry has boon caught up |n tho
strugg|o among rog|ons, othn|c groups, nat|ona| and |oca| po||t|c|ans,
and v|o|ont groups-m|||t|as, gangs, and cu|ts-tor powor and pr|macy,
tor |dont|ty-and tor tho monoy. 1ho l|gor|an govornmont takos ovor
80 porcont ot tho sa|o pr|co ot a barro|, but thoro |s a constant batt|o
ovor how thoso oarn|ngs shou|d bo sp||t botwoon tho todora|
govornmont, tho statos, and |oca| commun|t|os.
3ut that |s on|y part ot tho batt|o. v|o|ont c|ashos botwoon Chr|st|ans
and Vus||ms, |nc|ud|ng massacros |n wh|ch hundrods aro s|a|n, aro a
rocurront toaturo. 3o |s tho strugg|o ovor tho app||cat|on ot ls|am|c
shar|a |aw |n tho north. Corrupt|on |s doop|y omboddod throughout tho
tabr|c ot nat|ona| ||to.
1ho op|tomo ot stato ta||uro was tho bruta| d|ctatorsh|p ot Gonora|
3an| Abacha, who so|zod powor |n 1008. ln tho t|vo yoars pr|or to h|s
suddon doath, ho provod h|mso|t a champ|on at corrupt|on, |t |s thought
that ho amassod as much as $b b||||on. Vost notor|ous|y, |n 100b ho
ovorsaw tho bruta| oxocut|on ot Kon 3aro-W|wa, author and
onv|ronmonta| campa|gnor tor tho Ogon| poop|o, and o|ght othor Ogon|
act|v|sts. ||s doath rosoundod tor yoars ottor. Abacha h|mso|t d|od
throo yoars |ator. Ovor tho noxt sovora| yoars, l|gor|a strugg|od to
rocovor somo ot tho sto|on monoy. Abacha's tam||y stubborn|y
ma|nta|nod that tho monoy had boon honost|y ga|nod, |ns|st|ng that
Abacha, |n add|t|on to bo|ng l|gor|a's tu||-t|mo d|ctator, had a|so boon
a vory astuto |nvostor.
8
ln 1000, |n tho t|rst o|oct|on |n s|xtoon yoars, O|usogun Obasanjo, a
tormor gonora|, was o|octod pros|dont. Obasanjo had oarnod a un|quo
pos|t|on |n l|gor|an anna|s, tor dur|ng a prov|ous spo|| |n powor, ho
provod to bo tho on|y m|||tary ru|or |n l|gor|a's h|story to hand ovor
powor to a const|tut|ona||y o|octod c|v|||an govornmont. lr|or to h|s
roturn as an o|octod pros|dont, ho sorvod as cha|rman ot tho adv|sory
board ot 1ransparoncy lntornat|ona|, a prom|nont lGO that tocusos on
combat|ng corrupt|on |n dovo|op|ng countr|os. lt was not an
|nappropr|ato proparat|on: whon ho roturnod to powor as a c|v|||an and
as an o|octod pros|dont |n 1000, corrupt|on was ono ot tho most
|ntractab|o prob|oms.
V|OLENCE |N 1EE DEL1A
And nowhoro was |t moro |ntractab|o than |n tho l|gor 0o|ta. 1ho 0o|ta
|s a vast, swampy rog|on tormod by tho l|gor l|vor, Atr|ca's |argost,
as |t t|ows |nto tho Gu|t ot Gu|noa. 1ho 0o|ta |s whoro most ot l|gor|a's
o|| |s producod, and whoro rog|ona| and |oca| po||t|c|ans havo
hab|tua||y s|phonod ott a groat doa| ot woa|th tor tho|r own bank
accounts, and wh|ch |s why a govornorsh|p ot ono ot tho 0o|ta statos |s
a much-sought-attor pos|t|on: |t |s a t|ckot to woa|th.
Ott|c|a||y, howovor, on|y 18 porcont ot tota| o|| rovonuos accruo to tho
|oca| statos. 1ho 0o|ta's docrop|t |ntrastructuro and ondom|c povorty,
comb|nod w|th tho h|gh popu|at|on dons|ty, tuo|od host|||ty both toward
tho o|| |ndustry, wh|ch had no say ovor how tho o|| monoy was a||ocatod
botwoon tho todora| and stato govornmonts, and tho rog|ona| and
nat|ona| govornmonts. 1horo was a|so a |ogacy ot onv|ronmonta|
dogradat|on trom o|| product|on ot tho 1000s and 1070s.
1ho 0o|ta had boon subjoct to rocurront outbroaks ot v|o|onco. W|th
an ost|matod torty othn|c groups |n tho aroa, thoro was p|onty ot t|ndor
tor cont||ct. 3ut tho v|o|onco bocamo moro organ|zod and moro |otha|
|n tho t|rst docado ot th|s contury. 3unkor|ng'-stoa||ng o|| trom tho
mazo ot p|po||nos and t|ow stat|ons that carry tho o|| to bargos and on
to tho wor|d markot-turnod |nto a vory prot|tab|o bus|noss, and an
|ncroas|ng|y v|o|ont ono. 3ands ot young mon bogan to attack tho t|ow
stat|ons, dr||||ng s|tos, and o|| camps to oxtract monoy and prossuro
compan|os and |oca| govornmonts. 1hoy tormod gangs undor namos
||ko tho 3akass| 3oys, tho lco|andors, tho Groon|andors, and tho l|gor
0o|ta's loop|o's vo|untoor torcos, and thoy wagod war w|th r|va|
gangs, tuo|od by drugs, a|coho|, domon|c |n|t|at|ons, and occu|t
suporst|t|ons.
ln tho run-up to o|oct|ons |n 2008, as had bocomo tho custom, |oca|
po||t|c|ans patron|zod var|ous armod groups to v|o|ont|y promoto tho|r
v|ctor|os and stoa| o|| as a way to ra|so campa|gn tunds. ln Varch
2008, gangs attackod a sor|os ot product|on s|tos |n tho 0o|ta. 1ho o||
compan|os ovacuatod tho|r porsonno|, and moro than a th|rd ot
l|gor|a's product|on-ovor 800,000 barro|s a day-was shut down.
Attor tho 2008 o|oct|ons, tho m|||t|as, oporat|ng |ndopondont|y,
bogan to acqu|ro moro woapons and bu||d thomso|vos |nto moro
torm|dab|o torcos. 1hoy sto|o |ncroas|ng amounts ot o||-somot|mos
ost|matod at ovor 10 porcont ot l|gor|a's tota| product|on (wh|ch |n
2010 wou|d amount to ovor $b b||||on sto|on o||)-|n co||aborat|on w|th
tormor o|| workors, corrupt govornmont ott|c|a|s, an |ntornat|ona|
notwork ot o|| smugg|ors, and p|ratos oporat|ng w|do|y |n tho Gu|t ot
Gu|noa. 3toa||ng and sabotago woro |argo|y rospons|b|o tor tho o||
sp|||s that dospo||od tho 0o|ta. v|o|onco was a|roady so ondom|c and
at such a |ovo| that by tho ond ot 2008, an |ntorna| roport tor ono ot tho
major o|| compan|os sa|d that a |ucrat|vo po||t|ca| oconomy ot war |n
tho rog|on |s worson|ng' and warnod ot |ncroas|ng cr|m|na||zat|on ot
tho l|gor 0o|ta cont||ct.'
1ho tunds trom tho bunkor|ng, |n turn, onab|od tho m|||t|a |oadors to
turthor |ncroaso tho|r arsona|s and acqu|ro much moro |otha| woapons
and, |n tho words ot ono obsorvor, tako m|||t|a act|v|ty to a now
d|mons|on ot cr|m|na||ty.' As tho hoad ot ono ot tho most notor|ous
m|||t|as put |t, Wo aro vory c|oso to tho |ntornat|ona| wators and |t's
vory oasy to got woapons.'
1ho wo||s and gathor|ng systoms aro strung out through tho
swamp|and, mangrovo torosts, and sha||ow wators ot tho 0o|ta,
cr|sscrossod by crooks and stroams-a|| ot wh|ch prov|dos tor good
covor and qu|ck gotaways on spoodboats mountod w|th mach|no
guns. 1ho rog|on |s vory donso|y popu|atod, tho b|rth rato |s vory h|gh,
and povorty |s w|dosproad. 1ho |noqu|t|os brood angor and
rosontmont, on wh|ch tho m|||t|as tood.
ln 3optombor 2004 a |oador ot ono ot tho gangs, a so|t-doscr|bod
adm|ror ot Osama b|n ladon and an advocato that tho ljaw othn|c
group shou|d socodo and torm |ts own country, throatonod a||-out war'
aga|nst tho l|gor|an stato. 1hat throat pushod o|| ovor $b0 por barro|
tor tho t|rst t|mo.'
0
1hat was |t tor lros|dont Obasanjo. |o summonod tho |oadors ot
two ot tho most v|o|ont groups to tho todora| cap|ta| ot Abuja, whoro ho
mot w|th thom |n tho cab|not room and hammorod out a poaco accord.
lt |astod through part ot 200b. 3ut thon tho 0o|ta bogan to doscond
back |nto v|o|onco and gang wartaro.
1EE BOY5"
ln 1anuary 2000, tour toro|gn o|| workors woro k|dnappod trom a
p|attorm |n tho sha||ow wators ot tho l|gor 0o|ta, and thon gunmon
aboard spoodboats attackod anothor o|| tac|||ty |n tho 0o|ta, k||||ng 22
poop|o, sott|ng bu||d|ngs at|ro, and sovoro|y damag|ng tho oqu|pmont
tor manag|ng tho t|ow ot o||.
A horototoro unknown group took crod|t-tho Vovomont tor tho
Emanc|pat|on ot tho l|gor 0o|ta. VEl0, as |t bocamo known,
doc|arod that |t sought contro| ot rosourcos to |mprovo tho ||vos ot our
poop|o.' C|a|m|ng sovora| thousand mon undor arms, VEl0 warnod
that |t wou|d un|oash turthor attacks that wou|d sot l|gor|a back 1b
yoars and causo |nca|cu|ab|o |ossos,' and sa|d |t a|mod to tota||y
dostroy tho capac|ty ot tho l|gor|an govornmont to oxport o||.'
10
A tow days attor tho 1anuary 2000 attacks, |n tho snow-covorod
3w|ss A|p|no v|||ago ot 0avos, at tho Wor|d Econom|c |orum,
O|usogun Obasanjo, l|gor|a's pros|dont, was moot|ng |n a som|nar
room to d|scuss h|s country's oconom|c prospocts. 1wo ot tho
part|c|pants, a vonturo cap|ta||st trom 3|||con va||oy and a wor|d-
tamous ontropronour trom 3r|ta|n, urgod Obasanjo to got ott o|| and
omu|ato 3raz|| and |aunch |argo-sca|o cu|t|vat|on ot sugarcano to mako
othano|. A bomusod Obasanjo, pros|dont ot ono ot tho wor|d's major
o|| producors, noddod w|th to|gnod onthus|asm and prom|sod to g|vo
tho |doa sor|ous cons|dorat|on.
1oward tho ond ot tho moot|ng, as Obasanjo was about to |oavo, ho
was askod about tho thoso rocont attacks a tow days oar||or |n l|gor|a
and whothor thoy prosagod a now wavo ot v|o|onco.
lt was noth|ng to got too concornod about, ho sa|d w|th cont|donco.
1ho 3oys,' as ho ca||od thom, wou|d bo brought undor contro|.
1hat was not an unroasonab|o oxpoctat|on. Attor a||, somo ot tho
m|||t|a and v|g||anto groups, |nc|ud|ng tho 3akass| 3oys, had boon
subduod ovor tho prov|ous tow yoars. Voroovor, |t was d|tt|cu|t to
d|st|ngu|sh among a|| thoso who attackod tho o|| |ndustry |ntrastructuro.
1hoy a|| oporatod w|th tho samo k|nd ot too|s-thoso tast spoodboats,
somot|mos w|th mach|no guns mountod on thom, AK-47s, and sto|on
dynam|to. 1ho p|cturo was turthor comp||catod by tho shadowy
connoct|ons botwoon thoso |n spoodboats and thoso |n powor.
3ut th|s t|mo, tho 3oys' d|d not cooporato. 1ho 1anuary 2000
attacks woro tho bog|nn|ng ot a wavo ot b|oody |nt|m|dat|on,
k|dnapp|ngs, and murdor. v|o|onco |n l|gor|a bocamo a koy tactor |n
tho wor|d o|| markot. 1ho ba|anco ot wor|d o|| supp|y and domand has
bocomo so procar|ous,' U.3. |odora| losorvo cha|rman A|an
Groonspan warnod |n 1uno 2000, that ovon sma|| acts ot sabotago or
|oca| |nsurroct|ons havo a s|gn|t|cant |mpact on pr|cos.' 1ho donso
swamps and |ntr|cato notwork ot crooks and watorways mado |t oasy
tor VEl0 and such s|m||ar organ|zat|ons as tho Vartyrs 3r|gado to
attack and thon tado back |nto tho jung|o-and thoy d|d so w|th
|mpun|ty. Ono n|ght short|y attor tho pros|dont|a| o|oct|on |n 2007 ot
l|gor|a, tho tam||y homo |n tho 0o|ta ot Good|uck 1onathan, tho now
v|co pros|dont (and now l|gor|a's pros|dont), was burnod to tho
ground by ono ot tho gangs. lt was moant as a domonstrat|on ot powor
-and as a warn|ng.
11
ln tho taco ot constant v|o|onco |n tho 0o|ta and tho k||||ng and
k|dnapp|ng ot tho|r workors, tho |ntornat|ona| o|| compan|os ropoatod|y
ovacuatod tho|r omp|oyoos, c|osod down tac|||t|os, and doc|arod torco
majouro on sh|pmonts. l|ans tor substant|a| oxpans|on ot capac|ty
woro sho|vod. As |t was, w|thout phys|ca| socur|ty, tho o|| cou|d not t|ow.
At somo po|nts, upward ot ono m||||on barro|s por day-40 porcont ot
l|gor|a's tota| output-was shut |n and |ost to tho wor|d markot. 1hat
dot|c|t was ono ot tho koy tactors |n tho r|so ot pr|cos. And |t was
corta|n|y a |oss tor tho Un|tod 3tatos, tor wh|ch l|gor|a had just movod
up |n tho rank|ngs to bocomo |ts th|rd-|argost sourco ot |mportod o||.
NA1uRAL D|5A51ER
3omowhoro abovo tho wost coast ot Atr|ca, unsoon and unnot|cod on
a c|oud|oss day, so|ar rad|at|on ponotratod tho oarth's atmosphoro
and struck an oxpanso ot surtaco ot tho southorn At|ant|c. 1ho sun's
rays transtorrod tho|r onorgy to an onormous numbor ot wator
mo|ocu|os, transtorm|ng ||qu|d |nto gas and sond|ng thoso mo|ocu|os
back |nto tho sky as a gasoous vapor. W|nds ott tho dry 3ahara and
tho powor ot tho oarth's rotat|on pushod thoso c|ouds ot wator, now
coa|osc|ng |nto |argo bands ot trop|ca| mo|sturo, wostward, toward tho
Amor|can cont|nont.
lo ono took not|co unt|| August 18, 200b, whon a torocastor at tho
lat|ona| |urr|cano Contor |n V|am| |dont|t|od a mass ot c|ouds ovor
tho trop|ca| At|ant|c, 1,800 m||os oast ot 3arbados. 1on days |ator,
thoso samo c|ouds onco aga|n caught tho attont|on ot tho lat|ona|
|urr|cano Contor as thoy morgod w|th anothor trop|ca| storm and
bogan to s|ow|y churn. On 1hursday morn|ng, August 2b, what had now
boon chr|stonod |urr|cano Katr|na mado |andta|| noar V|am| 3oach
but w|thout hoavy dovastat|on. 1ho storm ga|nod scopo as |t passod
|nto tho Gu|t ot Vox|co.
3y August 28, |t had boon transtormod |nto a hugo storm, a
tr|ghton|ng|y om|nous b|ack mass, spraw||ng across tho map-trom tho
Yucatn lon|nsu|a |n Vox|co to tho southorn Un|tod 3tatos. W|th w|nds
as powortu| as an E|4 tornado, Katr|na was a|roady ono ot tho most
powortu| storms ovor rocordod by tho lat|ona| Ocoan|c and
Aoronaut|cs Adm|n|strat|on.
Amor|ca's |argost onorgy comp|ox |s |n and around tho Gu|t ot
Vox|co, and |t was r|ght |n tho bu||'s-oyo. Ovor moro than s|x docados,
thousands ot o|| and gas product|on p|attorms had boon bu||t ottshoro,
|n both sha||ow wators, w|th|n s|ght ot shoro, and doopwator tar out at
soa. At tho t|mo, a|most 80 porcont ot U.3. domost|c o|| product|on
and 20 porcont ot natura| gas product|on camo trom tho Outor
Cont|nonta| 3ho|t |n tho Gu|t ot Vox|co. A|most a th|rd ot tho country's
ont|ro rot|n|ng capac|ty-wh|ch turns tho crudo |nto gaso||no, jot tuo|,
d|oso|, and othor products-strotchos a|ong tho shoros ot tho Gu|t.
low, w|th Katr|na approach|ng, tho ont|ro ottshoro |ndustry wont |nto
omorgoncy modo. Workors rushod to shut |n tho wo||s, socuro tho
p|attorms, and act|vato automat|c systoms, thoy thon hurr|od|y c||mbod
|nto ho||coptors and racod tho |ncroas|ng|y powortu| w|nds back to
shoro.
As w|nds roachod a poak strongth noar 17b m||os por hour, Katr|na
h|t tho ottshoro onorgy comp|ox and thon s|ammod w|th dovastat|ng
torco and surg|ng soas a|ong tho lou|s|ana, V|ss|ss|pp|, and A|abama
coasts, b|ow|ng down bu||d|ngs, wash|ng away homos, ovorturn|ng
cars, r|pp|ng out powor ||nos, t|ood|ng tho ont|ro rog|on, and torc|ng 1.8
m||||on to t|oo as tomporary rotugoos.
12
What onsuod was a human tragody ot tar-roach|ng proport|ons. 1ho
worst v|o|onco was rosorvod tor low Or|oans, whoro tho |ov|os woro
broachod, opon|ng tho way tor tho wators to t|ood |nto stroots and
homos bu||t bo|ow soa |ovo|, submorg|ng |argo parts ot tho c|ty undor
wator, torc|ng up to 20,000 poop|o to sook rotugo |n tho 3upordomo
and |oav|ng moro than 1,800 doad.
l|ta, a now storm, a|so ono ot tho most v|o|ont hurr|canos ovor
rocordod, s|m||ar|y spawnod |n tho 3outh At|ant|c, hoadod stra|ght
down tho contor ot tho Gu|t. Onco aga|n, tho |ndustry sprang |nto
omorgoncy modo. l|ta h|t tho p|attorms that had boon sparod on
Katr|na's courso and thon toro through onshoro o|| rot|n|ng contors,
|oav|ng somo ot thom sovoro|y damagod and t|oodod.
A|togothor, moro than 8,000 p|attorms and 22,000 m||os ot
undorsoa p|po||no woro |n tho d|roct path ot tho two storms. A tota| ot
11b p|attorms woro comp|oto|y dostroyod (most ot thom o|dor onos,
not bu||t to 1088 standards), b2 woro damagod, as woro b8b p|po||no
sogmonts ot p|po||no. Yot so ottoct|vo woro tho onv|ronmonta|
conta|nmont moasuros that tho ottshoro product|on tac|||t|os d|d not
|oak. At tho poak, tho hurr|canos knockod out 20 porcont ot tota| U.3.
o|| product|on and a|most 80 porcont ot U.3. rot|n|ng capac|ty. Vonths
|ator, a s|gn|t|cant part ot tho product|on and rot|n|ng oporat|ons was
st||| not back on ||no.
18
Onshoro, somo 2.7 m||||on poop|o woro |ott w|thout o|octr|c|ty. W|th
o|octr|c powor down, tho |ong-d|stanco p|po||nos that carry gaso||no
and othor rot|nod products to tho East Coast cou|d not oporato, and
supp||os bocamo vory t|ght |n tho 3outhoast and tho V|d-At|ant|c
statos. 1ho gaso||no may havo boon s|tt|ng thoro |n tho undorground
tanks at tho stat|ons. 3ut w|thout o|octr|c powor thoro was no way to
pump |t out and |nto tho tanks ot tho ambu|ancos and po||co cars and
t|ro ong|nos and ropa|r trucks so that thoy cou|d carry out tho|r roscuo
and ropa|r m|ss|ons am|d tho chaos and dovastat|on.
O|| pr|cos surgod upward, both bocauso ot tho d|srupt|on |tso|t and
as word ot shortagos sont tromors ot pan|c and toars ot gas ||nos
through tho pub||c. 1ho two storms sparkod tho |argost d|srupt|on ot o||
supp|y |n tho h|story ot tho Un|tod 3tatos-a |oss, at |ts poak, ot 1.b
m||||on barro|s por day. Othor countr|os took tho unprocodontod stop ot
sh|pp|ng omorgoncy stocks ot o|| to tho Un|tod 3tatos to ho|p mako up
tor tho shortta||.


3y 2000 product|on was rocovor|ng |n tho Gu|t ot Vox|co, and supp||os
trom ottshoro woro onco aga|n mak|ng tho|r way to consumors. 3ut tho
markot cont|nuod to too| tho |mpact ot tho var|ous |ossos ot supp|y
trom tho aggrogato d|srupt|on. Voroovor-|n add|t|on to vonozuo|a,
l|gor|a, and Katr|na and l|ta-anothor d|srupt|on was hav|ng a b|g
|mpact on tho wor|d markot. 1h|s ono was |n tho vory hoart ot tho
V|dd|o East.
7
WAR |N |RAO
|n |ato 2002, lh|||p Carro|| roco|vod a phono ca|| trom an ott|c|a| |n tho
lontagon. 1ho 0opartmont ot 0otonso was putt|ng togothor an
adv|sory group on o||, and Carro|| was a sons|b|o stop. 1w|co rot|rod-
t|rst as CEO ot 3ho|| O|| U3A and thon tho ong|noor|ng company ||uor
-Carro|| camo oqu|ppod w|th cons|dorab|o |ntornat|ona| oxpor|onco |n
tho |og|st|cs and |ntrastructuro ot onorgy supp|y, as wo|| as a roputat|on
tor d|p|omat|c sk|||.
1ho quost|ons woro about how and what to p|an tor, |n torms ot o||, |n
tho ovont ot war. 1wo th|ngs woro known: lraq was h|gh|y prospoct|vo
but had not roa||y boon oxp|orod s|nco tho 1070s and |ndood was ono
ot tho |oast oxp|orod ot a|| tho major o||-oxport|ng countr|os. And |ts
|ndustry was |n poor cond|t|on, a|though no ono roa||y know how poor.
Carro|| rocommondod that tho 0O0 do an |n-dopth study and th|nk
through how tho |ndustry cou|d bo managod dur|ng postwar trans|t|on.
A tow months |ator, |n oar|y 2008, Carro|| was torma||y askod |t ho
wou|d go out to lraq as o|| adv|sor to||ow|ng U.3. m|||tary act|on. |o
wou|d bocomo ono ot about twonty othor son|or adv|sors, oach to
adv|so and ho|p d|roct an lraq| m|n|stry. 3y that t|mo |t was moro than
c|oar that tho Un|tod 3tatos, a|ong w|th 3r|ta|n, Austra||a, 1apan, and a
scoro ot othor nat|ons, |n what was ca||od tho coa||t|on ot tho w||||ng,'
wou|d short|y bo go|ng to war.
WEY 1EE WAR?
lraq was an o|| country. lts on|y oxport was o||. lt was a nat|on dot|nod
by o||, and as such was a country ot groat s|gn|t|canco to tho g|oba|
onorgy markots. 3ut tho onsu|ng war was not about o||. lt rosu|tod trom
a convorgonco ot tactors: tho pr|mary onos woro tho 3optombor 11,
2001, attack and |ts consoquoncos, tho throat ot woapons ot mass
dostruct|on, tho way tho 1001 war ondod, tho pors|stonco ot 3addam's
|ntrans|gont and ruth|oss ru|o, and tho way |n wh|ch ana|ys|s was, and
was not, carr|od out.
3addam had an add|ct|on to woapons ot mass dostruct|on,' as tho
hoad ot tho U.l. woapons |nspoct|on program put |t on tho ovo ot tho
war. |or docados tho lraq| d|ctator had dovotod a s|gn|t|cant part ot
tho country's rosourcos to tho dovo|opmont ot chom|ca|, b|o|og|ca|,
and nuc|oar woapons. 0osp|to h|s agroomonts w|th tho Un|tod lat|ons
attor tho Gu|t War, both Wostorn and no|ghbor|ng countr|os bo||ovod
that 3addam was cont|nu|ng to dovo|op WV0 and that, |t not
rostra|nod, wou|d |ndood acqu|ro thom. |or |nstanco, a 1008 lat|ona|
lnto|||gonco Est|mato roportod that wh||o lraq's WV0 capab|||ty had
boon damagod by tho Gu|t War, onough product|on compononts and
data roma|n h|ddon and onough oxport|so has boon rota|nod or
dovo|opod to onab|o lraq to rosumo dovo|opmont and product|on ot
WV0 . . . Ev|donco strong|y suggosts that 3aghdad has h|ddon
romnants ot |ts WV0 programs and |s mak|ng ovory ottort to prosorvo
thom.'
|or tho war p|annors, tho ||ko|y uso ot such woapons by tho lraq|
rog|mo was a contra| tactor |n m|||tary p|ann|ng, r|ght up to and |nto tho
war |tso|t, whon, as a rosu|t ot |ntorcoptod s|gna|s, somo un|ts carr|od
bu|ky, cumborsomo masks, |mpormoab|o gowns, and |nd|v|dua|
ant|dotos tor chom-b|o attacks. 1ho postwar ta||uro to t|nd WV0
capab|||t|os, dosp|to much ottort, undorm|nod tho crod|b|||ty ot tho
doc|s|on mak|ng |n tho oyos ot many. 3omo parts ot tho U.3.
|nto|||gonco commun|ty-notab|y tho 3tato 0opartmont's 3uroau ot
lnto|||gonco and losoarch and somo |n tho ClA-had d|ssontod,
argu|ng tho v|ow that 3addam was probab|y st||| not pursu|ng tho
woapons but tho|r argumonts woro d|scountod. 1ho gonora| v|ow was
that 3addam corta|n|y was act|ng on h|s add|ct|on. And thoro was
w|th|n tho U.3. |nto|||gonco commun|ty, tho V|dd|o East lat|ona|
lnto|||gonco Ott|cor lau| l|||ar wroto, a broad consonsus that such
programs ox|stod.' 1horo was, howovor, no agroomont on tho|r sca|o,
t|m|ng, ottoct|vonoss, and ut|||ty.
1


|ranco and Gormany-a|ong w|th luss|a-opposod tho doc|s|on to
go to war at ovory stop. |ronch pros|dont 1acquos Ch|rac omorgod as
a part|cu|ar too to supportors ot war, stat|ng that noth|ng today just|t|od
a war,' and that thoro was, |n h|s v|ow, no |nd|sputab|o proot ' ot
woapons ot mass dostruct|on. 3ut Ch|rac was rot|oct|ng tho v|ow ot tho
|ronch |nto|||gonco sorv|co. Wo had no ov|donco that lraq had
woapons ot mass dostruct|on,' roca||od a son|or |ronch po||cymakor.
And wo had no ov|donco that |t d|d not. lt may bo that sanct|ons had
workod much bottor than wo had thought.'
2
3ut 3addam mado sovora| m|sca|cu|at|ons. |o thought that tho
sca|o ot tho ant|war domonstrat|ons |n Europo wou|d somohow onsuro
that tho coa||t|on wou|d not actua||y |nvado. ln what provod to bo a
mass|vo m|sca|cu|at|on, ho choso to convoy amb|gu|ty as to what ho
was do|ng about such woapons-and what ho was covor|ng up. 1o do
othorw|so, ho apparont|y thought, wou|d havo woakonod h|s rog|mo
v|s-a-v|s both lran and domost|c oppononts. As ho to|d h|s |nnor c|rc|o,
1ho bottor part ot war was doco|v|ng.' 1o an |ntorrogator attor tho war,
who askod h|m why tho |||us|on, ho had a ono-word rop|y: lran.
1horo was a|so tho mattor ot assum|ng that othors saw tho wor|d tho
way ho d|d. lt has boon suggostod that 3addam cou|d novor havo
bo||ovod that tho 1001 coa||t|on wou|d havo stoppod short ot 3aghdad
tor somoth|ng so mushy as tho Cll ottoct' on to|ov|s|on v|owors
around tho wor|d and bocauso ot tho toar ot sp||ntor|ng tho coa||t|on.
|o wou|d not bo||ovo |t bocauso ho wou|d not havo actod on such
roasons. lt had to bo bocauso thoy toarod that ho had oqu|ppod h|s
torcos w|th chom|ca| and b|o|og|ca| woapons tor tho t|na| dotonso ot
3aghdad. 1h|s was a vory compo|||ng roason to ma|nta|n tho |||us|on.
8
|rom tho coa||t|on s|do, thoro was good causo to procood on a
worst-caso assumpt|on: |n tho attormath ot tho ||rst Gu|t War, |t was
d|scovorod, w|th somo shock, that tho lraq| rog|mo was s|x to o|ghtoon
months away trom a crudo nuc|oar woapon. ln rotrospoct, had 3addam
not boon so hasty but |nstoad wa|tod to |nvado Kuwa|t unt|| 1008 or
1004 rathor than 1000, ho wou|d havo boon |n a much strongor
pos|t|on-oqu|ppod w|th somo k|nd ot nuc|oar woapon capab|||ty, and
oporat|ng |n a much t|ghtor wor|d o|| markot. A|| th|s wou|d havo
roducod tho t|ox|b|||ty ot h|s oppononts.
W|th tho Un|tod 3tatos' hav|ng undorost|matod 3addam's
capab|||t|os onco, tho 3ush adm|n|strat|on was not go|ng to ropoat that
m|stako. 1horo was a|| tho moro roason tor such a rosponso g|von
0/11 and |n ||ght ot 3addam's ov|dont appot|to tor WV0 and h|s
hungor tor rovongo attor 1001. laura 3ush |ator wroto ot hor husband,
What |t ho gamb|od on conta|n|ng 3addam and was wrong?' 3ush
h|mso|t sa|d, 1hat was not a chanco l was w||||ng to tako.' 1h|s gamb|o
soomod a|| tho moro r|sky |n tho stato ot pormanont anx|oty and
tons|on that to||owod 0/11: attor tho attacks, a da||y ||tany ot roports
t|owod |nto tho U.3. govornmont about p|ots and attacks provontod,
wh|ch on|y addod to tho constant approhons|on about thoso p|ots that
m|ght not bo n|ppod |n t|mo. Wo ||vod w|th throat assossmonts moro
d|sturb|ng than any ovor spokon on tho a|r,' sa|d laura 3ush.
As a son|or 3tato 0opartmont ott|c|a| wroto to 3ocrotary ot 3tato
Co||n lowo|| pr|or to tho war, 3optombor 11 changod tho dobato on
lraq. lt h|gh||ghtod tho poss|b|||ty ot an lraq| vors|on ot 3optombor 11,
and undorscorod concorns that conta|nmont and dotorronco w||| bo
unab|o to provont such an attack.' 3omo arguod that lraq| |nto|||gonco
had d|roct ||nks to, and had porhaps ovon coachod, A| Oaoda. Othors
sa|d that such a ||nk was h|gh|y dub|ous, |ndood un||ko|y, and corta|n|y
unsubstant|atod. 1ho |nto|||gonco commun|ty novor ottorod any
ana|ys|s that supportod tho not|on ot an a|||anco botwoon 3addam and
a| Oaoda,' sa|d lau| l|||ar, tho nat|ona| |nto|||gonco ott|cor. 3ut that d|d
not moan that, undor tho prom|so ot tho onomy ot my onomy |s my
tr|ond,' thoro cou|d not bo cooporat|on |n tho tuturo g|von tho|r common
onm|ty toward tho Wost.
4
lraq was a|roady at tho top ot tho agonda ot somo ot tho son|or
po||cymakors pr|or to tho|r tak|ng ott|co |n tho adm|n|strat|on ot Goorgo
W. 3ush. A po||cy rov|ow ot opt|ons ro|atod to lraq| sanct|ons had boon
|aunchod |n tho summor ot 2001. A tow days attor 0/11, at a moot|ng ot
lros|dont 3ush w|th h|s son|or adv|sors at Camp 0av|d, somo sought
to add lraq as a targot tor countorattack, a|ongs|do A| Oaoda and
Atghan|stan. At that po|nt 3ush was t|rm |n h|s rojoct|on. ln oar|y
Octobor 2001, tho U.3. ambassador to tho Un|tod lat|ons was
|nstructod to road tho toughost mossago l'd ovor boon askod to
do||vor' to lraq's ambassador, warn|ng ot tho d|ro consoquoncos tor
lraq |t |t tr|od to tako advantago ot tho 0/11 attacks. 3ut |t was not unt||
2002, tuo|od w|th tho cont|donco trom what soomod to bo tho vory
succosstu| and vory short campa|gn to ov|ct tho 1a||ban trom
Atghan|stan that p|ans roa||y bogan to congoa| around a war w|th lraq.
And, |n tho attormath ot 0/11, |t was go|ng to bo a provontat|vo war-
|aunchod undor what bocamo known as tho po||cy ot proompt|on.
b
1o tho |nnor c|rc|o ot doc|s|on makors, 0/11 domonstratod tho r|sks
ot not act|ng |n advanco to provont 3addam's acqu|s|t|on ot such
woapons. v|co lros|dont 0|ck Chonoy, who had boon socrotary ot
dotonso dur|ng tho Gu|t cr|s|s, was contra| to tho lraq doc|s|ons. As
ono ot thoso who workod to assomb|o tho Gu|t War coa||t|on,' ho sa|d
|n 2002, l can to|| you that our job thon wou|d havo boon |nt|n|to|y moro
d|tt|cu|t |n tho taco ot a nuc|oar-armod 3addam |usso|n.'
lros|dont 3ush |a|d out tho tundamonta|s ot tho now po||cy |n a
spooch at Wost lo|nt |n 1uno 2002. 1rad|t|ona| dotorronco' d|d not
work aga|nst shadowy torror|st notworks.' And conta|nmont' d|d not
work whon unba|ancod d|ctators w|th woapons ot mass dostruct|on
can do||vor thoso woapons on m|ss||os or socrot|y prov|do thom to
torror|st a|||os.' 1ho on|y answor was proompt|vo act|on,' 3ush addod,
|t wo wa|t tor throats to tu||y mator|a||zo, wo w||| havo wa|tod too |ong.'
1horo was a|so a conv|ct|on among somo that tho ox|st|ng po||t|ca|
systoms and stagnat|on |n tho V|dd|o East woro tho brood|ng grounds
tor tho ||kos ot A| Oaoda and torror|sm. A now' lraq cou|d bo tho
bog|nn|ng ot tho answor. 1ho sk|||tu| and c|ovor lraq| om|gro Ahmod
Cha|ab|, c|a|m|ng to spoak both tor tho ox||o commun|ty and thoso
w|th|n tho country, conv|ncod somo po||cymakors that an lraq w|thout
3addam wou|d wo|como tho coa||t|on as ||borators and wou|d qu|ck|y
ombraco roprosontat|vo domocracy. 1hoso doc|s|on makors woro
conv|ncod that a p|ura||st|c and domocrat|c lraq' wou|d havo a
transtormat|vo ottoct |n tho V|dd|o East, and |n somoth|ng ak|n to tho
ta|| ot commun|sm, sot ott a procoss ot rotorm' and modorat|on'
throughout tho rog|on.
0
Contrary |nto|||gonco and ana|ysos that d|d not t|t th|s v|s|on woro
pushod as|do. Voroovor, attor th|rty-t|vo yoars ot 3aath|st d|ctatorsh|p,
somo cou|d arguo that, |n any ovont, not much was roa||y known about
such tacts on tho ground' as ro||g|ous c|oavagos, soctar|an r|va|r|os,
tho |mportanco ot tr|ba| |oya|t|os, and tho ro|o ot lran. 1hoso who d|d
know somoth|ng about thoso dota||s, or who quost|onod tho bas|c
po||cy conv|ct|ons, or who warnod that thoso assumpt|ons woro too
opt|m|st|c, woro progross|vo|y squoozod out ot tho doc|s|onmak|ng
procoss.
1ho shock ot 0/11 croatod a dotorm|nat|on to domonstrato tho
strongth ot tho Un|tod 3tatos, roassort a ba|anco ot powor, and so|zo
tho |n|t|at|vo. 1horo was a|so tho dos|ro to t|n|sh tho unt|n|shod
bus|noss' ot 1001. Attor tho 1001 Gu|t War, 3addam conductod a
bruta| war aga|nst tho d|sontranch|sod 3h|a, wh|ch m|ght havo boon
provontod had tho arm|st|co not porm|ttod 3addam's torcos to uso
ho||coptors |n tho south.
3omo cr|t|cs sa|d that tho war was conductod tor tho bonot|t ot
lsrao|. 1ho o||m|nat|on ot 3addam's m|||tary powor wou|d corta|n|y bo a
boon tor lsrao|, on wh|ch lraq| 3cud rockots had ra|nod dur|ng tho 1001
Gu|t War. 3ut 3addam was a|roady conta|nod and h|s m|||tary much
woakonod. lsrao| was much moro worr|od about tho lran|an nuc|oar
program. As l|chard |aass, tho hoad ot po||cy p|ann|ng |n tho 3tato
0opartmont, wroto, 1ho lsrao||s d|d not sharo tho adm|n|strat|on's
prooccupat|on w|th lraq. Actua||y, |t was just tho oppos|to. 1ho lsrao||s .
. . toarod that lraq wou|d d|stract tho Un|tod 3tatos trom what thoy
v|owod as tho truo throat, wh|ch was lran.' 3oth lsrao|| ott|c|a|s,
|nc|ud|ng tho m|n|stor ot dotonso, who happonod to bo lraq|-born, and
lsrao|| oxports warnod that tho adm|n|strat|on was groat|y
undorost|mat|ng tho postwar troub|os that wou|d awa|t thom |n lraq. As
ono ot lsrao|'s |oad|ng spoc|a||sts put |t at a prowar contoronco |n
Wash|ngton, 0.C., somoono noodod to to|| tho U.3. pros|dont that
Amor|can torcos wou|d havo to bo |n lraq tor up to t|vo yoars and thoy
w||| not havo an oasy t|mo thoro.'
7
O|L"
O|| d|d not p|ay tho samo ro|o as thoso othor tactors |n dot|n|ng po||cy.
1ho s|gn|t|canco ot o|| was bocauso ot tho naturo ot tho rog|on-tho
contra||ty ot tho lors|an Gu|t |n wor|d o|| and thus tho cr|t|ca|
|mportanco ot tho ba|anco ot powor |n that rog|on. lt had boon
dotorm|nod U.3. po||cy s|nco |arry 1ruman to provont tho lors|an Gu|t
and |ts o|| trom ta|||ng undor tho sway ot a host||o powor. 3ut tho
poss|b|||ty ot a host||o powor-lraq-ach|ov|ng dom|nanco |n tho
rog|on, and thus ovor tho rog|on's o||, |oomod much |argor dur|ng tho
Gu|t cr|s|s ot 1000-01, whon lraq had conquorod Kuwa|t and was
throaton|ng tho 3aud| o|| t|o|ds, than |n tho run-up to tho subsoquont
lraq War. At tho samo t|mo, |n 2008, no|thor tho Amor|cans nor tho
3r|t|sh woro pursu|ng a morcant|||st 1020s-sty|o amb|t|on to contro|
lraq| o||. 1ho |ssuo was not who ownod tho o|| at tho wo||hoad, but
whothor |t was ava||ab|o on tho wor|d markot. lraq| o|| cou|d bo
purchasod on tho wor|d markot, a|bo|t managod undor tho U.l.
sanct|ons program. lndood, |n 2001 tho Un|tod 3tatos |mportod
800,000 barro|s por day trom lraq. A domocrat|c lraq, |t was corta|n|y
thought, wou|d bo a moro ro||ab|o prov|dor and, not bo|ng undor
sanct|ons, cou|d oxpand |ts capac|ty. ln tho m|nds ot somo
po||cymakors, not|ng tho numbor ot 3aud| nat|ona|s |nvo|vod |n 0/11,
tho prospoct ot lraq's bocom|ng a much |argor oxportor that wou|d
countorba|anco 3aud| Arab|a was attract|vo, but th|s was tar trom a
wo||shapod-or wo||-|ntormod-stratog|c objoct|vo.
8
Wh||o a var|oty ot |doas woro bo|ng tossod around tor tho postwar
organ|zat|on ot tho |ndustry, tho c|oar po||cy dotorm|nat|on was that tho
doc|s|ons about tho tuturo ot lraq's o|| wou|d bo mado by a tuturo lraq|
govornmont. loth|ng shou|d bo dono to projud|co tho prorogat|vos ot
tho ovontua| govornmont-ovon |nc|ud|ng tho subjoct ot OlEC
momborsh|p-a|though a nongovornmonta| o|| |ndustry was soon as
h|gh|y protorab|o |n ordor to tac|||tato tho |ntroduct|on ot tho tochno|ogy
and tho tons ot b||||ons ot do||ars ot |nvostmont that tho |ndustry wou|d
nood. Evon |n that caso, howovor, a ||boratod lraq, w|th |ts strong
nat|ona||st trad|t|on, was ||ko|y to ottor torms to |nvostors that woro as
tough as thoso ot any othor potro|oum-oxport|ng countr|os, or toughor.
As war approachod |n 2002-8, tho dom|nant att|tudo among tho
major |ntornat|ona| o|| compan|os was ono ot skopt|c|sm and caut|on,
and somo a|arm ovor tho ont|ro |doa ot war. Vany ot thom woro
tam|||ar w|th tho rog|on and toarod a back|ash. 1hoy woro vory doubttu|
that a stab|o, poacotu|, now-sty|o domocracy cou|d bo qu|ck|y croatod
trom tho wrockago ot tho 3aath|st stato.
You know what l'|| say to tho t|rst porson |n our company who comos
to us w|th a proposa| to |nvost a b||||on do||ars |n lraq?' askod tho CEO
ot ono ot tho supormajors a month botoro tho war. l'|| say, '1o|| us
about tho |oga| systom, to|| us about tho po||t|ca| systom. 1o|| us about
tho oconom|c systom and about tho contractua| and t|sca| systoms,
and to|| us about arb|trat|on. And to|| us about socur|ty, and to|| us about
tho ovo|ut|on ot tho po||t|ca| systom. 1o|| us a|| thoso th|ngs, and thon
wo'|| ta|k about whothor wo'ro go|ng to |nvost or not.' '
0
BEYOND NA1|ON Bu|LD|NC"
1ho |mmod|ato |ssuo |n 2008 was tho stato ot tho lraq| o|| |ndustry and
tho nood to onsuro that |t oporatod to prov|do tho rovonuos that tho
country roqu|rod. 1hat, howovor, wou|d dopond upon ovora|| cond|t|ons
|n lraq.
ln ovorsoo|ng tho p|ann|ng tor tho war, 0otonso 3ocrotary 0ona|d
lumsto|d was dr|von by an |mporat|vo-to provo that h|s dos|gn tor tho
||ght and |otha| now modo| army' (to borrow a torm trom O||vor
Cromwo||) was tho modo| tor tho army ot tho tuturo. lumsto|d was
|ntont on prova|||ng ovor tho un|tormod |oadorsh|p |n tho lontagon,
wh|ch ho cons|dorod too caut|ous, too r|sk avorso, and much too
consorvat|vo. |o was dotorm|nod to ovorturn tho ovorwho|m|ng torco'
doctr|no champ|onod by tho thon-cha|rman ot tho 1o|nt Ch|ots ot 3tatt
Co||n lowo|| dur|ng tho 1000-01 Gu|t cr|s|s (and now 3ocrotary ot
3tato). lnstoad ho wantod to domonstrato on tho batt|ot|o|d that sma||or
but h|gh|y sk|||od and d|sc|p||nod, tochno|og|ca||y advancod torcos-
w|th spood and ag|||ty and proc|s|on,' |n h|s words, woro moro than
sutt|c|ont to w|n a sw|tt v|ctory. And, |ndood, a vory ottoct|vo t|ght|ng
torco succosstu||y domonstratod that capab|||ty on tho batt|ot|o|d |n lraq
|n 2008.
3ut war and postwar-dotoat|ng an army on tho t|o|d and occupy|ng
a country-woro two vory d|ttoront propos|t|ons. ln cu|tura|, |og|st|cs,
tra|n|ng, and rog|ona| po||t|ca| torms, ||tt|o had boon dono to proparo
tho m|||tary or tho c|v|||an arms ot tho U.3. govornmont tor an
occupat|on ot opon durat|on. As |t turnod out, tho troop |ovo|s roqu|rod
tor a sw|tt v|ctory woro much |oss, porhaps on|y a th|rd, ot what was
noodod attor tho war to occupy and stab|||zo tho country. 3hort|y botoro
tho war, Army Ch|ot ot 3tatt Er|c 3h|nsok| had to|d a 3onato
comm|ttoo that, basod on U.3. oxpor|onco rang|ng trom post-Wor|d
War ll Gormany to 3osn|a |n tho 1000s, sovora| hundrod thousand'
troops-on tho ordor ot 200,000-was tho r|ght s|zo. 1o say h|s
commonts woro unwo|como wou|d bo an undorstatomont. |o was
|mmod|ato|y d|savowod and summar||y rot|rod. |or good moasuro, tho
socrotary ot tho army, who had supportod h|s v|ow, was a|so t|rod.
lumsto|d was a|so dotorm|nod to don|grato and ban|sh tho k|nd ot
nat|on bu||d|ng' that had ongagod U.3. torcos |n tho 3a|kans dur|ng
tho C||nton adm|n|strat|on |n tho 1000s. A month botoro tho lraq War,
lumsto|d do||vorod a spooch t|t|od 3oyond lat|on 3u||d|ng,' |n wh|ch
ho proc|a|mod Atghan|stan a comp|oto v|ctory and contrastod that to
what ho sa|d was tho cu|turo ot dopondonco' |n tho 3a|kans |n tho
1000s. 1ho pr|mo oxamp|o that ho c|tod to provo what was wrong w|th
nat|on bu||d|ng was that ot a dr|vor who, wh||o shutt||ng a|d workors
around Kosovo, oarnod moro than a un|vors|ty protossor. 1ho
objoct|vo |s not to ongago |n what somo ca|| nat|on bu||d|ng,' ho
doc|arod. lt tho Un|tod 3tatos woro to |oad an |ntornat|ona| coa||t|on |n
lraq,' ho addod, tho objoct|vo wou|d bo to |oavo as soon as poss|b|o.'
Atghan|stan, ho sa|d, was tho proot ot tho r|ght way to do th|ngs. |or
what soomod to bo tho romarkab|y sw|tt v|ctory |n Atghan|stan |n tho
autumn ot 2001 had ro|ntorcod lumsto|d's assumpt|ons-and tho so|t-
cont|donco that undor|ay thom. As lumsto|d put |t, tho 3ov|ots had
hundrods ot thousands ot troops |n Atghan|stan tor yoar attor yoar
attor yoar,' wh||o tho Un|tod 3tatos, w|th tons ot thousands' d|d |n
o|ght, n|no, ton, two|vo wooks what [tho 3ov|ots| woron't ab|o to do |n
yoars.' (3omo po|ntod out that tho U33l had a|so mado short work ot
|ts |nvas|on, |t was |n tho |ong occupat|on that |t ta||od.)
3ut tho |ntorvont|on |n tho 3a|kans |n southoast Europo, as d|tt|cu|t
as |t was, was a much s|mp|or s|tuat|on than |nvad|ng lraq, a major
Arab country |n tho V|dd|o East that had boon undor t|ght d|ctator|a|
contro| tor th|rty-t|vo yoars, and thon procood|ng to domo||sh a|| ot |ts
|nst|tut|ons, croat|ng a g|ant vacuum, a|| undor tho prom|so that, as ono
U.3. ott|c|a| |n lraq put |t, a 1ottorson|an domocracy' wou|d sprout
a|most ovorn|ght.
lumsto|d's pos|t|on was ro|ntorcod by tho U.3. commandor 1ommy
|ranks, who mado c|oar that h|s |ntont|on was to pu|| U.3. troop |ovo|s
down as tast as poss|b|o attor tho |n|t|a| v|ctory. 3omo advocatos
w|th|n tho 3ush adm|n|strat|on woro turthor propo||od by tho bo||ot that
tho war wou|d not bo d|tt|cu|t-that a ||ghtn|ng v|ctory' wou|d bo
to||owod by a qu|ck w|thdrawa| and tho omorgonco ot that now lraq|
domocracy. W|th such a m|nd-sot, not much thought noodod to bo
g|von to tho p|ann|ng tor what wou|d happon attor tho war.
10
lor was much thought g|von to tho budgotary |mp||cat|ons, tor a
qu|ck war wou|d suro|y a|so bo choap. As |t turnod out, tho war was not
qu|ck and tho subsoquont occupat|on cost moro than a tr||||on do||ars |n
d|roct out|ays.
NO1 A CAKEWALK
3omo vo|cos |n and around tho U.3. govornmont urgod caut|on. 1ho
|nto|||gonco commun|ty on |ts own |n|t|at|vo dovo|opod an ana|ys|s ot
tho pr|nc|pa| cha||ongos that any postwar author|ty |n lraq' wou|d ||ko|y
taco. Among tho pr|nc|pa| conc|us|ons: lraq was not a tort||o ground
tor domocracy' and any trans|t|on wou|d bo |ong, d|tt|cu|t, and
turbu|ont.' 1ho |nto|||gonco ana|ysts cou|d too| a strong w|nd
cons|stont|y b|ow|ng,' but |t was not |n tho|r d|roct|on.
Ono ot tho most w|do|y rospoctod son|or statosmon |n Wash|ngton
was 3ront 3cowcrott. |o had boon nat|ona| socur|ty adv|sor to two
tormor pros|donts-Gora|d |ord and Goorgo |. W. 3ush. |o had
workod c|oso|y w|th 0|ck Chonoy whon Chonoy was socrotary ot
dotonso dur|ng 0osort 3torm, and tho curront nat|ona| socur|ty adv|sor
Condo|oozza l|co had boon ono ot h|s doput|os dur|ng tho Goorgo |.
W. 3ush adm|n|strat|on. Voroovor, ho spoko w|th cons|dorab|o curront
author|ty. |o was, attor a||, cha|rman ot tho lros|dont's |oro|gn
lnto|||gonco Adv|sory 3oard. An attack on lraq at th|s t|mo wou|d
sor|ous|y joopard|zo, |t not dostroy, tho g|oba| countortorror|st
campa|gn wo havo undortakon,' ho wroto |n a o|| 5troot 1ooroo|
art|c|o |n August 2002. lt wo aro to ach|ovo our stratog|c objoct|vos |n
lraq, a m|||tary campa|gn |n lraq wou|d ||ko|y havo to bo to||owod by a
|argo-sca|o, |ong-torm m|||tary occupat|on.' |o addod, lt w||| not bo a
cakowa|k.'
3cowcrott had boon among tho koy po||cymakors |n tho doc|s|on not
to go to 3aghdad and doposo 3addam dur|ng tho Gu|t War |n 1001. ln
3cowcrott's m|nd, |t was not on|y bocauso ot tho Cll tactor' and tho
||ko|y sp||ntor|ng ot tho coa||t|on. lt was oxact|y bocauso ot tho r|sks ot a
|ong occupat|on. 0ur|ng tho 1001 war, tho t|rst lros|dont 3ush had
ordorod up a study on tho |ossons trom prov|ous cont||cts. 0on't
chango objoct|vos |n tho m|dd|o ot a war just bocauso th|ngs aro go|ng
wo||,' was ono ot tho pr|mo |ossons that 3cowcrott had takon away
trom that study. Wo |oarnod that trom Koroa.' ln 1001 3cowcrott had
boon conv|ncod that captur|ng 3aghdad wou|d chango tho charactor
ot what wo woro do|ng. Wo wou|d bocomo tho occup|ors ot a |argo
country. Wo don't havo a p|an. What do wo do ? |ow do wo got out?'
1hoso woro tho samo quost|ons that troub|od 3cowcrott |n 2002.
1ho month to||ow|ng 3cowcrott's art|c|o, l|chard |aass, hoad ot
po||cy p|ann|ng |n tho 3tato 0opartmont, wroto to 3ocrotary ot 3tato
Co||n lowo||. Onco wo cross tho lub|con by ontor|ng lraq and oust|ng
3addam ourso|vos, wo w||| havo much groator rospons|b|||ty tor lraq's
tuturo.... W|thout ordor and socur|ty, a|| o|so |s joopard|zod.'
1ho |nadoquacy ot torcos wou|d havo tar-roach|ng |mpact on what
wou|d transp|ro ovor tho noxt sovora| yoars |n lraq, |nc|ud|ng tho tato ot
|ts o|| |ndustry and tho d|roct|on ot tho g|oba| o|| markot. And, |n turn,
what wou|d happon to tho o|| |ndustry wou|d bo contra| to lraq's tuturo.
lraq was a potro-stato-about throo quartors ot |ts G0l was dor|vod
trom o|| around tho t|mo ot tho war, and 0b porcont ot govornmont
rovonuos wou|d como trom o|| attor tho war. 1horo woro oxtromo|y
opt|m|st|c oxpoctat|ons about how qu|ck|y product|on and oxports
cou|d bo rostorod and put on a growth track. 1ust pr|or to tho war,
0oputy 0otonso 3ocrotary lau| Wo|tow|tz had doc|arod that, w|th
rostorod o|| oxports, lraq can roa||y t|nanco |ts own roconstruct|on.' |o
suggostod that lraq cou|d soon bo at 0 m||||on barro|s por day, doub|o
|ts curront capac|ty.
11
1ho war bogan on Varch 20, 2008, 3aghdad t|mo, somo two|vo
yoars attor tho ond ot tho t|rst Gu|t war. 3y Apr|| 0, U.3. torcos had
capturod 3aghdad. 1hat samo day, Amor|can so|d|ors ho|pod lraq|s
pu|| down tho g|ant statuo ot 3addam |usso|n |n a downtown squaro, a
scono rom|n|scont ot tho ond ot commun|sm |n Eastorn Europo and
ono that soomod to prom|so that a p|ura||st|c and domocrat|c lraq'
was at hand. Up to th|s po|nt, th|ngs had gono accord|ng to p|an.
3ut what wou|d happon thoroattor? Gonora| |ranks, tho U.3.
commandor, thought ho had tho answor. lot |ong attor that |n|t|a|
v|ctory, ho pos|tod U.3. torcos wou|d bo drawn down to 80,000 by
3optombor 2008-a ||tt|o moro than a tonth ot what, othors arguod,
h|stor|ca| oxpor|onco suggostod was tho prudont numbor.
12
1EE O|L |NDu51RY: D|LAP|DA1ED AND
DEPLORABLE"
1ho actua| cond|t|ons ot tho o|| |ndustry onsurod that |t was |n no
cond|t|on to moot tho hoady prowar oxpoctat|ons. 1ho |ndustry was
suttor|ng trom yoars ot nog|oct and |ack ot |nvostmont. W|th tho
co||apso ot 3addam's rog|mo, commun|cat|on had brokon down, tho
country was |n chaos, and no ono was |n chargo. Vost ot tho
govornmont bu||d|ngs |n 3aghdad woro |ootod and burnod. A notab|o
oxcopt|on was tho o|| m|n|stry, wh|ch was socurod by un|ts ot tho U.3.
Army's 8rd lntantry.
A tow days attor tho ta|| ot 3aghdad, an oxpor|oncod lraq| tochnocrat
showod up at tho gato ot tho m|n|stry and askod to spoak to somoono
about gott|ng tho |ndustry rostartod. 1h|s was 1ham|r Ghadhban, who
had boon ch|ot goo|og|st and thon hoad ot p|ann|ng tor tho lraq
lat|ona| O|| Company. |o ovontua||y connoctod ovor a sato|||to phono
w|th lh|| Carro||, who at th|s po|nt had not yot arr|vod |n lraq. Attor
sovora| convorsat|ons, Carro|| t|na||y askod Ghadhban |t ho wou|d ||ko
to bo ch|ot oxocut|vo' ot tho lraq| o|| |ndustry, w|th Carro|| as cha|rman.
1hoy bocamo tho coro ot tho toam chargod w|th gott|ng tho o|| soctor
up aga|n. lt was hard go|ng.
A|though lraq's potont|a| was cons|dorab|o, |t had not boon sor|ous|y
oxp|orod s|nco tho 1070s. Out ot o|ghty d|scovorod o|| t|o|ds, on|y
twonty-throo woro put |nto product|on. ln 1070-80 tho lraq| o|| |ndustry
had workod out a p|an to ra|so output to s|x m||||on barro|s por day, but
|t had novor boon put |nto ottoct bocauso ot tho lran-lraq War |n tho
1080s and thon tho 1000-01 Gu|t cr|s|s. lnstoad tho |ndustry wont |nto
a |ong doc||no. low, attor tho |nvas|on, workors woro tr|ghtonod to go
to work bocauso ot tho |ack ot socur|ty. Carro|| and Ghadhban
conc|udod that tho phys|ca| capac|ty ot tho lraq| |ndustry was just undor
8 m||||on barro|s a day, |oss than ha|t ot tho 0 m||||on barro|s por day
that had boon c|tod as a roasonab|o' targot. 1hoy sot a sor|os ot
moro-roasonab|o targots a|mod at roach|ng that 8 mbd |ovo| by tho
ond ot 2004.
18
3ut tho obstac|os woro torm|dab|o. 0osp|to toars pr|or to tho war
that 3addam's torcos m|ght b|ow up tho wo||s and thon sot o|| t|o|ds on
t|ro, as thoy had dono |n dopart|ng Kuwa|t |n 1001, tho o||
|ntrastructuro, |n tact, wont through tho war |argo|y unscathod. Yot tho
ovora|| cond|t|ons ot tho |ndustry woro, |n Carro||'s words, d||ap|datod
and dop|orab|o.' 1ho undorground rosorvo|rs had boon damagod by
yoars ot m|smanagomont. 1ho sanct|ons had a|so had tho|r |mpact.
Equ|pmont was rust|ng and ma|tunct|on|ng. 1ho mach|nory and
systoms woro obso|oto. 1ho contro| room |n tho koy 0aura lot|nory,
noar 3aghdad, sa|d Carro||, was a t|mo warp, r|ght out ot tho 10b0s.'
lndood, |t had boon |nsta||od by an Amor|can company |n tho m|d-
10b0s, whon lraq was st||| ru|od by a k|ng. Env|ronmonta| po||ut|on was
a|so w|dosproad. |rom a pract|ca| standpo|nt, what kopt tho |ndustry
go|ng was tho sk||| ot lraq| ong|noors, thoy woro gon|usos at
|mprov|sat|on. 3ut now, w|th tho |oot|ng and tho broakdown |n tho
|ntrastructuro ot tho country |n tho attormath ot tho war, cond|t|ons woro
ovon worso. 1horo woro no phono ||nks to tho rot|nor|os or tho o||
t|o|ds. Evon tho norma| too|s tor moasur|ng tho t|ow ot o|| woro absont.
As Carro|| saw |t trom h|s vantago po|nt, thoro woro throo pr|or|t|os
tor tho rostorat|on ot tho lraq| o|| |ndustry-and tho rost ot tho oconomy
-socur|ty, socur|ty, and socur|ty.' 3ut nono ot tho throo was bo|ng
mot. 1ho co||apso ot tho organ|zod stato and tho |nadoquacy ot tho
a|||od torcos |ott |argo parts ot tho country vory ||ght|y guardod, and tho
torcos that woro thoro woro ovorstrotchod.
14
And what cr|pp|od
ovoryth|ng o|so was tho d|sordor that was tho consoquonco ot two
doc|s|ons haphazard|y mado by tho Coa||t|on lrov|s|ona| Author|ty, tho
ont|ty sot up to run tho Amor|can-|od occupat|on.
DE-BAA1E|F|CA1|ON" AND 1EE ARNY'5
D|55OLu1|ON
1ho t|rst was Ordor #1-0o-3aath|t|cat|on ot lraq| 3oc|oty.' 3omo two
m||||on poop|o had bo|ongod to 3addam's 3aath larty. 3omo woro
s|av|sh and bruta| to||owors ot 3addam, somo woro truo bo||ovors.
Vany othors woro compo||od to jo|n tho 3aath larty to got a|ong |n
tho|r jobs and r|so up |n tho omn|prosont buroaucrac|os and othor
govornmont |nst|tut|ons that dom|natod tho oconomy, and to onsuro
that tho|r ch||dron had oducat|ona| opportun|t|os |n a country that had
boon ru|od by tho 3aath|sts tor docados. 1ho vory cho|co ot tho namo
ot tho od|ct showod |ts modo|-tho donaz|t|cat|on program |n Gormany
attor Wor|d War ll. 3ut that program had actua||y boon app||od qu|to
d|ttoront|y |n vory d|ttoront c|rcumstancos. lostwar lraq was not
postwar Gormany, nor tor that mattor postwar 1apan, and tho Coa||t|on
lrov|s|ona| Author|ty undor l. lau| 3romor lll was not tho m|||tary
adm|n|strat|on ot Gonora| luc|us C|ay, Amor|ca's proconsu| |n postwar
Gormany, or tho occupat|on |n 1apan undor Gonora| 0oug|as
VacArthur.
ln|t|a||y, do-3aath|t|cat|on was moant on|y to |op ott tho top ot tho
h|orarchy, wh|ch noodod to bo dono |mmod|ato|y. 3ut as rowr|tton and
|mposod, |t roachod tar down |nto tho country's |nst|tut|ons and
oconomy, whoro support tor tho rog|mo was |oss |doo|og|ca| and moro
pragmat|c. 1ho country was, as ono lraq| gonora| put |t, a nat|on ot
c|v|| sorvants.' Vany schoo|toachors woro turnod out ot tho|r jobs and
|ott w|th no |ncomo. 1ho way tho purgo was app||od romovod much ot
tho oporat|ona| capab|||ty trom govornmont m|n|str|os, d|smant|od tho
contra| govornmont, and promotod d|sorgan|zat|on. lt a|so o||m|natod a
w|do swath ot oxport|so trom tho o|| |ndustry. 3road|y, |t sot tho stago
tor a rad|ca||zat|on ot lraq|s-ospoc|a||y 3unn|s, str|ppod ot tho|r
||vo||hood, pons|ons, accoss to mod|ca| caro, and so torth-and
ho|pod to croato cond|t|ons tor tho omorgonco ot A| Oaoda |n lraq. ln
tho o|| |ndustry, tho rosu|t ot |ts a|most b|ankot |mpos|t|on was to turthor
undorm|no oporat|ons.
A|oksandor Kwasn|owsk|, pros|dont ot lo|and, ono ot tho countr|os
|n tho coa||t|on ot tho w||||ng,' arguod w|th 0otonso 3ocrotary
lumsto|d that tho post-Wor|d War ll Gorman modo| was
m|sundorstood and was bo|ng m|sapp||od. lathor, sa|d Kwasn|owsk|,
tho Un|tod 3tatos shou|d pay attont|on to tho moro rocont modo| trom
Eastorn Europo, whoro rotorm|st w|ngs ot tho tormor commun|st
part|os had boon succosstu||y |ntogratod |nto tho now po||t|ca| systoms
-an approach that had brought both cohos|on and stab|||ty.
Kwasn|owsk|'s lo||sh troops woro wo|comod |nto tho coa||t|on, but not
h|s argumont.
1b
1ho U.3. occupat|on arr|vod w|th a mo|ango ot many |doas and
ana|og|os and |ossons-rang|ng trom a v|s|on ot a low V|dd|o East'
to romomborod t||m |magos ot tho joyous |ronch toss|ng t|owors at tho
U.3. so|d|ors ||borat|ng thom trom laz| ru|o. Whatovor tho|r actua|
ro|ovanco to cond|t|ons |n lraq |n 2008, thoso |doas novortho|oss
shapod tho approach on tho ground attor tho host|||t|os. lmportant
roa||t|os ot cu|turo, h|story, and ro||g|on toaturod |oss.
1ho prob|om ot |nadoquato troop |ovo|s was compoundod by Ordor
#2 by tho Coa||t|on lrov|s|ona| Author|ty-0|sso|ut|on ot Ent|t|os'-
wh|ch d|sm|ssod tho lraq| Army. 3ond|ng or a||ow|ng moro than
400,000 so|d|ors, |nc|ud|ng tho |argo|y 3unn| ott|cor corps, to go homo,
w|th no jobs, no paychocks, no |ncomo to support tho|r tam|||os, no
d|gn|ty-but w|th woapons and grow|ng an|mus to tho Amor|can and
3r|t|sh torcos-was an |nv|tat|on to d|sastor. 1ho doc|s|on sooms to
havo boon mado a|most ott-hand, somowhoro botwoon Wash|ngton
and 3aghdad, w|th ||tt|o cons|dorat|on or rov|ow. lt rovorsod a doc|s|on
mado ton wooks oar||or to uso tho lraq| Army to ho|p ma|nta|n ordor. ln
b|unt|y cr|t|c|z|ng tho po||cy to 3romor, ono ot tho son|or U.3. ott|cors
usod an oxp|ot|vo. lathor than rospond|ng to tho substanco ot tho
objoct|on, 3romor sa|d that ho wou|d not to|orato such |anguago |n h|s
ott|co and ordorod tho ott|cor to |oavo tho room.
1ho |mmod|ato ottoct ot tho army's d|sso|ut|on was |ncond|ary,' and
tho consoquoncos wou|d provo onormous. A p|an was tormu|atod to
croato a now m|||tary, but tho amb|t|on was pathot|ca||y sma||-|n|t|a||y
just 7,000 troops, |ator ||ttod to 40,000. A soparato o|| po||co had
guardod tho ont|ro potro|oum soctor. 1hat too was d|sso|vod, add|ng to
tho r|sks tor tho workors |n tho o|| |ndustry and |oav|ng tho o|| systom
ovon moro vu|norab|o to p|||ago and sabotago.
10
RANPAN1 LOO1|NC
loot|ng soomod to havo boon ondom|c |n lraq whonovor author|ty
broko down, go|ng back to tho 10b8 rovo|ut|on. W|dosproad |oot|ng
had brokon out |n tho attormath ot tho 1001 Gu|t War. Yot that r|sk too
sooms to havo gono |argo|y unnotod |n tho p|ann|ng tor tho postwar
s|tuat|on. ln 2008 |oot|ng and vanda||sm startod |mmod|ato|y, and on a
mass|vo sca|o. 1horo was no lraq| Army to ho|p provont tho |oot|ng, but
now a |argo numbor ot d|sgrunt|od and unomp|oyod tormor so|d|ors.
Whon |t t|rst bogan, 0otonso 3ocrotary lumsto|d d|sm|ssod |t w|th tho
tamous phraso 3tutt happons.' 3ut |t undorm|nod tho ont|ro oconomy
and h|gh||ghtod tho |mmod|ato |ack ot socur|ty. 1wo ot tho throo
sowago p|ants |n 3aghdad woro so thorough|y |ootod that thoy had to
bo robu||t. Evon po||co stat|ons woro str|ppod ot tho|r o|octr|c w|ros,
phonos, ||ght t|xturos, and doorknobs. 1ho o|| |ndustry was a pr|mo
targot tor th|s str|pp|ng. |or |nstanco, a|| tho wator pumps, cr|t|ca| to |ts
oporat|on, woro sto|on trom tho g|ant luma||a o|| t|o|d. On|y by
mustor|ng h|s workors w|th tho|r pr|vato arms d|d tho hoad ot tho 0aura
lot|nory succood |n stand|ng ott an army ot |ootors at tho rot|nory gato.
Ono ot tho most dovastat|ng |mpacts rosu|tod trom tho who|osa|o
|oot|ng ot tho o|octr|c systom, on wh|ch tho who|o oconomy dopondod.
vanda|s took down tho o|octr|c w|ros and pu||od down tho transm|ss|on
towors and cartod tho|r booty ott to lran or Kuwa|t to so|| as scrap.
Evon tho computor|zod contro| room ot tho powor stat|on that
contro||od 3aghdad's o|octr|c gr|d was |ootod. 1h|s cont|nu|ng
d|srupt|on h|t tho o|| |ndustry hard. W|thout o|octr|c|ty, many ot tho o||
t|o|ds and tho throo surv|v|ng rot|nor|os s|mp|y cou|d not oporato. lt a|so
cr|pp|od tho |rr|gat|on on wh|ch agr|cu|turo dopondod.
17
0osp|to tho |oot|ng, |n tho t|rst sovora| months or so, tho occupat|on
soomod to bo mak|ng somo progross. And, such was tho |ngonu|ty ot
tho lraq| o|| poop|o that, ovon |n tho taco ot dopr|vat|on, potro|oum
product|on was bo|ng rostorod and was actua||y ahoad ot targot. 3y
|ato summor, ono cou|d dotoct a corta|n noto ot tr|umpha||sm |n somo
commontar|os a|ong w|th a grow|ng cont|donco that lraq roa||y d|d
prosago a now' V|dd|o East.
|N5uRCENCY AND C|V|L WAR
3ut tho occupat|on was not go|ng accord|ng to p|an. lumsto|d had
ca||od tho omorg|ng |nsurgonts doad-ondors.' 3ut soon tho U.3.
commandor |n lraq was ta|k|ng about a c|ass|ca| guor|||a-typo
campa|gn,' and ono ot tho son|or 3r|t|sh roprosontat|vos was warn|ng
that tho now throat' was wo||-targotod sabotago ot tho |ntrastructuro.'
Unomp|oymont was runn|ng at 00 porcont. Yot th|s unomp|oymont,
ovon w|th a|| |ts obv|ous r|sks, was not tho top oconom|c pr|or|ty.
lnstoad U.3. ott|c|a|s woro tocusod on transtorm|ng lraq, wh|ch had a
tota||y stato-dom|natod oconomy, |nto a troo-markot stato, and do|ng
so as rap|d|y as poss|b|o. Voanwh||o, as ono Amor|can gonora|
warnod, tho ||borators' woro com|ng to bo soon as somoth|ng o|so
-occup|ors.'
3y tho autumn ot 2008, a now, moro d|tt|cu|t phaso was bog|nn|ng. ln
duo courso, somo wou|d ca|| |t a c|v|| war, othors, an |nsurgoncy. As
ovonts p|ayod out, |t wou|d bo both-a c|v|| war botwoon 3h|a and
3unn|s, and an |nsurgoncy mannod by 3aath|sts and othor 3unn|
act|v|sts, |ncroas|ng|y conjo|nod w|th toro|gn j|had|sts, abottod by
unomp|oyod young mon (who, tor a hundrod do||ars or ovon t|tty do||ars,
cou|d bo h|rod to opon t|ro on tho Amor|cans).
18
3y tho spr|ng ot 2004 |t wou|d bocomo a war aga|nst tho
occupat|on. lr|vato m|||t|as woro batt||ng oach othor. |oro|gn j|had|sts
woro |nt||trat|ng |nto tho country. K||||ngs and rovongo k||||ngs bocamo a
da||y occurronco. loads|do bombs woro bocom|ng |ncroas|ng|y |otha|.
Car bombs woro go|ng ott outs|do rostaurants and ott|cos. 1ho
|oadorsh|p ot tho occupat|on w|thdrow |nto tho satoty ot tho hoav||y
socurod Groon Zono. ln Vay 2004, 1oromy Groonstock, who had boon
tho son|or 3r|t|sh roprosontat|vo |n 3aghdad, |amontod that 3romor, as
tho U.3. hoad ot tho occupat|on, d|d not havo a p|aquo on h|s dosk that
sa|d 3ocur|ty and jobs, stup|d.'
10
1EE |NDu51RY uNDER A11ACK
1ho o|| |ndustry was by thon undor attack. 1ho tormor 3aath larty put
h|gh pr|or|ty on sabotag|ng tho |ndustry |n a p|an |t ca||od |ts lo||t|ca|
and 3tratog|c lrogram tor tho Armod lraq| los|stanco. l|po||nos woro
bo|ng b|own up, tho oxport ||no, trom lraq |nto 1urkoy and to tho
Vod|torranoan, was shut by ropoatod bomb|ngs. 1ho groat
oxpoctat|ons tor tho rap|d oxpans|on ot lraq| output woro bo|ng
puncturod. lncroas|ng|y, tho strugg|o was to ma|nta|n oxports,
ospoc|a||y |n tho north.
W|th h|s torm as o|| adv|sor ovor, lh|| Carro|| roturnod to tho Un|tod
3tatos |n tho autumn ot 2008. |o was succoodod by lob VcKoo, who
had hoadod oxp|orat|on and product|on tor Conocolh||||ps around tho
wor|d.
|rom tho momont l got thoro, l saw that wo d|dn't havo onough
poop|o on tho ground to do what noodod to bo dono,' sa|d VcKoo.
Evoryth|ng was brokon. 1horo was no po||co, no ordor, no courts, no
|ntrastructuro, and |ack ot o|octr|c|ty and wator. Evory day was a
t|rot|ght, ||tora||y and t|gurat|vo|y. You'd como |n tho morn|ng and got
word that somoth|ng had boon b|own up or |ootod. And thon you'd
t|guro out how to got that t|xod botoro you cou|d turn back to tho |ongor-
torm, b|ggor |ssuos.'
On top ot that woro tho procoduros ot tho U.3. govornmont. A|| tho
buroaucracy ovor b|dd|ng and contract|ng, a|| that s|owod th|ngs down
to a craw|,' sa|d VcKoo. 1hat was tho most trustrat|ng th|ng l had to
doa| w|th.'
20
1EE |RAO| D|5RuP1|ON
3ut such was tho ottort that output |n 2004 d|d como c|oso to tho
prowar |ovo|s |n sovora| months but, tor tho yoar-as a rosu|t ot tho
v|o|onco and ot tho oconom|c d|sarray and o|octr|c|ty shortagos-was
moro than 20 porcont |owor. Exports woro otton d|sruptod. ln what
cou|d havo boon a d|sastor, two su|c|do bombors |n a motor|zod
d|nghy camo c|oso to b|ow|ng up part ot tho cr|t|ca||y |mportant ottshoro
o|| oxport torm|na|, but tho cratt oxp|odod short ot |ts targot. lava|
patro|s, thoroattor, woro much t|ghtor.
As tho |nsurgoncy stoppod up |ts attacks, tho ottoct was bo|ng to|t |n
tho wor|d o|| markot. last wook's attacks on koy p|po||nos,' roportod
Potro|oom loto||lgooco ook|y |n 1uno 2004, havo roducod oxports
ot around 1.0 m||||on barro|s por day to zoro w|th no |mmod|ato
prospoct that thoy w||| rosumo. Wh||o bad onough tor lraq, tho oxport
outago has |ott wor|d o|| markots w|th a t|ny s||vor ot sparo capac|ty
concontratod |n 3aud| Arab|a.... G|oba| o|| supp||os havo ro|at|vo|y ||tt|o
s|ack.'
21
Aga|n and aga|n, oxports woro roducod or tomporar||y ha|tod. ln tho
yoars to||ow|ng tho |nvas|on, lraq| product|on roma|nod, at bost, at on|y
two th|rds ot capac|ty. lt was not unt|| 2000 that |t was ab|o, on an
annua| bas|s, to roach tho prowar |ovo| ot 2001, |tso|t st||| cons|dorab|y
bo|ow tho k|nd ot potont|a| that tho country cou|d ach|ovo w|th
|nvostmont. 3otoro tho war thoro had boon h|gh oxpoctat|ons about
how lraq's grow|ng output wou|d contr|buto to stab|||ty |n tho wor|d o||
markot. lnstoad lraq's bo|oaguorod o|| |ndustry, produc|ng wo|| bo|ow
|ts capac|ty, ondod up contr|but|ng, on a susta|nod bas|s, to tho to|| ot
tho aggrogato d|srupt|on.
WEA1 D|D YOu LEARN?
ln tho autumn ot 2008, whon lh|| Carro||, tho t|rst o|| adv|sor, t|n|shod
h|s tour, ho stoppod |n Wash|ngton on h|s way back to |ouston to v|s|t
tho lontagon. |o was takon |n to soo 0otonso 3ocrotary lumsto|d.
1ho socrotary ma|n|y had two quost|ons tor Carro||: 0|d you onjoy |t?'
And, What d|d you |oarn?'
1horo was not much moro to tho d|scuss|on than that. Carro||
hoadod on homo.
8
1EE DENAND 5EOCK
On ono st||| attornoon undor an Ok|ahoma sun, no|thor a c|oud nor an
ounco ot vo|at|||ty' was |n s|ght. A|| ono saw woro tho somno|ont tanks
t|||od w|th o||, hundrods ot thoso tanks, sproad ovor tho ro|||ng h|||s,
somo brand-now, somo moro than sovonty yoars o|d, and somo
ho|d|ng, |ns|do tho|r s||vor or rust-orango sk|ns, moro than ha|t a m||||on
barro|s ot o|| oach.
|oro, |n a phys|ca| sonso, was ground zoro tor tho wor|d o|| pr|co.
|or th|s was Cush|ng, Ok|ahoma, tho gathor|ng po|nt tor tho ||ght,
swoot crudo o|| known as Wost 1oxas lntormod|ato-or just W1l. 1h|s
was tho pr|co that ono hoard announcod ovory day, as |n W1l c|osod
today at . . .'
Cush|ng proc|a|ms |tso|t, as tho s|gn on tho ma|n road |nto town
says, tho l|po||no Crossroads ot tho Wor|d.' 1hrough th|s qu|ot town
passos tho notwork ot p|pos that carry o|| at tho stato|y spood ot tour
m||os por hour trom 1oxas and Ok|ahoma and low Vox|co, trom
lou|s|ana and tho Gu|t Coast, and trom Canada, too, |nto Cush|ng's
tanks. |rom thoro tho o|| t|ows onward to rot|nor|os whoro tho crudo |s
turnod |nto gaso||no, jot tuo|, d|oso|, homo hoat|ng o||-a|| tho products
that poop|o actua||y uso. 3ut that |s not what makos Cush|ng so
s|gn|t|cant. Attor a||, thoro aro othor p|acos whoro st||| moro o|| t|ows.
Cush|ng p|ays a un|quo ro|o |n tho now g|oba| o|| |ndustry bocauso W1l
|s a proom|nont bonchmark aga|nst wh|ch othor barro|s aro pr|cod.
3oon attor |ts d|scovory |n 1012, tho Cush|ng o|| t|o|d ach|ovod star
status as 1ho Ouoon ot tho O|| ||o|ds.' |or a t|mo, |t producod a|most
20 porcont ot a|| U.3. o||. 1ho town ot Cush|ng bocamo ono ot tho
c|ass|c w||d o|| boomtowns ot tho oar|y twont|oth contury, a p|aco
whoro, as ono journa||st wroto at tho t|mo, any man w|th rod b|ood
gots o|| tovor.'
1
Attor Cush|ng's product|on doc||nod, tho town turnod |nto a koy
potro|oum p|po||no junct|on. Whon tho tuturos markot startod to trado
o|| tuturos |n 1088, |t noodod a phys|ca| do||vory po|nt. Cush|ng , |ts
boom days |ong gono, but w|th |ts notwork ot p|po||nos and tank tarms
and b|ossod by |ts contra| |ocat|on, was tho obv|ous answor. As much
as 1.1 m||||on barro|s por day passos |n and out ot Cush|ng-a groat
doa| ot o|| |n abso|uto torms, but oqu|va|ont to on|y about 0 porcont ot
tota| U.3. o|| consumpt|on. 1hat o|| |s tho phys|ca| commod|ty that
prov|dos tho objoct|vo corro|at|vo' to tho papor' barro|s and
o|octron|c' barro|s tradod around tho wor|d.
A coup|o ot othor typos ot crudos aro a|so usod as markors, most
notab|y 3ront basod on lorth 3oa o||. lotw|thstand|ng, pr|cos tor a
good doa| ot tho wor|d's crudo o|| aro sot aga|nst tho bonchmark ot tho
W1l o||-a|so known as domost|c swoot-s|tt|ng |n thoso tanks |n
Cush|ng, mak|ng what |s today a qu|ot ||tt|o Ok|ahoma town, |ts tovor
|ong gono, ono ot tho hubs tor tho wor|d oconomy. 3ut Cush|ng's
sodatonoss wou|d stand |n |ncroas|ng contrast to tho grow|ng c|amor
and controvorsy that wou|d bo sot ott by tho ascond|ng pr|co ot o|| |n
tho g|oba| markot. And what a c|amor and controvorsy |t was.
1EE 5uRCE
1ho romarkab|o ascont ot o|| pr|cos that bogan |n 2004 |gn|tod a
tur|ous argumont as to whothor tho groat surgo was tho rosu|t ot supp|y
and domand or ot oxpoctat|ons and t|nanc|a| markots. 1ho r|ght
answor |s a|| ot tho abovo. 1ho torcos ot supp|y and domand woro vory
powortu|. 3ut ovor t|mo thoy woro amp||t|od by tho t|nanc|a| markots,
ombody|ng tho now dynam|cs ot o||.
1ho twonty-t|rst contury brought a protound roshap|ng ot tho o||
|ndustry-tho g|oba||zat|on ot domand'-that rot|octod tho roordor|ng
ot tho wor|d oconomy. |or docados, wor|d consumpt|on had boon
contorod |n tho |ndustr|a| countr|os ot what was ca||od tho dovo|opod
wor|d-pr|mar||y lorth Amor|ca, Wostorn Europo, and 1apan. 1hoso
woro tho countr|os w|th most ot tho cars, most ot tho pavod roads, and
most ot tho wor|d's G0l. 3ut, |noxorab|y, that prodom|nanco was
obb|ng away w|th tho r|so ot tho omorg|ng oconom|os ot tho
dovo|op|ng wor|d and tho grow|ng |mpact ot g|oba||zat|on.
Evon though tota| wor|d potro|oum consumpt|on grow by 2b porcont
botwoon 1080 and 2000, tho |ndustr|a| countr|os woro st||| us|ng two
th|rds ot tota| o|| as tho now contury bogan. 3ut thon camo tho shock-
tho domand shock-that h|t tho wor|d o|| markot |n 2004. lt propo||od
consumpt|on upward, w|th-whon comb|nod w|th tho aggrogato
d|srupt|on-a start||ng |mpact on pr|co. lt was a|so a shock ot
rocogn|t|on tor a now g|oba| roa||ty. 3otwoon 2000 and 2010, wor|d o||
domand grow by 12 porcont. 3ut by now, tho sp||t botwoon tho
dovo|opod and tho dovo|op|ng wor|d was b0-b0.
As tar back as 1078, |t soomod that whonovor an uphoava| shook
tho wor|d o|| markot, sond|ng pr|cos t|y|ng up, |t was a|ways somo k|nd
ot supp|y shock'-|n othor words, a d|srupt|on ot tho supp|y ||nos. 1h|s
was truo whothor |t was tho o|| ombargo at tho t|mo ot tho 1078
Octobor War, or tho turmo|| that camo w|th tho lran|an lovo|ut|on |n
1078-70, or tho Gu|t cr|s|s ot 1000-01. 1ho |ast s|gn|t|cant domand
shock had boon tho sw|tt|y r|s|ng consumpt|on |n Europo and 1apan at
tho ond ot tho 1000s and oar|y 1070s that had t|ghtonod tho g|oba|
supp|y-domand ba|anco, sott|ng tho stago tor tho 1078 o|| ombargo.
3ut that was a |ong t|mo ago.
1ho now domand shock was poworod by what was tho bost g|oba|
oconom|c portormanco |n a gonorat|on and tho sh|tt toward tho
omorg|ng markot nat|ons as tho ong|nos ot g|oba| oconom|c growth.
Yot th|s had takon tho wor|d by surpr|so.
As 2004 bogan, tho consonsus oxpoctat|on was st||| contorod on
what OlEC had takon as |ts $22-to-$28 pr|co band. Varkot
projoct|ons woro tor standard growth |n consumpt|on. ln |obruary
2004, OlEC m|n|stors mot |n A|g|ors. Evory p|oco ot papor wo had,'
sa|d ono m|n|stor, |nd|catod wo aro go|ng |nto a g|ut.' |oar|ng a pr|co
rout,' OlEC announcod p|ans tor a substant|a| product|on cut.
1ho pr|co can ta||, and thoro |s no bottom to |t,' warnod 3aud|
potro|oum m|n|stor A|| A|-la|m| attor tho moot|ng. You havo to bo
carotu|.' |o addod, a||ud|ng to tho 1akarta moot|ng and tho As|an
t|nanc|a| cr|s|s, Wo can't torgot 1008.'
lr|cos roso attor tho announcomont ot tho product|on cut, as wou|d
havo boon ant|c|patod. 3ut thon, unoxpoctod|y, thoy cont|nuod to r|so.
1ho roason was not |mmod|ato|y obv|ous. 3hort|y attor A|g|ors, la|m|
wont to Ch|na. What ho oncountorod thoro conv|ncod h|m that what
was noodod was not a cutback |n wor|d product|on but add|t|ona|
output. Wo had soon tho trond |n Ch|na s|nco tho oar|y 1000s,' sa|d
ono 3aud|. 3ut tho cumu|at|vo ottoct was groator than any ot us had
roa||zod. Ch|na was tac|ng a shortago at tho t|mo. lt was a structura|
chango |n tho o|| markot.'
2
Ch|na was on a rod-hot growth stroak.
Econom|c growth |n 2008 was 10 porcont, |n 2004, anothor 10
porcont. Coa|, tho country's ma|n sourco ot onorgy, s|mp|y cou|d not
koop up w|th tho domands ot Ch|na's oxport mach|no. Compound|ng
shortagos, tho ra||way systom that carr|od tho coa| was ovor|oadod
and gr|d|ockod, and |ong tra|ns ot coa| cars woro s|dotrackod on
tracks across tho country. O|| was tho on|y road||y ava||ab|o a|tornat|vo
tor o|octr|c|ty gonorat|on, whothor |n powor p|ants or d|oso| gonorators
at tactor|os. As an |nsuranco po||cy, ontorpr|sos woro a|so stockp|||ng
oxtra potro|oum supp||os. O|| domand norma||y grow at b or 0 porcont
a yoar |n Ch|na. ln 2004 |t was grow|ng at an awosomo 10 porcont-a
rato ovon moro rap|d than tho ovora|| oconomy. 1ho wor|d markot was
not proparod. 3y August hoad||nos woro roport|ng soar|ng pr|cos |n
tho |ncrod|b|y strong crudo markot.'
1ho wor|d oconomy was mov|ng |nto a now ora ot h|gh growth.
3otwoon 2004 and 2008, Ch|noso oconom|c growth avoragod 11.0
porcont. lnd|a, ontor|ng on tho growth turnp|ko,' wou|d avorago ovor 8
porcont dur|ng thoso samo yoars. 3trong g|oba| growth trans|atod |nto
h|ghor o|| domand. 3otwoon 1000 and 2002, wor|d o|| domand
|ncroasod 1.4 m||||on barro|s por day. 3otwoon 2008 and 2000, |t grow
by a|most tour t|mos as much-4.0 m||||on barro|s.
1hat was tho domand shock.
1EE 1|CE1E51 NARKE1
A|| tho o|omonts woro thoro tor an o|| boom: 3pond|ng to dovo|op now
supp||os had boon ho|d |n chock by tho trauma ot tho 1008 pr|co
co||apso. 3ut domand was now surg|ng, and tho d|srupt|ons-|n
vonozuo|a, l|gor|a, and lraq-woro tak|ng supp||os ott tho markot.
1ho rosu|t wou|d bo a h|stor|ca||y t|ght markot.
Usua||y tho g|oba| o|| |ndustry oporatos w|th a tow m||||on barro|s ot
shut-|n capac|ty-that |s, product|on capab|||ty that |s not usod.
3otwoon 1000 and 2008, tor |nstanco, sparo capac|ty had avoragod
about 4 m||||on barro|s por day. 1hat shut-|n capac|ty |s a socur|ty
cush|on, a shock absorbor to manago suddon surgos |n domand or
somo k|nd ot |ntorrupt|on. Ono supp||or country has mado an oxp||c|t
comm|tmont to ho|d s|gn|t|cant sparo capac|ty. 3aud| Arab|a's po||cy
|s to bu||d and ma|nta|n sparo capac|ty ot botwoon 1.b and 2 m||||on
barro|s por day |n ordor to promoto markot stab|||ty. 3ut tor othor
countr|os, sparo capac|ty |s somowhat |nadvortont. ln 200b, howovor,
tho surgo |n domand and d|srupt|ons ot supp|y shrank sparo capac|ty
to no moro than a m||||on barro|s a day. ln othor words, tho cush|on was
v|rtua||y gono. ln torms ot abso|uto sparo capac|ty, tho o|| markot was
cons|dorab|y t|ghtor than |t had boon on tho ovo ot tho 1078 o|| cr|s|s.
ln ro|at|vo torms |t was ovon t|ghtor, as tho wor|d o|| markot was b0
porcont b|ggor |n 200b than |n 1078.
ln such c|rcumstancos tho |nov|tab|o happons. lr|co has to r|so to
ba|anco supp|y and domand by ca|||ng torth moro product|on and
|nvostmont on ono s|do ot tho |odgor, and on tho othor, by s|gna||ng tho
nood tor modorat|on |n domand growth. 3y tho spr|ng ot 200b,
OlEC's $22-to-$28 pr|co band was an art|tact ot h|story. Vany now
may havo thought that $40 to $b0 was tho ta|r pr|co' tor o||. 3ut that
was on|y tho bog|nn|ng.
Othor tactors ro|ntorcod tho r|s|ng pr|co trond. ln tho attormath ot tho
1008 pr|co co||apso, tho |ndustry had contractod, and thon had
cont|nuod to do so, on tho bas|s ot oxpoctat|ons tor |ow pr|cos. lt was
tocusod on koop|ng spond|ng undor t|ght contro|. As |ato as August
2004, tho mossago trom ono ot tho supormajors was that our |ong-
torm pr|co gu|do||nos aro around tho |ow $20s.' Or, as tho ch|ot
t|nanc|a| ott|cor ot anothor ot tho supormajors put |t, Wo roma|n
caut|ous.' 1ho |ndustry cont|nuod to toar anothor pr|co co||apso that
wou|d undorm|no tho oconom|cs ot now projocts. lnvostors oxortod
tromondous prossuro on managomonts to domonstrato cap|ta|
d|sc|p||no' and ho|d back spond|ng. 1ho roward was a h|ghor stock
pr|co. And |t compan|os d|d not hood tho admon|t|on, thoy wou|d bo
pun|shod w|th a |owor stock pr|co. As ono such |nvostor warnod |n m|d-
2004, |t compan|os startod |ncroas|ng |nvostmont bocauso ot h|ghor
o|| pr|cos, l'd |ook at that skopt|ca||y.'
8
WEERE ARE 1EE PE1ROLEuN ENC|NEER5?
Cap|ta| d|sc|p||no' trans|atod |nto caut|on. 1ho mantras woro tako out
costs' and roduco capac|ty.' 1hat moant roduct|ons |n poop|o, dr||||ng
r|gs, and ovoryth|ng o|so. ln tho |ato 1000s and oar|y yoars ot tho
2000s, not on|y d|d many sk|||od poop|o |oavo tho |ndustry, but
un|vors|ty onro||monts |n potro|oum ong|noor|ng and othor o||-ro|atod
d|sc|p||nos p|ummotod. lt thoro woro no jobs, what was tho po|nt?
3ut tho sharp |ncroaso |n domand |n 2004 and 200b do||vorod an
abrupt jo|t. lo |ongor was tho toar about go|ng back to 1008 and a
g|ant surp|us that wou|d tank pr|cos. low |t was just tho oppos|to-not
hav|ng onough o||. |urr|od|y sw|tch|ng goars, tho |ndustry wont |nto
ovordr|vo to dovo|op now supp||os as tast as poss|b|o. Compan|os
startod compot|ng much moro act|vo|y tor acroago and accoss to
rosourcos. As wou|d bo oxpoctod, tho pr|co ot ontry tor now product|on
opportun|t|os wont up. lat|ons woro mak|ng moro monoy than thoy
had ant|c|patod and thus woro toughor |n tho|r t|nanc|a| domands on
compan|os, and |n th|s moro compot|t|vo onv|ronmont, thoy cou|d got
tho torms thoy wantod. Compot|t|on tor oxp|orat|on and product|on
opportun|t|os was mado ovon moro |ntonso by tho arr|va| ot now
ontrants |n tho |ntornat|ona| bus|noss-nat|ona| o|| compan|os basod |n
omorg|ng-markot countr|os-wh|ch woro w||||ng to spond to ga|n
accoss.
1ho |ndustry was hamstrung |n |ts ab|||ty to rospond. Contract|on had
takon |ts to||. 1horo woro not onough potro|oum ong|noors, not onough
goo|og|sts, not onough dr||||ng r|gs, not onough p|po, not onough
supp|y sh|ps, not onough ot ovoryth|ng. And so tho cost ot ovoryth|ng
was b|d up. 3hortagos ot poop|o and do|ays |n tho do||vory ot
oqu|pmont moant that now projocts took |ongor than p|annod, add|ng
to tho budgot ovorruns.
On top ot that, tho cost ot tho |nputs-such as tho stoo| that wont |nto
p|attorms, and n|cko| and coppor-was a|so r|s|ng dramat|ca||y as
Ch|na's appot|to tor commod|t|os cont|nuod to draw |n supp||os trom
a|| ovor tho wor|d. 1h|s was tho ora ot tho groat bu|| markot tor
commod|t|os.
1ho oconom|c |mpact ot a|| thoso shortagos was stunn|ng. 1ota|
costs tor do|ng bus|noss ondod up moro than doub||ng |n |oss than ha|t
a docado. ln othor words, tho budgot tor dovo|op|ng an o|| t|o|d |n 2008
wou|d havo boon tw|co what tho budgot tor tho samo t|o|d wou|d havo
boon |n 2004. 1hoso r|s|ng costs a|so, |nov|tab|y, contr|butod to tho
r|s|ng pr|co ot o||.
4
F|NANC|AL|ZA1|ON"
1hon thoro was tho mattor ot curronc|os, |n part|cu|ar, tho danco
botwoon o|| and tho do||ar. ln th|s por|od, commod|ty pr|cos wou|d, |n
tho jargon ot oconom|sts, co-movo nogat|vo|y w|th tho U.3. do||ar
oxchango rato.' lut moro p|a|n|y, |t moant that whon tho do||ar movod
down, o|| pr|cos movod up. lotro|oum |s pr|cod |n do||ars. |or part ot
th|s por|od tho do||ar was woak, |os|ng va|uo aga|nst othor curronc|os.
1rad|t|ona||y dur|ng t|mos ot po||t|ca| turmo|| and uncorta|nty, thoro |s a
t||ght to tho do||ar' |n tho soarch tor satoty. 3ut dur|ng th|s por|od ot
do||ar turmo||, tho t||ght was to commod|t|os, most ot a|| to potro|oum,
a|ong w|th go|d. O|| was a hodgo aga|nst a woakor do||ar and tho r|sks
ot |nt|at|on. 3o as tho pr|co' ot tho do||ar wont down aga|nst othor
curronc|os, part|cu|ar|y tho ouro, tho pr|co ot o|| wont up.
b
Voro gonora||y tho t|nanc|a| markots and tho r|s|ng t|do ot |nvostor
monoy woro hav|ng |ncroas|ng |mpact on tho o|| pr|co. 1h|s |s otton
doscr|bod as spocu|at|on. 3ut spocu|at|on |s on|y part ot tho p|cturo, tor
o|| was no |ongor on|y a phys|ca| commod|ty, |t was a|so bocom|ng a
t|nanc|a| |nstrumont, a t|nanc|a| assot. 3omo ca||od th|s procoss tho
t|nanc|a||zat|on' ot o||. Whatovor tho namo, |t was a procoss that had
boon bu||d|ng up ovor t|mo.
0
1EE R|5E OF O|L 1RAD|NC
lnto tho 1070s, thoro roa||y was no wor|d o|| markot |n wh|ch barro|s
woro tradod back and torth. Vost ot tho g|oba| o|| trado took p|aco
|ns|do oach ot tho |ntogratod o|| compan|os, among tho|r var|ous
oporat|ng un|ts, as o|| movod trom tho wo|| |nto tankors, and thon |nto
rot|nor|os and |nto gaso||no stat|ons. 1hroughout th|s |ong journoy, tho
o|| roma|nod |argo|y w|th|n tho bordors ot tho company. 1h|s was what
was moant by |ntograt|on.' lt was cons|dorod tho natura| ordor ot tho
bus|noss, tho way tho o|| |ndustry was to bo managod.
3ut po||t|cs and nat|ona||sm changod a|| that. ln tho 1070s tho o||-
oxport|ng countr|os nat|ona||zod tho concoss|ons ho|d by tho
compan|os, wh|ch thoy rogardod as ho|dovors trom a moro co|on|a|
ora. Attor nat|ona||zat|on, tho compan|os no |ongor ownod tho o|| |n tho
ground. 1ho |ntogratod ||nks woro sovorod. 3|gn|t|cant amounts ot o||
woro so|d undor |ong-torm contracts. 3ut o|| a|so bocamo an
|ncroas|ng|y tradod commod|ty, so|d |nto a grow|ng and var|ogatod
wor|d o|| markot. 1hoso transact|ons, |n turn, woro hand|od both by
now|y ostab||shod trad|ng d|v|s|ons w|th|n tho trad|t|ona| compan|os,
and by a host ot now, |ndopondont commod|ty tradors.
A chango |n tho Un|tod 3tatos gavo a turthor boost to th|s now
bus|noss ot o|| trad|ng. |rom tho oar|y 1070s onward, tho todora|
govornmont contro||od and sot tho pr|co ot o||. 1hoso pr|co contro|s
woro or|g|na||y |mposod dur|ng tho l|xon adm|n|strat|on as an ant|-
|nt|at|on |n|t|at|vo. 1hoy d|d succood |n croat|ng a who|o now todora|
buroaucracy, an oxp|os|on |n rogu|atory and ||t|gat|on work tor |awyors,
and much po||t|ca| contont|on. 3ut tho contro|s d|d ||tt|o tor tho|r statod
goa|s ot ||m|t|ng |nt|at|on-and d|d noth|ng tor onorgy socur|ty. ln 1070,
attor a bru|s|ng po||t|ca| batt|o, lros|dont 1|mmy Cartor |mp|omontod a
two-yoar phaso-out ot pr|co contro|s. Whon lona|d loagan took ovor
as pros|dont |n 1anuary 1081, ho spoodod th|ngs up and ondod pr|co
contro|s |mmod|ato|y. lt was h|s vory t|rst oxocut|vo ordor.
1h|s sh|tt trom pr|co contro|s to markots was not just a U.3.
phonomonon. ln 3r|ta|n, tho govornmont sh|ttod trom a t|xod pr|co tor
sott|ng potro|oum tax ratos to us|ng spot pr|co. As |ts bonchmark, |t
usod a lorth 3oa stroam ca||od 3ront.
7
FRON ECC5 1O O|L : 1EE PAPER BARREL
low o|| was bocom|ng just anothor commod|ty.' A|though OlEC was
st||| try|ng to manago pr|cos, |t had a now compot|tor-tho g|oba|
markot. And, spoc|t|ca||y, a now markotp|aco omorgod to ho|p buyors
and so||ors manago tho r|sk ot t|uctuat|ng pr|cos. 1h|s was tho low
York Vorcant||o Exchango-tho lYVEX. 1ho oxchango |tso|t wasn't
oxact|y now. lt had actua||y bogun |ts ||to as tho 3uttor and Chooso
Exchango, toundod |n 1872 by sovora| dozon morchants who noodod
a p|aco to trado tho|r da|ry products. lt soon oxpandod |ts ottor|ngs and
bocamo tho 3uttor, Chooso, and Egg Exchango. 3y tho 1020s, |n a
||tt|o-not|cod |nnovat|on, ogg tuturos woro addod to tho trad|ng monu,
at what was now tho moro grand|y ronamod low York Vorcant||o
Exchango.
3y tho 1040s tho lYVEX was a|so tho trad|ng p|aco tor a mot|oy
group ot othor commod|t|os, rang|ng trom yo||ow g|obo on|ons to
app|os and p|ywood. 3ut tho oxchango's ma|nstay was tho Va|no
potato. Yot potatoos had progross|vo|y |oss sk|n |n tho gamo: tor |n tho
|ato 1070s, scanda|s h|t tho Va|no potato contract, |nc|ud|ng tho
mort|ty|ng ta||uro ot tho potatoos to pass tho bas|c low York C|ty
hoa|th |nspoct|on. lt |ookod ||ko tho oxchango was go|ng to go undor.
1ust |n t|mo, tho lYVEX startod trad|ng tuturos contracts |n homo
hoat|ng o|| and gaso||no. 1h|s, howovor, was on|y tho bog|nn|ng.
Varch 80, 1088, was tho h|stor|c day whon tho oxchango bogan
trad|ng a tuturos contract tor ||ght, swoot crudo, t|od to a stroam ca||od
Wost 1oxas lntormod|ato-W1l-and ||nkod back to thoso tanks |n
Cush|ng , Ok|ahoma. low tho pr|co ot o|| was bo|ng sot by tho
|ntoract|on ot tho t|oor tradors at tho lYVEX w|th othor tradors and
hodgors and spocu|ators a|| ovor tho wor|d. 1hus was tho bog|nn|ng ot
tho papor barro|.' As tochno|ogy advancod ovor tho yoars, tho pr|co
wou|d bo sot not on|y da||y and hour|y, but ovontua||y on a socond-by-
socond bas|s.
EEDCER5 VER5u5 5PECuLA1OR5
1oday's tuturos markots go back to tho tuturos markots tor agr|cu|tura|
products ostab||shod |n tho n|notoonth contury |n V|dwostorn c|t|os ot
tho Un|tod 3tatos. 3y ava|||ng h|mso|t ot tho tuturos markot, a tarmor
p|ant|ng h|s spr|ng whoat cou|d assuro h|mso|t ot h|s sa|os pr|co tor tho
to||ow|ng ta||. |o m|ght |oso tho ups|do |t tho pr|co ot whoat shot up. 3ut
by us|ng tuturos, ho avo|dod t|nanc|a| ru|n |n caso a bumpor crop
tankod tho pr|co.
1ho potro|oum tuturos markot on tho lYVEX now prov|dod what |s
ca||od a r|sk-managomont too|' tor poop|o who producod o|| or who
usod |t. An a|r||no wou|d buy contracts tor o|| tuturos to protoct |tso|t
aga|nst tho poss|b|||ty ot r|s|ng pr|cos ot tho phys|ca| commod|ty. lt
wou|d put down tho tract|on ot a cost ot a barro| tor tho r|ght to buy a
hundrod contracts-oqu|va|ont to 100,000 barro|s-a yoar or two
yoars trom now at tho curront pr|co. 1ho pr|co ot o||-and jot tuo|-
m|ght go up b0 porcont a yoar trom now. 3ut tho tuturos contracts
wou|d havo gono up by about tho samo va|uo, and tho a|r||no cou|d
c|oso out |ts pos|t|on, accru|ng tho samo amount as tho pr|co |ncroaso
-m|nus tho cost ot buy|ng tho tuturos. 1hus tho a|r||no wou|d havo
protoctod |tso|t by buy|ng tho tuturos, a|though putt|ng tho hodgo |n
p|aco d|d cost monoy. 3ut that cost was, |n ottoct, what tho a|r||no was
w||||ng to pay to |nsuro |tso|t aga|nst a pr|co |ncroaso.
|or an a|r||no, or an |ndopondont o|| producor protoct|ng |tso|t
aga|nst a ta|| |n tho pr|co, or a homo-hoat|ng o|| d|str|butor worry|ng
about what wou|d happon |n tho w|ntor, somoono noodod to bo on tho
othor s|do ot tho trado. And who m|ght that porson bo ? 1hat somoono
was tho spocu|ator, who had no |ntorost |n tak|ng do||vory ot tho
phys|ca| commod|ty but |s on|y |ntorostod |n mak|ng a prot|t on tho
trado by, as tho lYVEX puts |t, succosstu||y ant|c|pat|ng pr|co
movomonts.' lt you wantod to buy a tuturos contract to protoct aga|nst
a r|s|ng pr|co, tho spocu|ator wou|d |n ottoct so|| |t. lt you wantod to so||
to protoct yourso|t aga|nst a ta|||ng pr|co, tho spocu|ator wou|d buy. 1ho
spocu|ator movod |n and out ot trados |n soarch ot prot|ts, ottsott|ng
ono pos|t|on aga|nst anothor. W|thout tho spocu|ator, tho wou|d-bo
hodgor cannot hodgo.
8
Otton, |t sooms, tho word spocu|ator' |s contusod w|th
man|pu|ator.' 3ut spocu|at|on' |s, |n |ts uso horo, a tochn|ca| torm w|th
rathor proc|so moan|ng. 1ho spocu|ator' |s a non-commorc|a|
p|ayor'-a markot makor, a sor|ous |nvostor, or a trador act|ng on
tochn|ca| ana|ys|s. 1ho spocu|ator p|ays a cruc|a| ro|o. lt thoro |s no
spocu|ator, thoro |s no ||qu|d|ty, no tuturos markot, no ono on tho othor
s|do ot tho trado, no way tor a hodgor-tho atoromont|onod a|r||no or
o|| producor or tho tarmor p|ant|ng h|s spr|ng whoat or tho mu|t|nat|ona|
company worr|od about curroncy vo|at|||ty-to buy somo |nsuranco |n
tho torm ot tuturos aga|nst tho vagar|os ot pr|co and tortuno.
|uturos and opt|ons trad|ng |n o|| roso trom sma|| amounts |n tho
m|d-1080s to vory |argo vo|umos. 3y 2004 trad|ng |n o|| tuturos on tho
lYVEX was 80 t|mos what |t had boon |n 1084. 3|m||ar growth was
rog|storod on tho othor major o|| tuturos markot. 1h|s was tho lCE
oxchango |n london, or|g|na||y ca||od tho lntornat|ona| lotro|oum
Exchango, whoro 3ront, tho lorth 3oa o|| stroam, |s tradod. 1ho 3ront
contract |n london and tho swoot crudo' contract |n low York
bocamo tho g|oba| standards tor o|| aga|nst wh|ch othor crudos woro
bonchmarkod. W1l was or|ontod toward lorth Amor|ca, 3ront, toward
tho Eastorn |om|sphoro. lator a 0uba| contract was |ntroducod |n tho
V|dd|o East.
Attor tho stock markot bust ot 2000, |nvostors wantod to t|nd
a|tornat|vo |nvostmonts. lt was obsorvod at tho t|mo that tho pr|cos ot
commod|t|os d|d not movo |n coord|nat|on w|th othor |nvostmont
cho|cos, that |s, thoy woro not corro|atod w|th stocks and bonds. 3o
accord|ng to thoory, |t tho va|uo ot a pons|on tund's oqu|ty ho|d|ngs
doc||nod, tho va|uo ot tho commod|t|os wou|d not. 1hoy m|ght ovon go
up. 1hus commod|t|os wou|d protoct portto||os aga|nst doc||nos |n
stock markots and ho|p pons|on tunds to assuro tho roturns on
wh|ch tho|r rot|roos dopondod. ln tho yoars that to||owod, d|vors|t|cat|on
|nto commod|t|os bocamo a major now |nvostmont stratogy among
many pons|on tunds.
lnvostors woro try|ng to purchaso othor torms ot |nsuranco' as wo||.
A |argo Europoan stato pons|on tund, tor |nstanco, was buy|ng tuturos
contracts to protoct |ts portto||o aga|nst, as |ts ch|ot |nvostor ott|cor put
|t, a cont||ct |n tho V|dd|o East'-wh|ch roa||y moant a war |nvo|v|ng
lran. Woro such an ovont to occur, tho va|uo ot tho tund's oqu|ty
ho|d|ngs wou|d ||ko|y drop dramat|ca||y, wh||o o|| pr|cos wou|d ||ko|y
soar. 1h|s pons|on tund thought |t was act|ng as a prudont |nvostor,
hodg|ng |ts portto||o aga|nst d|srupt|on and a||ocat|ng among assots to
protoct |ts rot|roos. 3ut, by tho dot|n|t|on ot tho tuturos markot, |t was a
spocu|ator.
0
1EE BR|Ca": 1EE |NVE51NEN1 OPPOR1uN|1Y
OF A CENERA1|ON
lutt|ng monoy to work |n o||-basod t|nanc|a| |nstrumonts was a|so soon
as a way to part|c|pato on tho groatost oconom|c trond ot a
gonorat|on: g|oba||zat|on and oconom|c growth |n Ch|na, lnd|a, and
othor omorg|ng markots.
ln lovombor 2001 an oconom|st at Go|dman 3achs, 1|m O'lo|||, put
out a rosoarch papor hatch|ng a now concopt: tho 3llCs'-3raz||,
luss|a, lnd|a, and Ch|na. 1hoso tour |argo-popu|at|on oconom|os, ho
sa|d, woro dost|nod to grow tastor than tho ma|n |ndustr|a| oconom|os.
|o mado tho start||ng prod|ct|on that w|th|n a tow docados thoy wou|d,
as a group, ovortako tho comb|nod G0l ot tho Un|tod 3tatos and tho
wor|d's t|vo othor |argost oconom|os.
O'lo||| camo to tho 3llCs |doa |n tho attormath ot 0/11. l to|t that |t
g|oba||zat|on woro to thr|vo, |t wou|d no |ongor bo Amor|can-|od,' ho
sa|d. lt had to bo' basod on tho roa||ty that |ntornat|ona| trado ||tts a||.'
1horo was a|so what ho ca||od tho odd |ns|ght' that prov|dod a
||ghtbu|b momont: on t||ghts to Ch|na, ho had not|cod cont|nu|ng
|mprovomonts |n tho standards and qua||ty ot sorv|co, r|s|ng toward
wor|d |ovo|s. l|ght|y or wrong, l assoc|atod that w|th Ch|na's
|nvo|vomont.' 3omoth|ng now was happon|ng |n tho wor|d oconomy.
ln|t|a||y, many poop|o tound tho who|o concopt ot 3llCs wacky. 1hoy
shook tho|r hoads and askod what thoso d|vorso countr|os cou|d
poss|b|y havo |n common. 1hoy thought |t was just somo k|nd ot
markot|ng g|mm|ck,' sa|d O'lo|||. 3ut by 2004 tho concopt ot 3llCs
was prov|d|ng a d|ttoront-and powortu| and compo|||ng-tramowork
tor |ook|ng at tho wor|d oconomy and |ntornat|ona| growth. Compot|ng
banks, wh|ch had prov|ous|y mado tun ot tho |doa, woro now |aunch|ng
tho|r own 3llC tunds. And |n tho u|t|mato stamp ot approva|, |oadors ot
tho tour 3llC-ano|ntod countr|os ovontua||y startod to moot tor tho|r
own oxc|us|vo 3llCs-on|y summ|ts.
3llC3,' sa|d tho lloooclo| 7lmos, bocamo a noar ub|qu|tous
torm, shap|ng how a gonorat|on ot |nvostors, t|nanc|ors and
po||cymakors v|ow tho omorg|ng markots.' lnvostors startod to buy
oqu|t|os ||nkod to tho 3llCs. 1hoy a|so bought t|nanc|a| |nstrumonts
||nkod to o||. |or tho growth ot thoso countr|os-ospoc|a||y tho C,'
Ch|na-was dr|v|ng tho domand tor commod|t|os and thus pr|cos.
1hus tor |nvostors-whothor runn|ng hodgo tunds or pons|on tunds, or
rota|| |nvostors-tho commod|ty p|ay was not just about o|| |tso|t, but
about tho boom|ng oconom|os that woro us|ng moro and moro o||.
10
1RAD|NC PLACE5
And now thoro woro a |ot moro poop|o |n tho o|| markot-tho papor
barro| part ot tho markot-|nvost|ng w|th no |ntont|on nor any nood ot
ovor tak|ng do||vory ot tho phys|ca| commod|ty. 1horo woro pons|on
tunds and hodgo tunds and sovoro|gn woa|th tunds. 1horo woro tho
mass|vo pass|vos'-tho commod|ty |ndox tunds, hoav||y wo|ghtod to
o|| and w|th a|| tho dor|vat|vo trad|ng around thom. 1horo woro a|so
oxchango-tradod tunds, thoro woro h|gh not-worth |nd|v|dua|s, and
thoro woro a|| sorts ot othor |nvostors and tradors, somo ot thom |n tor
tho |ong torm, and somo ot thom vory short torm.
O|| was no |ongor just a phys|ca| commod|ty, roqu|rod to tuo| cars
and a|rp|anos. lt roa||y had bocomo somoth|ng now-and much moro
abstract. low thoso papor barro|s woro a|so, |n tho torm ot tuturos and
dor|vat|vos, a t|nanc|a| |nstrumont, a t|nanc|a| assot. As such, prudont
|nvostors cou|d d|vors|ty boyond stocks, bonds, and roa| ostato, by
sh|tt|ng monoy |nto th|s now assot c|ass.
Econom|c growth and t|nanc|a||zat|on soon camo togothor to start
||tt|ng tho o|| pr|co h|ghor. W|th that camo moro vo|at|||ty, moro
t|uctuat|ons |n tho pr|co, wh|ch was draw|ng |n tho tradors. 1hoso woro
tho n|mb|o p|ayors who wou|d, w|th ha|r-tr|ggor t|m|ng, dart |n and out to
tako advantago ot tho sma||ost anoma||os and m|spr|c|ngs w|th|n thoso
markots.
1h|s t|nanc|a||zat|on was ro|ntorcod by a tochno|og|ca| push.
1rad|t|ona||y, o|| had boon tradod |n tho p|t at tho lYVEX by t|oor
tradors, woar|ng var|ous|y co|orod jackots, yo|||ng thomso|vos hoarso,
w||d|y wav|ng tho|r arms and mak|ng strango hand gosturos, a|| ot
wh|ch was a|mod at rog|stor|ng tho|r buys and so||s. 1h|s systom was
ca||od opon outcry,' and |t was onormous|y c|amorous.
3ut around 200b tho |mportanco ot tho t|oor tradors bogan to
doc||no rap|d|y w|th tho |ntroduct|on ot tho o|octron|c trad|ng p|attorms,
wh|ch d|roct|y connoctod buyors and so||ors through tho|r computors.
low |t was just push a button and tho trado was dono, |nstantanoous|y.
Evon tho button' was a motaphor, tor troquont|y tho trado was
oxocutod by a commod|ty tund's a|gor|thm|c b|ack box, oporat|ng |n
m|crosoconds and novor nood|ng any s|oop, |ot a|ono any human
|ntorvont|on onco |t had boon programmod. 1ho papor barro| had
bocomo tho o|octron|c barro|.
11
OVER 1EE COuN1ER
|uturos contracts on commod|ty oxchangos woro on|y part ot tho now
trad|ng wor|d. 1horo woro a|so ovor-tho-countor markots, wh|ch d|d not
havo tho rogu|atory and d|sc|osuro roqu|romonts ot tho tuturos markot.
1hoso who woro cr|t|ca| ot thom dubbod thom tho dark markots'
bocauso ot th|s |ack ot rogu|atory ovors|ght and transparoncy, and
bocauso thoy woro susp|c|ous ot how thoy workod and ot tho|r |mpact.
1hoso woro, attor a||, a torm ot t|nanc|a| dor|vat|vo-a t|nanc|a| assot
whoso pr|co |s oorlvoo trom ono or moro undor|y|ng assot. 1ho
cumu|at|vo r|sk and systom|c |mpact ot such dor|vat|vos cou|d bo vory
|argo bocauso ot tho|r |ovorago, comp|ox|ty, and |ack ot transparoncy.
1ho ovor-tho-countor ott-oxchango markots woro tho p|aco tor
ta||orod, bospoko transact|ons whoro part|c|pants cou|d buy o||
dor|vat|vos ot ono k|nd or anothor, spoc|t|ca||y dos|gnod to moot a
part|cu|ar markot nood or |nvostmont stratogy. 3anks bocamo tho
swap doa|ors,' tac|||tat|ng tho swopplog ot ono socur|ty, curroncy, or
typo ot |ntorost rato tor anothor botwoon |nvostors. 1hoy wou|d thon
turn around and hodgo tho|r r|sks |n swap doa|s on tho tuturos markots.
1ho ovor-tho-countor markot bogan to grow vory substant|a||y around
2008 and 2004. 1hoso markots had sovora| attract|vo tra|ts. lt cou|d bo
|oss oxpons|vo tor hodgors to go to tho ovor-tho-countor markot, as tho
costs m|ght bo |owor and moro prod|ctab|o. 1hoy cou|d mako doa|s
that woro ta||orod to tho|r part|cu|ar noods and spoc|t|cat|ons and
t|m|ng. |or |nstanco, somoono m|ght want to hodgo jot tuo| |n low
York |arbor, and W1l at Cush|ng was not a c|oar onough
approx|mat|on |n |ts pr|c|ng. lt was a|so poss|b|o to do much |argor
doa|s w|thout ca|||ng attont|on to onoso|t and thus promaturo|y torc|ng
tho pr|co up or down, dopond|ng on tho naturo ot tho hodgo.
Ovora||, moro and moro monoy was com|ng |nto tho o|| markot,
through a|| tho d|ttoront k|nds ot tunds and t|nanc|a| |nstrumonts. A|| th|s
ongondorod |ncroasod act|v|ty, and moro and moro |nvostor
oxc|tomont,' to borrow a phraso trom lrotossor lobort 3h|||or, tho
studont ot t|nanc|a| bubb|os and tho oxp||cator ot tho torm |rrat|ona|
oxuboranco.' 1radors saw momontum |n tho markot, wh|ch moant
r|s|ng pr|cos, and as thoy put monoy to work and pr|cos wont up, |t
addod to tho momontum, prov|d|ng yot moro roason to put moro
monoy to work, turthor tuo||ng tho momontum. And so pr|cos kopt
go|ng up.
1EE BEL|EF 5Y51EN
1horo was mothod |n a|| th|s momontum, a wo||-art|cu|atod bo||ot
systom that oxp|a|nod r|s|ng pr|cos. Or rat|ona||zod thom. ln h|s stud|os
ot bubb|os and markot bohav|or, 3h|||or rotors to tho common
charactor|st|c ot what ho ca||s now ora th|nk|ng'-tho conv|ct|on that
somoth|ng now and d|ttoront has arr|vod that just|t|os a rap|d r|so |n
assot pr|cos |n a part|cu|ar markot. low ora th|nk|ng has boon a
cons|stont toaturo ot bubb|os-|n stock markots and roa| ostato and
many othor markots-go|ng back to tu||ps |n |o||and |n tho oar|y 1000s
and tho 3outh 3oa |and bubb|o |n tho oar|y 1700s. A sot ot v|ows and
stor|os aro gonoratod that just|ty cont|nuat|on ot tho bubb|o,' says
3h|||or. 3ut |t's not porco|vod as a bubb|o.'
12
ln tho caso ot tho o|| markot, an oxp|anatory modo|, a sot ot now-ora
bo||ots, took part|cu|ar ho|d on tho t|nanc|a| commun|ty w|th an a|most
mosmor|z|ng ottoct. 1ho bo||ots camo |n tho torm ot catoch|sms:
7bot ol| wos golog to bo lo pormoooot|y sbort sopp|y (just tho
oppos|to ot a docado oar||or).
7bot tbo wor|o wos rooolog oot o ol|.
7bot Cbloo wos golog to coosomo ovory borro| o ol| tbot lt
coo|o got lts booos oo-ooo tboo somo.
7bot 5oool Aroblo wos mls|ooolog tbo wor|o oboot lts ol|
rosorvos, ooo tbot 5oool proooctloo, tbo groot bo|oocor o
wor|o morkots, woo|o sooo boglo to ooc|loo.
7bot tbo wor|o boo roocboo, or woo|o sooo roocb, pook ol|'-
moxlmom ootpot-ooo tbo loovltob|o ooc|loo lo ootpot woo|o
boglo ovoo os tbo wor|o wootoo moro ooo moro ol|.
1ho |ast-poak o||'-was tho groat un|ty|ng thomo that t|od a|| tho rost
togothor. As pr|cos c||mbod, th|s v|ow bocamo moro and moro
porvas|vo, ospoc|a||y |n t|nanc|a| markots, and |n a groat toodback
|oop, ro|ntorcod bu|||sh |nvostor sont|mont and ho|pod to push pr|cos
up turthor.
|or a|| tho abovo roasons togothor, |t mado sonso, powortu| sonso,
tor pr|cos to koop go|ng up. 1hat, attor a||, |s what tho most pub||c|zod
prod|ct|ons sa|d wou|d happon. 0ata that d|d not t|t tho modo|-tor
|nstanco, an ana|ys|s ot o|ovon hundrod o|| t|o|ds that ta||od to t|nd a
poak' on a g|oba| bas|s-woro d|srogardod and d|sm|ssod.
18
DOE5 PR|CE AC1uALLY NA11ER?
At th|s po|nt tho o|| wor|d sp||t |n two. 3omo thought that pr|cos d|d not
mattor, and somo thought thoy d|d. 1hoso who thought not' workod on
tho assumpt|on that pr|cos wou|d cont|nuo to go up, tor a|| tho roasons
notod abovo, w|th ||tt|o |mpact on consumors and on producors-and
on tho g|oba| oconomy.
1hoso who bo||ovod that pr|cos st||| mattorod woro protty suro that
tho |mpact wou|d bo to|t, though porhaps not |mmod|ato|y. 3ut r|s|ng
pr|cos wou|d ovontua||y do what thoy a|ways d|d-oncourago moro
supp|y, moro |nvostmont, st|mu|ato a|tornat|vos, wh||o damp|ng down
domand. 1hoy a|so toarod that r|s|ng pr|cos wou|d havo a w|dor cost |n
torms ot roducod oconom|c growth or ovon rocoss|on, wh|ch |n turn
wou|d a|so br|ng down domand.
Yot that |attor pos|t|on soomod to bo |os|ng tho argumont. On tho t|rst
trad|ng day ot 2007, W1l had c|osod at $01.0b. A yoar |ator, on tho t|rst
day ot trad|ng, 1anuary 2, 2008, o|| br|ot|y h|t $100 and thon s||d back.
A month |ator |t roa||y broko through $100. And kopt go|ng. 1ho o||
tovor that had struck Cush|ng, Ok|ahoma, attor 1012 was com|ng back
|n 2008 |n tho torm ot a g|oba| op|dom|c that was swoop|ng tho p|anot.
14
lt was |n tho |ast part ot 2007 and around tho bog|nn|ng ot 2008 that
tho torcos dr|v|ng tho o|| pr|co up sh|ttod doc|s|vo|y trom tho
tundamonta|s |nto somoth|ng o|so-hyporapproc|at|on |n assot
pr|cos.' Or what |s moro co||oqu|a||y known as a bubb|o.
CO|NC 1O EXPLODE"
Evon tho b|ggost, most soph|st|catod |nst|tut|ona| |nvostors woro
ombrac|ng commod|t|os. ln |obruary 2008, Ca|lEl3, tho Ca||torn|a
3tato rot|romont tund, tho |argost pons|on tund |n tho Un|tod 3tatos,
announcod that |t now doomod commod|t|os part ot a d|st|nct assot
c|ass. As a rosu|t |t was go|ng to |ncroaso |ts comm|tmont to
commod|t|os' as much as s|xtoonto|d. 1ho actua| |mportanco ot tho
onorgy and mator|a|s soctor wo bo||ovo |s go|ng to oxp|odo,'
Ca|lEl3's ch|ot |nvostmont ott|cor had prov|ous|y oxp|a|nod.
Gaso||no pr|cos |n tho Un|tod 3tatos t|na||y broko through tho $8 a
ga||on barr|or |n |obruary 2008 and hoadod h|ghor. 3y Apr|| 2008, 70
porcont ot Amor|cans doscr|bod h|ghor gaso||no pr|cos as a t|nanc|a|
hardsh|p and b|amod groody o|| compan|os tor' goug|ng tho pub||c.'
A month |ator gaso||no broachod $4 a ga||on. 1ho pub||c was ag|tatod
and onragod, gaso||no pr|cos dom|natod tho nows, thoy |ookod to
bocomo an |ssuo |n tho pros|dont|a| campa|gn. 1hoy had a|roady
bocomo a subjoct ot a host ot congross|ona| hoar|ngs. ln a do||borato
rop|ay ot tho po||t|ca| thoator that had to||owod tho 1078 o|| cr|s|s, o||
company oxocut|vos woro summonod to congross|ona| hoar|ngs,
mado to ra|so tho|r r|ght hands and put undor oath, and thon
|ntorrogatod tor hours. 3ut now tho oxocut|vos woro no |ongor a|ono.
|und managors and oxocut|vos trom tho t|nanc|a| |ndustry woro a|so
ca||od to tost|ty. 1ho Commod|ty |uturos 1rad|ng Comm|ss|on, wh|ch
rogu|atos tuturos, was chargod w|th assoss|ng whothor now contro|s
on spocu|ators woro roqu|rod.
3t||| tho drumboat ot prod|ct|ons cont|nuod, as though cast|ng and
rocast|ng a spo||. A Wa|| 3troot ana|yst prod|ctod that tho com|ng
suporsp|ko mado $200 o|| |ncroas|ng|y ||ko|y' w|th|n tho noxt two
yoars.
1hat torocast struck torror |nto tho hoart ot tho a|r||no |ndustry, wh|ch
was roo||ng trom tho ottocts ot tho surgo |n jot tuo|, mado ovon worso
by constra|nts |n tho rot|n|ng systom. 3cary' was tho ono-word
roact|on ot 0av|d 0av|s, lorthwost A|r||nos' ch|ot t|nanc|a| ott|cor at
tho t|mo. Wo kopt say|ng to ourso|vos that tho pr|co had to ta|| back,
but |t kopt go|ng up. 1ho markot was |ook|ng tor any opportun|ty to tako
tho pr|co up.'
1b
YOu NEED BuYER5"
ln tho m|dd|o ot Vay-w|th o|| pr|cos now tho top domost|c po||t|ca|
|ssuo |n tho Un|tod 3tatos-lros|dont Goorgo W. 3ush wont to 3aud|
Arab|a. 1horo at a moot|ng at tho ranch ot 3aud| K|ng Abdu||ah, 3ush
ta|kod about tho r|sks to tho wor|d oconomy ot r|s|ng pr|cos. |o urgod
tho 3aud|s to ||tt output to ho|p coo| tho tovor. |o d|d not got tho
answor ho wantod. 1ho 3aud|s had a|roady uppod product|on by
800,000 barro|s por day but woro hav|ng troub|o t|nd|ng customors. lt
you want to movo moro o||, you nood a buyor,' sa|d 3aud| potro|oum
m|n|stor A|| A|-la|m|. Attor tho moot|ng, tho pros|dont's nat|ona|
socur|ty ass|stant 3tovon |ad|oy ruotu||y commontod, 1horo |s
somoth|ng go|ng on |n tho o|| markot that |s much moro comp||catod
than just turn|ng on tho sp|got.' 1horo was no ro||ot attor l|yadh. 1ho
pr|co ot o|| kopt go|ng up. Ono concorn that has promptod tradors to
b|d up o|| pr|cos,' roportod tho o|| 5troot 1ooroo| trom 1oddah, |s
3aud| Arab|a's |ong-torm product|on capac|ty. 3omo ana|ysts bo||ovo
tho k|ngdom's bost t|o|ds cou|d h|t a product|on poak |n tho yoars
ahoad.'
At a|most oxact|y tho samo t|mo, ono ot tho most prom|nont Wa||
3troot o|| ana|ysts addod to tho tovor w|th a roport doc|ar|ng that a
structura| ro-pr|c|ng' ot o||-rot|oct|ng |ong-torm oxpoctat|ons tor
shortago ot o|| and cont|nuod robust domand trom tho 3llC3'-
moant a structura| bu|| markot' on top ot tho supor cyc|o' that wou|d
tako pr|cos to ovor-h|ghor |ovo|s.' 1ho surgo cont|nuod. 3y tho ond ot
Vay, o|| pr|cos had h|t $180. low cars sa|os |n tho Un|tod 3tatos woro
p|ummot|ng.
10
O|L DO1-CON"
A tow contrar|an vo|cos on Wa|| 3troot warnod that thoso pr|cos had
bocomo sor|ous|y d|vorcod trom roa||ty. Edward Vorso, a votoran
ana|yst, |n a papor t|t|od O|| 0ot-com,' wroto: As dur|ng tho dotcom
por|od, whon 'now oconomy' stocks bocamo popu|ar, a grow|ng band
ot Wa|| 3troot ana|ysts who aro s|gn|t|cant|y ra|s|ng' tho|r torocasts
woro part|a||y rospons|b|o tor now |nvostor t|ows, dr|v|ng... pr|cos to
porhaps unsusta|nab|o |ovo|s.' |o cont|nuod: Wo aro soo|ng tho
c|ass|c |ngrod|onts ot an assot bubb|o. ||nanc|a| |nvostors tond to
'hord' and chaso past portormanco.... 3ut whon poak pr|cos h|t, thoy
aro a|so ||ko|y to ta|| proc|p|tous|y. 1hat's tho way cyc||ca| turn|ng po|nts
a|ways occur.' 3ut tho ana|ys|s cou|d on|y go so tar. Gott|ng that t|m|ng
r|ght |s tho d|tt|cu|t part,' ho addod.
Vorso d|d not sway many poop|o. 3omo ot h|s c||onts d|d not moro|y
d|sagroo , thoy ||tora||y shoutod at h|m that ho was wrong. 1ho pr|co
cont|nuod |ts sharp ascont. Evor moro monoy t|oodod |nto tho markot
on tho prom|so that pr|cos wou|d c||mb st||| h|ghor. lorhaps tho
b|ggost ram|t|cat|on ot curront o|| pr|cos |s tho stok|ng ot toars ovor
'poak o||,' ' sa|d ono potro|oum |ndustry pub||cat|on. 1h|s m|ndsot has
spurrod |nvostors to buy.'
17
|1 NEED5 1O 51OP"
1horo soomod no rosp|to. ||gh gaso||no pr|cos-comb|nod w|th tho
|mm|nonco ot Vomor|a| 0ay and tho opon|ng ot dr|v|ng soason-
|ntoctod tho ont|ro nat|on w|th a v|ru|ont caso ot road rago. 1hat mado
|t an |doa| t|mo,' sa|d tho Now York 7lmos, tor Congross to show |ts
so||dar|ty w|th angry Amor|can motor|sts.' At ono hoar|ng, a
congrossman b|unt|y to|d o|| company oxocut|vos, You aro goug|ng tho
Amor|can pub||c and |t noods to stop.' Anothor announcod that tho
|ndustry shou|d bo nat|ona||zod outr|ght.
At a hoar|ng on tho othor s|do ot Cap|to| ||||, a sonator askod tho
ompano||od o|| company oxocut|vos, 0oos |t troub|o any ot you whon
you soo what you aro do|ng to us?' Ono oxocut|vo tr|od to tramo a
rop|y: l too| vory proud ot tho tact that wo aro |nvost|ng a|| ot our
oarn|ngs. Wo |nvost |n tuturo supp||os tor tho wor|d, so l am proud ot
that.'
You,' snappod anothor sonator, havo no oth|ca| compass about tho
pr|co ot gaso||no.'
18
CE|NA |N 2014
ln othor parts ot tho wor|d, h|gh pr|cos woro soon as a boon. Evory
yoar |n 1uno |n 3t. lotorsburg, dur|ng tho wh|to n|ghts, whon |t |s ||ght
ovon at m|dn|ght, tho luss|an govornmont hosts |ts own vors|on ot
0avos-tho 3t. lotorsburg Econom|c |orum. 1ho sott|ng |s tho
spraw||ng modorn|st|c lonoxpro congross contor that juts out |nto tho
Gu|t ot ||n|and and |ooks toward tho 3a|t|c 3oa. ln 1uno 2008 luss|a
was boom|ng trom tho h|gh o|| and natura| gas pr|cos, wh|ch was
rot|octod |n tho buoyant atmosphoro ot tho torum. Wa|| 3troot may havo
boon show|ng s|gns ot grow|ng d|stross. 3ut, soon trom 3t. lotorsburg
, that was on|y turthor roason tor tho g|oba| t|nanc|a| markots to
bocomo moro anchorod |n luss|a and tho othor 3llCs.
Ovor cottoo botwoon ono ot tho soss|ons, tho hoad ot a vory |argo
commod|t|ostrad|ng t|rm was askod why ho thought pr|cos woro st|||
go|ng up. |o had a vory c|oar oxp|anat|on: As markots gonora||y do, ho
rop||od, tho o|| markot was ant|c|pat|ng what wou|d happon |n tho
tuturo. ln th|s caso, |t had pu||od torward |nto 2008 tho pr|cos that wou|d
bo assoc|atod w|th Ch|na's hugo o|| domand |n tho yoar 2014. lt just
soomod so obv|ous.
A tow days |ator, tho hoad ot ono ot tho wor|d's |argost stato-ownod
onorgy compan|os doc|arod that o|| wou|d h|t $2b0 a barro| |n tho
torosooab|o tuturo.' Woro that to happon, a |oador ot tho travo|
|ndustry sa|d |n rop|y, tho a|r||no |ndustry wou|d co||apso and wou|d
havo to bo nat|ona||zod. Othorw|so thoro wou|d bo no p|anos |n tho a|r.
On 1uno 1b, o|| pr|cos roachod $180.80. 1ho a|r||no |ndustry
corta|n|y had |ts back aga|nst tho wa||. ln oar||or yoars, tuo| pr|cos had
boon about 20 porcont ot oporat|ng costs, now thoy woro up around 4b
porcont, b|ggor ovon than |abor costs. 3ankruptc|os soomod |nov|tab|o
-tho on|y way out.
10
JEDDAE VER5u5 BONCA
On 3unday, 1uno 22, a hast||y organ|zod contoronco |nvo|v|ng 80
countr|os convonod |n 1oddah, 3aud| Arab|a, at tho |nv|tat|on ot K|ng
Abdu||ah. 1ho 3aud|s, among othors, woro acuto|y concornod w|th
what o|| pr|cos wou|d do to tho domand tor o|| and to tho wor|d
oconomy, |n wh|ch thoy had a vory s|gn|t|cant stako.
1o opon tho contoronco, K|ng Abdu||ah and 3r|t|sh lr|mo V|n|stor
Gordon 3rown ontorod, s|do by s|do, to tho mus|c ot a m|||tary band.
3ut thoro was ||tt|o harmony. 1ho producors b|amod tho pr|cos on
spocu|ators' and sa|d that thoro was no shortago ot crudo o||. 1ho
consum|ng countr|os b|amod tho pr|cos on a shortago ot crudo o||. 1ho
3aud|s announcod that thoy wou|d put anothor 200,000 barro|s a day
|nto tho markot |t thoy cou|d t|nd buyors. 3ut that wou|d tako t|mo. 1ho
noxt morn|ng tho pr|co |n 3|ngaporo oponod h|ghor than |t had c|osod
|n low York tho prov|ous |r|day.
W|th|n hours ot tho 1oddah moot|ng, a dramat|c rom|ndor ot tho
phys|ca| r|sks to supp|y shook tho markot and addod to tho
w|dosproad anx|oty. Ono th|rd ot l|gor|a's product|on was a|roady shut
|n by v|o|onco and cr|m|na| attacks. 3ut suro|y |t was thought, tho now
mu|t|b||||on-do||ar ottshoro projocts woro socuro trom assau|t, |nsu|atod
trom v|o|onco by tho|r d|stanco trom |and. 1hat sonso ot socur|ty was
m|sp|acod.
Vombors ot VEl0, tho Vovomont tor tho Emanc|pat|on ot tho
l|gor 0o|ta, mov|ng tast |n hoav||y armod spood boats, ovadod such
socur|ty as thoro was and |aunchod an attack on 3onga, tho most
prom|nont ot a|| tho p|attorms, 70 m||os trom tho shoro. 1hoy managod
to c||mb onto tho p|attorm, but thoy woro ropo||od botoro thoy cou|d
b|ow up tho computor|zod contro| room. lt was a c|oso ca||, and a vory
scary ono. 1ho 3onga attack sont now shockwavos through tho
markot. ln an o-ma|| to journa||sts, a spokosman tor VEl0 warnod,
1ho |ocat|on tor today's attack was do||borato|y choson to romovo any
not|on that ottshoro o|| product|on |s tar trom our roach.' 3onga
trumpod 1oddah and pr|cos cont|nuod to go up.
20
1ho phys|ca| markot had turnod. A|though hard|y rocogn|zod, tho
domand shock was ovor. Wor|d o|| domand was go|ng down and
supp|y was |ncroas|ng. 3paro capac|ty-tho gap botwoon wor|d
capac|ty and wor|d domand-was bog|nn|ng to w|don. 3ut nono ot that
soomod to mattor. lr|cos cont|nuod to r|so. l kopt star|ng at my
3|oomborg , |ook|ng at tho pr|cos a|| tho t|mo,' roca||od tho C|O ot
lorthwost A|r||nos. lt was unbo||ovab|o.'
And |t was a|| happon|ng vory tast. 1h|s |s ||ko a h|ghway w|th no
cops and no spood ||m|ts, and ovorybody |s go|ng 120 m||os por hour,'
|amontod ono sonator, c|t|ng a Wa|| 3troot ana|yst, at a hoar|ng on
1uno 2b. 3y tho bog|nn|ng ot 1u|y, pr|cos oxcoodod $140. lrod|ct|on
attor prod|ct|on ro|ntorcod that conv|ct|on, as tho croscondo ot
|ncantat|ons about h|ghor pr|cos rovorboratod around tho wor|d.
21
BREAK PO|N1
ln truth, tho goars had a|roady startod to gr|nd |n tho othor d|roct|on.
1ho broak po|nt was at hand. lr|cos d|d mattor attor a||. 1hoy mattorod
oconom|ca||y-and, as tho pub||c's |ro and toar roso, thoy mattorod
po||t|ca||y.
1ho most |mmod|ato ov|donco ot tho broak po|nt wou|d bo |n tho
doc|s|ons by onorgy usors-whothor |argo |ndustr|a| t|rms, wh|ch tound
now ways to roduco onorgy uso, or a|r||nos, wh|ch cut back on tho
numbor ot p|anos |n tho a|r, or |nd|v|dua| consumors, who cou|d chango
tho|r bohav|or.
And that consumors woro do|ng. 1hoy woro dr|v|ng |oss. ln 1uno
2008 Ca||torn|a motor|sts usod 7.b porcont |oss gaso||no than |n 1uno
2007. Consumors woro a|so vot|ng w|th tho|r toot. 1hoy woro no |ongor
wa|k|ng |nto auto showrooms, and whon thoy woro, thoy woro stoor|ng
c|oar ot 3Uvs. 1hoy wantod tuo|-ott|c|ont voh|c|os, |t thoy wantod
anyth|ng at a||. 1hat |ott 0otro|t, wh|ch had tocusod on tho popu|ar
3Uvs, scramb||ng to try to goar up to produco tho cars that consumors
now dos|rod and that wou|d moot tho now tuo|-ott|c|oncy targots-
somoth|ng that wou|d tako b||||ons ot do||ars and sovora| yoars to
|mp|omont. 1ho torr|d romanco w|th tho 3Uv had suddon|y gono co|d.
1ho ovors|zo |ummors woro bocom|ng targots ot vanda||sm.
22
Voanwh||o, o|| compan|os woro dramat|ca||y |ncroas|ng tho|r
spond|ng to dovo|op now supp||os, a|though thoy had to contond w|th
tho b|g |ncroaso |n costs. 1ho markot was no |ongor t|ght. Wor|d o||
supp|y |n tho t|rst quartor ot 2008 was moro than a m||||on barro|s
h|ghor than |t had boon |n tho t|rst quartor ot 2007. ln 1uno 2008 U.3.
o|| domand was a m||||on barro|s |oss than |t had boon |n 1uno 2007.
1hoso pr|cos woro prov|d|ng both a po||t|ca| and commorc|a| st|mu|us
to tho |ongor-torm dovo|opmont ot ronowab|os and a|tornat|vos.
CEANC|NC 1EE CAR FLEE1
1ho turmo|| |n tho markot had a major |mpact on pub||c po||cy and on
tho po||t|cs ot onorgy, and nowhoro moro s|gn|t|cant|y than |n rogard to
tho Amor|can automob||o.
1ho Un|tod 3tatos has tho wor|d's |argost auto t|oot-about 2b0
m||||on out ot a g|oba| tota| ot 1 b||||on. 0osp|to growth |n omorg|ng
markots, ono out ot ovory n|no barro|s ot o|| usod |n tho wor|d ovory day
|s burnod as motor tuo| on Amor|can roads. ln 107b, dur|ng tho t|rst o||
cr|s|s, tuo|-ott|c|oncy standards woro |ntroducod, roqu|r|ng a doub||ng
trom tho thon-avorago ot 18.b m||os por ga||on to 27.b m||os por ga||on
ovor ton yoars. And thoro tho standards sat tor moro than throo
docados, w|th somo m|nor t|nkor|ng around tho odgos.
28
3ut c|rcumstancos woro chang|ng. ln h|s 2000 3tato ot tho Un|on
Addross, lros|dont Goorgo W. 3ush donouncod what ho ca||od tho
nat|on's add|ct|on to o||.' And now p|ayors bocamo ongagod. 1ho
most notab|o group was tho Enorgy 3ocur|ty loadorsh|p Counc||, an
att|||ato ot anothor group, 3A|E-3ocur|ng Amor|ca's |uturo Enorgy.
1ho counc|| was cha|rod by l. X. Ko||oy, a tormor commandant ot tho
Var|no Corps, and |rodor|ck 3m|th, tho toundor and CEO ot |odEx.
1ho mombors woro rot|rod m|||tary ott|cors and corporato |oadors, not
oxact|y t|tt|ng tho trad|t|ona| modo ot onv|ronmonta||sts and ||bora|s
who had trad|t|ona||y campa|gnod tor h|ghor tuo|-ott|c|oncy standards.
ln 0ocombor 2000 tho counc|| |ssuod a roport advocat|ng a
ba|ancod onorgy po||cy. la|s|ng auto-tuo| standards was tho t|rst
chaptor. ||vo wooks |ator, to 0otro|t's shock and notw|thstand|ng
oppos|t|on trom w|th|n h|s own adm|n|strat|on, 3ush usod h|s 2007
3tato ot tho Un|on to ondorso a tuo|-ott|c|oncy |ncroaso. A wook |ator,
3ush mot w|th somo ot tho counc||'s mombors. 1ho pros|dont mado
c|oar tho goopo||t|ca| th|nk|ng boh|nd h|s onorgy po||c|os. |o wantod,
ho sa|d, to got lran|an pros|dont Vahmoud Ahmad|nojad and
vonozuo|an pros|dont |ugo Chvoz out ot tho Ova| Ott|co.'
1ho Counc|| took |ts campa|gn to tho 3onato. At ono hoar|ng,
counc|| mombor lot|rod Adm|ra| 0onn|s 3|a|r, tormor commandor ot
tho lac|t|c ||oot (and |ator d|roctor ot lat|ona| lnto|||gonco |n tho
Obama adm|n|strat|on), arguod that oxcoss|vo dopondonco on o|| tor
transportat|on was |ncons|stont w|th nat|ona| socur|ty' and that noth|ng
wou|d do moro than strongthon tuo| oconomy standards' to roduco
that dopondonco.
24
|uo|-ott|c|oncy standards woro no |ongor a |ott-r|ght |ssuo. low thoy
woro a nat|ona| socur|ty and a broad oconom|c |ssuo. low standards
t|ow though both housos ot Congross. ln 0ocombor 2007, a|most
oxact|y ono yoar to tho day attor tho Enorgy 3ocur|ty loadorsh|p
Counc||'s roport, 3ush s|gnod |og|s|at|on ra|s|ng tuo|-ott|c|oncy
standards-tho t|rst such |ncroaso |n 82 yoars.
Ot courso, tho now tuo|-ott|c|oncy standards wou|d tako yoars to
mako a s|zab|o |mpact. Automakors wou|d havo to rotoo|, and thon, |n
norma| yoars, on|y about 8 porcont ot tho voh|c|o t|oot turns ovor
annua||y. 3ut whon tho|r |mpact was to|t, |t wou|d bo vory |argo.
1EE CREA1 RECE55|ON
What was happon|ng |n tho oconomy wou|d a|so |owor tho domand tor
o||. 1ho Groat locoss|on, at |oast |n tho Un|tod 3tatos, |s now
rockonod to havo bogun |n 0ocombor 2007, wo|| botoro most anybody
had rocogn|zod |t. lt was pr|mar||y a crod|t rocoss|on, tho rosu|t ot too
much dobt, too much |ovorago, too many dor|vat|vos, too much choap
monoy, too much ovorcont|donco-a|| ot wh|ch ongondorod roa| ostato
and othor assot bubb|os |n tho Un|tod 3tatos and othor parts ot tho
wor|d.
3ut tho surgo |n o|| pr|cos was an |mportant contr|but|ng tactor to tho
downturn. 3otwoon 1uno 2007 and 1uno 2008, o|| pr|cos doub|od-an
|ncroaso ot $00-|n abso|uto torms, a tar b|ggor |ncroaso |n o|| pr|cos
than had ovor boon soon |n any ot tho prov|ous o|| shocks, go|ng back
to tho 1070s. 1ho surgo |n o|| pr|cos was an |mportant tactor that
contr|butod to tho oconom|c rocoss|on,' obsorvod lrotossor 1amos
|am||ton, ono ot tho |oad|ng studonts ot tho ro|at|on botwoon onorgy
and tho oconomy. 1ho o|| pr|co shock |ntoractod w|th tho hous|ng
s|owdown to t|p tho oconomy |nto a rocoss|on. 1ho suddon |ncroaso ot
pr|cos at tho pump took purchas|ng powor away trom |owor-|ncomo
groups, mak|ng |t moro d|tt|cu|t tor many ot thom to mako paymonts on
tho|r subpr|mo mortgagos and tho|r othor dobts. 1ho h|ghor cost ot tho
gaso||no thoy noodod to got to work moant trado-otts |n torms ot what
o|so thoy cou|d spond o|sowhoro. 1ho ottocts a|so showod up, as
|am||ton has notod, |n a dotor|orat|on |n consumor sont|mont and an
ovora|| s|owdown |n consumor spond|ng.'
As gaso||no pr|cos roso, car sa|os nosod|vod. 0|scount|ng and
robatos by auto doa|ors d|d ||tt|o good. 1uno 2008 was tho worst month
tor sa|os tor tho auto |ndustry |n sovontoon yoars.
1ho auto |ndustry was undor s|ogo,' sa|d l|ck Wagonor, tho tormor
CEO ot Gonora| Votors. Wh||o wo had a comprohons|vo sconar|o
p|ann|ng procoss at GV, wo had no sconar|os |n wh|ch o|| pr|cos wont
up so much, so tast. loop|o woron't com|ng |nto showrooms as o||
pr|cos skyrockotod |n part bocauso tho|r d|sposab|o |ncomos woro
go|ng down. 1ho rato and s|zo ot tho doc||no |n auto sa|os was
unprocodontod. 0omand was co||aps|ng.' Wagonor cont|nuod, 1ho
on|y quost|on was how h|gh o|| pr|cos wou|d go and whon thoy camo
down, to what |ovo|. Our v|ow ot tho tuturo was that |t was o|thor go|ng
to bo d|tt|cu|t or vory, vory d|tt|cu|t.'
2b
1ho ottocts ot tho downturn |n tho automob||o |ndustry rovorboratod
throughout tho supp|y cha|ns ot compan|os that supp||od |t and at
doa|ors across Amor|ca. Vany hundrods ot thousands ot jobs woro
abrupt|y |ost across tho oconomy.
1ho d|roct |mpact was to|t |oss |n othor dovo|opod countr|os
bocauso so much ot tho pr|co at tho pump |s actua||y tax. Vany
Europoan govornmonts uso gaso||no stat|ons as subbranchos ot tho|r
troasur|os. 1hus wh||o govornmont tax on gaso||no avoragos 40 conts
|n tho Un|tod 3tatos, |t |s moro ||ko $4.00 a ga||on |n Gormany. 1hus a
doub||ng |n tho pr|co ot crudo o|| wou|d on|y ra|so tho rota|| pr|co |n
Gormany by a tract|on ot what |t wou|d |n tho Un|tod 3tatos.
Vany dovo|op|ng countr|os subs|d|zo rota|| tuo| pr|cos, o||-oxport|ng
countr|os, gonorous|y so. 1o a||ow pr|cos to r|so wou|d moan soc|a|
turmo|| and porhaps str|kos and r|ots. 1hus thoso govornmonts had to
absorb tho grow|ng gap botwoon tho wor|d pr|co tor o|| and tho pr|cos
that tho|r c|t|zons pa|d. 3ubs|d|os cost lnd|a's govornmont about $21
b||||on |n 2000.
20
5OVERE|CN WEAL1E
Whon |t was a|| addod up, thoso h|gh pr|cos transtorrod a groat doa| ot
|ncomo trom consum|ng countr|os to produc|ng countr|os. 1ho tota| o||
rovonuos ot tho OlEC countr|os roso trom $248 b||||on |n 2004 to
$008 b||||on |n 2007. |a|tway through 2008, |t |ookod as though |t cou|d
roach $1.8 tr||||on.
bot woro thoy go|ng to do w|th a|| th|s monoy? lart ot tho answor
was ombod|od |n tho |n|t|a|s 3W|, shorthand tor sovoro|gn woa|th
tunds.' 1hoso woro ossont|a||y govornmont bank accounts and
|nvostmont accounts sot up to roco|vo o|| and gas rovonuos that wou|d
bo kopt soparato trom tho nat|ona| budgot. |or somo countr|os, thoy
woro cast as stab|||zat|on tunds to bo ho|d tor ra|ny days.' 3omo tunds
woro oxp||c|t|y croatod to provont |nt|at|on and tho 0utch d|soaso that
can rosu|t trom a rosourco boom. 1hoso tunds transtormod o|| and gas
oarn|ngs |nto d|vors|t|od portto||os ot stocks, bonds, roa| ostato, and
d|roct |nvostmont.
3ut w|th o|| pr|cos r|s|ng to such ho|ghts, thoy had bocomo tru|y g|ant
poo|s ot cap|ta|, swo||on w|th tons ot b||||ons ot do||ars ot unant|c|patod
|nt|ows, and now w|th tromondous t|nanc|a| capac|ty that wou|d havo
tar-roach|ng |mpact on tho g|oba| oconomy. 1hoy tacod tho|r own
part|cu|ar quandary-how to |nvost a|| thoso add|t|ona| rovonuos |n a
t|mo|y and prudont tash|on. 3ut tho t||p s|do was that tho|r oxpans|on
moant a vory |argo roduct|on ot spond|ng powor |n tho o||-|mport|ng
countr|os, wh|ch contr|butod to tho downturn.
1EE PEAK
3t||| tho spo|| ho|d. On 1u|y 11, 2008, o|| roachod |ts h|stor|c poak ot
$147.27-many t|mos h|ghor than tho $22-to-$28 band that had boon
assumod to bo tho natura| pr|co' tor o|| on|y tour yoars oar||or. 1ho
hoad||nos to|d ot moro oconom|c troub|os ahoad: 1hon somoth|ng d|d
happon. 3hort|y attor 10 a.m., as Vr. 3ornanko was spoak|ng to
Congross,' tho Now York 7lmos roportod on 1u|y 10, |nvostors d|d a
doub|o-tako as o|| pr|cos, prov|ous|y trad|ng at rocord h|ghs, suddon|y
p|ungod.' 3ut, sa|d tho o|| bu||s, |t was on|y a m|nor mo|tdown.'
27
And thon tho tovor broko. 0omand tor o|| was go|ng down |n
rosponso to tho h|ghor pr|cos. And now |t was go|ng down tor anothor
roason too. 1ho wor|d oconomy was c|oar|y bog|nn|ng to s|ow. 1ho
Un|tod 3tatos was a|roady |n a rocoss|on. ln Ch|na's Guandong
lrov|nco, tho now workshop ot tho wor|d, ordors woro dry|ng up,
oxports woro doc||n|ng, and workors woro bo|ng |a|d ott. Evon
o|octr|c|ty domand |n that tormor|y boom|ng prov|nco was doc||n|ng.
1hat was a mossago w|th g|oba| |mp||cat|ons, tor |t moant that wor|d
trado was contract|ng. And tho wor|d's t|nanc|a| systom was bog|nn|ng
to shuddor and shako, tho spasms ot a com|ng catac|ysm. ||nanc|a|
|nvostors bogan d|tch|ng r|sky' assots such as oqu|t|os and o|| and
othor commod|t|os.
ln 3optombor 2008 camo tho doc|s|vo ovont. 1ho vonorab|o
lohman 3rothors, tho tourth-|argost U.3. |nvostmont bank, 1b8 yoars
o|d, ta||od. lo ono camo r|d|ng to |ts roscuo. 1ho |nsuranco bohomoth
AlG |ookod as though |t m|ght go down tho vory noxt day, tho |odora|
losorvo stoppod |n to savo |t at tho |ast momont.
A COLD W|ND FRON NOWEERE"
ln tho attormath ot tho lohman co||apso, tho wor|d's t|nanc|a| systom
s|mp|y trozo up. ||nanco stoppod t|ow|ng, whothor to tund tho da||y
oporat|ons ot major compan|os or to prov|do tho |ubr|cant tor trado.
1ho Groat 0opross|on ot tho oar|y 1080s, wh|ch had soomod to
bo|ong d|stant|y |n h|story, somoth|ng that happonod a vory |ong t|mo
ago, now soomod to havo happonod on|y yostorday. ||story books
and oconom|c toxts woro hurr|od|y scourod tor |mmod|ato and urgont
|ossons on how to roscuo a ta|||ng bank|ng systom. 1ho cr|s|s was
turn|ng |nto a g|oba| pan|c ot tho sort that had not boon soon tor many
docados. 1ho |mpact on what had boon hoa|thy oconom|os, |nc|ud|ng
tho 3llCs, was, as |odora| losorvo Cha|rman 3on 3ornanko sa|d,
||ko a co|d w|nd trom nowhoro.'
ClU0E Oll lllCE3
3ourco: l|3 CElA
U.3. GA3OlllE lllCE3
3ourco: l|3 CElA

ln tho m|dst ot what wou|d bocomo known as tho Groat locoss|on,
domand tor o|| cont|nuod to doc||no wh||o supp||os cont|nuod to bu||d
up. Yot ovon |n tho wook that lohman co||apsod, a prod|ct|on ot $b00
por barro| o||' managod to mako |ts way prom|nont|y onto tho covor ot
a |oad|ng bus|noss magaz|no. At that momont, howovor, o|| was
hoad|ng down, and proc|p|tous|y so. 3otoro tho yoar was out, as tho
tanks at Cush|ng, Ok|ahoma, ran out ot storago spaco and crudo
backod up |n tho systom, tho pr|co ot W1l to|| to as |ow as $82 a barro|.
Evon though pr|cos subsoquont|y rocovorod, tho spo|| had boon
shattorod.

|or somo, prudonco pa|d ott, whon pr|cos camo tumb||ng down.
lndood, thoro |s no bottor oxamp|o ot tho va|uo to an o|| producor ot
hodg|ng |ts product|on torward than tho sovoro|gn nat|on ot Vox|co. lts
govornmont |s vory vu|norab|o to tho pr|co ot o||, as about 8b porcont ot
|ts tota| rovonuos aro gonoratod by lomox, tho stato company. A
suddon ta|| |n tho pr|co ot o|| can croato budgotary and soc|a| turmo||.
|or yoars, Vox|co had boon hodg|ng part ot |ts o|| output. ln 2008
Vox|co wont a|| out and hodgod |ts ont|ro o|| oxports and |ockod |n a
pr|co. lt was not choap, tho cost ot th|s |nsuranco was $1. b b||||on. 3ut
whon tho pr|co p|ummotod, Vox|co mado an $8 b||||on prot|t on |ts
hodgo, thus prosorv|ng $8 b||||on tor |ts budgot that, w|thout tho hodgo,
wou|d havo othorw|so d|sappoarod. lt cou|d on|y havo dono that hugo
trado ovor tho countor. lt |t had tr|od to do |t on tho tuturos markot |tso|t,
tho sca|o wou|d havo sot ott a scramb|o by othor markot part|c|pants
botoro Vox|co cou|d ovon bog|n to got a|| ot |ts hodgos |n p|aco.
1hat transact|on was, on Vox|co's part, an act ot prudonco but a|so
audac|ty. On tho bas|s ot tho transact|on's succoss, Vox|co's t|nanco
m|n|stor roco|vod a un|quo honor-ho was dubbod tho wor|d's most
succosstu|, but worst pa|d, o|| managor.'
28

|ow much ot what happonod |n tho o|| markot can bo ascr|bod to tho
tundamonta|s, to what was happon|ng |n tho phys|ca| markot, and how
much to t|nanc|a||zat|on and what was happon|ng |n tho t|nanc|a|
markots? ln truth, thoro |s no sharp d|v|d|ng ||no. lr|co |s shapod by
what happons both |n tho phys|ca| and t|nanc|a| markots.
20
A coup|o ot yoars |ator, lobort 3h|||or, who had bocomo prom|nont
tor ca|||ng tho lntornot stock bubb|o and thon tho roa| ostato bubb|o,
was hav|ng broaktast |n tho rostaurant ot tho 3tudy, a now hoto| on
Chapo| 3troot |n low |avon, botoro wa|k|ng ovor to |octuro |n h|s
tamous Ya|o c|ass on t|nanc|a| markots. 3y thon, w|th rocovory wo||
a|ong |n tho g|oba| oconomy, tho pr|co ot o|| had moro than doub|od
trom |ts |ows back to a rango ot $70 to $80 a barro|. |andod a p|oco
ot papor, 3h|||or |ookod carotu||y at what |t showod-a p|ot dop|ct|ng
tho movomont ot o|| pr|cos s|nco 2000 cu|m|nat|ng |n tho sharp ascont
to |ts poak |n m|d-2008, and thon |ts proc|p|tous ta||. lt was
supor|mposod on a p|ot ot stock pr|cos that cu|m|natod |n tho markot
boom that wont bust |n 2000. 1ho t|t was vory t|ght. 1ho two curvos
|ookod vory s|m||ar. 3ut tho stoop, bo|| shapo ot tho curvo
|nstantanoous|y rom|ndod 3h|||or ot somoth|ng o|so as wo||.
1hat |ooks vory much ||ko what happonod w|th roa| ostato pr|cos,'
ho sa|d. A bubb|o.
80
1ho r|so |n o|| pr|cos had not bogun as a bubb|o. |or tho pr|co had
boon dr|von by powortu| tundamonta|s ot supp|y and domand, by tho
domand shock ar|s|ng trom unoxpoctod|y strong g|oba| growth and
major changos |n tho wor|d oconomy, |od by Ch|na and lnd|a, and by
goopo||t|cs and tho aggrogato d|srupt|on. 3ut |t was a bubb|o botoro |t
was ovor.
0
CE|NA'5 R|5E
|t was ono ot thoso sharp, co|d n|ghts |n 3o|j|ng whon tho smo|| ot
burn|ng, cr|sp and a ||tt|o swoot, wattod through tho dark. 1h|s was tho
vory ond ot tho 1000s whon tho swo|||ng hordos ot cars woro bog|nn|ng
to t||| tho now o|ght-|ano h|ghways and push tho b|cyc|os to tho s|do.
1ho burn|ng st||| ma|n|y camo not trom tho cars but rathor trom tho
many hundrods ot thousands ot o|dtash|onod coa| ovons throughout
tho c|ty that poop|o woro st||| us|ng to cook and hoat tho|r homos.
1ho d|nnor had gono on tor a |ong t|mo |n tho Ch|na C|ub, onco tho
homo ot a morchant, and thon a tavor|to rostaurant ot 0ong X|aop|ng,
who had |aunchod Ch|na's groat rotorms at tho ond ot tho 1070s. Coa|
may havo boon |n tho a|r that n|ght, but o|| was on tho agonda. W|th tho
d|nnor ovor, tho CEO ot ono ot Ch|na's stato-ownod o|| compan|os
had stoppod out |nto tho onc|osod courtyard w|th tho othor guosts.
Evorybody's ovorcoats woro buttonod to tho top aga|nst tho co|d. |o
and h|s managomont toam woro tac|ng somoth|ng ho wou|d novor
havo ant|c|patod whon ho startod as a goo|og|st |n wostorn Ch|na,
moro than throo docados ago. |or now thoy woro chargod w|th tak|ng
a s|gn|t|cant part ot Ch|na's o|| and gas |ndustry-bu||t to sorvo tho
command-and-contro| contra||y p|annod oconomy ot Vao 1so-tung-
and turn|ng |t |nto a compot|t|vo company that wou|d moot tho ||st|ng
roqu|romonts tor an llO on tho low York 3tock Exchango.
1ho roasons tor th|s sharp broak w|th tho past woro c|oar-tho
spoctor ot Ch|na's tuturo o|| roqu|romont and tho cha||ongo ot how to
moot |t-a|though that ovon|ng thoy cou|d not v|sua||zo how rap|d|y
consumpt|on wou|d grow. As tho group pausod |n tho courtyard
outs|do tho rostaurant, tho CEO was askod a port|nont quost|on: Why
go to a|| tho troub|o ot bocom|ng a pub||c company? |or thon tho
managomont wou|d bo rospons|b|o not on|y to tho son|or author|t|os |n
3o|j|ng but a|so to young ana|ysts and monoy managors |n low York
C|ty and london, and |n 3|ngaporo and |ong Kong , a|| ot whom wou|d
scrut|n|zo and pass judgmont on stratog|os, oxponsos, and prot|tab|||ty
-and on tho job thoy a|| woro do|ng.
lt wasn't at a|| obv|ous that tho CEO ro||shod such an opportun|ty.'
3ut ho rop||od, Wo havo no cho|co. lt wo aro go|ng to rotorm, wo havo
to bonchmark ourso|vos aga|nst tho wor|d oconomy.'
1hat was st||| tho t|mo whon Ch|na was mov|ng trom bo|ng a m|nor
p|ayor |n tho wor|d o|| markot to somoth|ng moro, a|though how much
moro was not at a|| c|oar. What was c|oar, howovor, was that Ch|na
was tast |ntograt|ng w|th tho wor|d oconomy and bog|nn|ng to trans|t|on
to a now and tar |argor ro|o |n |t.
Ovor tho yoars that to||owod, thoso changos wou|d transtorm
ca|cu|at|ons about tho wor|d oconomy and tho g|oba| ba|anco ot powor.
Wou|d a|| ot th|s moan a moro |ntordopondont wor|d? Or, poop|o wou|d
ask |n tho yoars to como, wou|d |t |oad to |ntons|t|od commorc|a|
compot|t|on, potro-r|va|ry, and a grow|ng r|sk ot a c|ash ot nat|ons ovor
accoss to rosourcos and ovor tho soa-|anos through wh|ch thoso
rosourcos aro borno?
CE|NA R|5K"
lono ot thoso quost|ons woro much |n tho a|r that n|ght, on tho vory
ovo ot tho now contury, at |oast |n torms ot onorgy. lndood, at that
momont, tho prospocts tor tho llOs ot tho throo stato-ownod
compan|os |ookod, at bost, qu|to prob|omat|c, and ovon somowhat
dub|ous.
1ho llO tor lotroCh|na, tho now subs|d|ary ot Ch|na lat|ona|
lotro|oum Corporat|on (CllC), tho |argost ot tho compan|os, wou|d
bo tho t|rst ono succosstu||y out ot tho gato. 3ut gott|ng roady tor tho
llO was prov|ng hardor than m|ght havo boon |mag|nod. ||nanc|a|
accounts that cou|d sat|sty tho roqu|romonts ot tho U.3. 3ocur|t|os and
Exchango Comm|ss|on had to bo carvod out and tormu|atod trom tho
und|gostod, contus|ng, and poor|y organ|zod data ot a vast Ch|noso
stato organ|zat|on that had novor had to pay attont|on to any such
motr|cs-and corta|n|y novor had any roason to hood to tho U.3.
agoncy that rogu|atod tho low York 3tock Exchango. Vanagomont
know that a who|o now sot ot va|uos and norms had to bo |ncu|catod
|nto tho organ|zat|on. Add to th|s tho tact that somo ot tho company's
ovorsoas |nvostmonts woro gonorat|ng protosts, and tho p|cturo
bocamo oxcood|ng|y unc|oar. lt took a |ong prospoctus-884 pagos-
to spo|| out a|| tho r|sks.
1
|or tho|r part, tho |ntornat|ona| |nvostors |n tho Un|tod 3tatos and
3r|ta|n, and ovon thoso c|osor to Ch|na, |n 3|ngaporo and |ong Kong,
woro skopt|ca|. 1hoy worr|od about tho Ch|na r|sk-uncorta|nty about
tho po||t|ca| stab|||ty and oconom|c growth ot tho country. A|so, th|s was
an o|| company at a t|mo whon tho now oconomy-tho lntornot and
lntornot stocks-was boom|ng. 3y contrast, tho o|| bus|noss was soon
as qu|ntossont|a| o|d oconomy-stagnant, un|ntorost|ng, and stuck |n
what was thought to bo tho do|drums ot pormanont ovorcapac|ty and
|ow pr|cos.
As 2000 bogan, tho appot|to ot g|oba| |nvostors appoarod top|d.
1ho llO was sca|od back, substant|a||y. 3ut, t|na||y, |n Apr|| 2000 |t
wont torward, though just baro|y, and lotroCh|na was |aunchod as a
pub||c ont|ty, part|y ownod by |ntornat|ona| |nvostors but st||| major|ty
ownod by CllC.
Ovor tho noxt yoar, |t was to||owod by tho llOs ot tho othor two
compan|os a|so cut trom tho onco-mono||th|c m|n|str|os-3|nopoc (tho
Ch|na lotro|oum and Chom|ca| Company) and ClOOC (Ch|na
lat|ona| Ottshoro O|| Corporat|on). 1hoy roco|vod tho samo top|d
wo|como. 3ut as tho yoars wont on, tho skopt|c|sm among |nvostors
d|sappoarod, and w|th good roason. A docado attor |ts llO,
lotroCh|na's markot cap|ta||zat|on had |ncroasod a|most sovonty
t|mos ovor. lts markot va|uo by that po|nt was groator than that ot loya|
0utch 3ho||, wh|ch |s a contury o|dor, groator than Wa|mart's, and was
socond on|y to ExxonVob||.
1hat |ncroaso |n va|uo ca||bratos tho grow|ng |mportanco ot tho
loop|o's lopub||c ot Ch|na (llC) |n tho ba|ancos ot wor|d onorgy and
tho r|so ot Ch|na |tso|t. 3|nco rotorms bogan |n 1070, moro than 000
m||||on Ch|noso poop|o havo boon ||ttod out ot gr|pp|ng povorty, w|th as
many as 800 m||||on poop|o |n tho m|dd|o-|ncomo |ovo|. Ovor that samo
t|mo, Ch|na's oconomy has grown moro than t|ttoonto|d. 3y 2010 |t had
ovortakon 1apan's to bocomo tho socond-|argost oconomy |n tho
wor|d.
2
1EE Bu|LD-Ou1 OF CE|NA"
1h|s groat oconom|c oxpans|on has changod Ch|na's o|| pos|t|on. 1wo
docados ago Ch|na was not on|y so|t-sutt|c|ont |n o|| but an actua|
oxportor ot potro|oum. 1oday |t |mports about ha|t ot |ts o||, and that
sharo w||| go up as domand |ncroasos. 1ho loop|o's lopub||c ot
Ch|na |s now tho socond-|argost o|| consumor |n tho wor|d, boh|nd on|y
tho Un|tod 3tatos. 3otwoon 2000 and 2010, |ts potro|oum
consumpt|on moro than doub|od. A|| th|s rot|octs what happons whon
tho oconomy ot a nat|on ot 1.8 b||||on oxpands at 0 or 10 or 11 porcont
a yoar-yoar attor yoar attor yoar.
As Ch|na cont|nuos to grow, so w||| |ts o|| domand. 3omot|mo
around 2020 |t cou|d pu|| ahoad ot tho Un|tod 3tatos as tho wor|d's
|argost o|| consumor. lt |s an a|most |nov|tab|o rosu|t ot what can bo
doscr|bod as tho groat bu||d-out ot Ch|na'-urban|zat|on at a spood
and sca|o tho wor|d has novor soon, mass|vo |nvostmont |n now
|ntrastructuro, and mass construct|on ot bu||d|ngs, powor p|ants, roads,
and h|gh-spood ra|| ||nos-a|| ot |t roshap|ng Ch|na's oconomy and
soc|oty.
1h|s bu||d-out ot Ch|na ovor tho noxt two or throo docados w||| bo
ono ot tho dot|n|ng torcos not just tor Ch|na but tor tho wor|d oconomy.
lt |s corta|n|y ono ot tho ma|n oxp|anat|ons tor a |ong-|ast|ng boom |n
commod|t|os. Ch|na's urban popu|at|on |s grow|ng vory tast. ln 1078
tho country was on|y 18 porcont urban|zod. 1oday |t |s a|most b0
porcont urban|zod, w|th moro than 170 c|t|os ovor a m||||on poop|o, and
a numbor ot mogac|t|os w|th popu|at|ons oxcood|ng 10 m||||on. Evory
yoar anothor 20 m||||on or so Ch|noso movo trom tho countrys|do
|ook|ng tor work and hous|ng and a h|ghor standard ot ||v|ng. Askod by
Goorgo W. 3ush what worry kopt h|m up at n|ght, lros|dont |u 1|ntao
sa|d that h|s b|ggost concorn was croat|ng 2b m||||on now jobs a
yoar.' 1hat was tho bas|c roqu|romont tor both dovo|opmont and soc|a|
stab|||ty.
8
As a rosu|t ot th|s bu||d-out, tho country has bocomo a vast
construct|on s|to tor homos and tactor|os and ott|cos and pub||c
sorv|cos, roqu|r|ng not on|y moro onorgy but a|so moro commod|t|os ot
a|| k|nds-a soom|ng|y ond|oss domand tor concroto, stoo|, and
coppor w|r|ng. An oxpans|on on th|s sca|o w||| ||ko|y moan roa| ostato
booms and bubb|os and busts. lt |s on|y whon |t |s |argo|y t|n|shod and
Ch|na, ma|n|y urban|zod, somot|mo |n tho 2080s and 2040s, that tho
tompo ot domand w||| s|ow.
A|| th|s growth, a|| th|s now construct|on, a|| thoso now tactor|os, a||
thoso now apartmonts and tho|r now app||ancos, and a|| tho
transportat|on that comos w|th th|s-a|| ot |t doponds upon onorgy. 1h|s
|s on top ot tho hugo onorgy roqu|romonts ot a|| tho tactor|os that mako
Ch|na tho wor|d's |oad|ng manutactur|ng country and supp||or ot goods
to tho g|oba| oconomy. lt a|| adds up-moro coa|, moro o||, moro
natura| gas, moro nuc|oar powor, moro ronowab|os. 1oday coa|
roma|ns tho backbono ot Ch|na's onorgy. 3ut |n torms ot tho
ro|at|onsh|p w|th |ntornat|ona| markots and tho wor|d oconomy, tho
dom|nat|ng tactor |s o||.
CROW1E AND ANX|E1Y
Ch|na's rap|d growth |n o|| domand gonoratos groat anx|oty, both tor
Ch|na and tor tho rost ot tho wor|d. |or Ch|noso o|| compan|os, and tho
govornmont, assur|ng sutt|c|ont o|| supp||os |s a nat|ona| |mporat|vo. lt
|s cruc|a| to 3o|j|ng's v|s|on ot onorgy socur|ty-guarantoo|ng that
shortagos ot onorgy do not constra|n tho oconom|c growth that |s
roqu|rod to roduco povorty and tamp down tho soc|a| and po||t|ca|
turbu|onco that cou|d othorw|so onsuo |n such a tast-chang|ng soc|oty.
At tho samo t|mo, a sharp awaronoss has dovo|opod that r|s|ng onorgy
domand must bo ba|ancod w|th groator onv|ronmonta| protoct|ons.
ln othor countr|os, somo toar that tho Ch|noso compan|os, |n tho|r
quost tor o||, cou|d proompt tuturo supp||os around tho wor|d-and
dony accoss to othor countr|os. 3omo a|so worry that tho |nov|tab|o
growth |n Ch|noso domand, a|ong w|th that ot othor tast-grow|ng
omorg|ng markots, w||| put unboarab|o and unsusta|nab|o prossuro on
wor|d o|| supp||os-|oad|ng to g|oba| shortago.
1hoso anx|ot|os suddon|y burst |nto v|ow |n 2004-tho yoar ot tho
g|oba| domand shock, whon wor|d o|| consumpt|on grow |n a s|ng|o
yoar by what norma||y wou|d havo boon tho growth ovor two and a ha|t
yoars. 1ho surgo |n Ch|noso consumpt|on was ono ot tho contra|
o|omonts |n tho jump |n domand.
1ho domand shock torcod porcopt|ons to catch up w|th a
tundamonta| roa||ty. Unt|| thon, many had soon Ch|na ma|n|y as a |ow-
cost compot|tor, a manutacturor ot choap goods, a cha||ongo to wagos
|n |ndustr|a| countr|os, and tho supp||or tor tho sho|vos |n Wa|mart and
1argot and othor d|scount storos around tho wor|d. Ch|na, w|th |ts |ow
costs, had bocomo tho Groat lnt|at|on l|d, g|v|ng contra| bankors tho
comtort to a||ow tastor oconom|c growth than thoy othorw|so wou|d too|
sato do|ng.
3ut now ono a|so had to |ook at Ch|na as a markot ot doc|s|vo
|mportanco, w|th tho hott to s|gn|t|cant|y attoct tho supp|y and domand
-and, thorotoro, tho pr|co-ot o||, a|ong w|th othor commod|t|os and
a|| sorts ot othor goods. Unt|| 2004 |t wou|d novor havo occurrod to
motor|sts |n tho Un|tod 3tatos or Europo that tho pr|cos thoy pa|d at
tho pump cou|d bo so strong|y |nt|uoncod by bott|onocks |n coa|
supp||os and shortagos ot o|octr|c|ty |n Ch|na that wou|d torco a
suddon sw|tch to o||. And |t corta|n|y wou|d novor havo occurrod to tho
managomont ot Gonora| Votors, tho prototyp|ca| Amor|can car
company, that w|th|n just a tow yoars |t wou|d bo so|||ng moro now cars
|n Ch|na than tho Un|tod 3tatos. 3ut such |s tho now roa||ty ot today's
g|oba| oconomy. 1h|s |s a|so truo tor trado |n gonora|. Ch|na |s tho
b|ggost oxport markot tor countr|os ||ko 3raz|| and Ch||o-not
nocossar||y surpr|s|ng tor countr|os that oxport commod|t|os. |or
countr|os ||ko Gormany, Ch|na |s now a|so a koy oxport markot.
|or tho o|| markot, thoro |s on|y ono moan|ngtu| ana|ogy tor Ch|na's
rap|d|y grow|ng |mportanco. lt was tho mass|vo growth |n potro|oum
domand-and |mports-|n Europo and 1apan |n tho 10b0s and 1000s
that rosu|tod trom tho rap|d oconom|c growth dur|ng tho yoars ot tho|r
oconom|c m|rac|os. 1hat growth |n domand corta|n|y had a
transtormat|vo |mpact on tho wor|d onorgy scono and on g|oba|
po||t|cs.
3ut thoro |s a r|sk around th|s chango |n tho ba|anco |n tho wor|d o||
markot: that commorc|a| compot|t|on cou|d turn |nto a nat|ona| r|va|ry
that gots cast |n torms ot throats' and socur|ty,' d|srupt|ng tho work|ng
ro|at|onsh|ps that tho wor|d oconomy roqu|ros. As a|ways |n
|ntornat|ona| ro|at|ons, tho dangor |s that m|sca|cu|at|on and
m|scommun|cat|on can |n turn osca|ato socur|ty r|sks' |nto somoth|ng
moro sor|ous-controntat|on and cont||ct.
1h|s omphas|zos tho |mportanco ot not rocast|ng commorc|a|
compot|t|on |nto potro-r|va|ry and a contost ot nat|on-statos. Attor a||,
chango |s |nov|tab|o as a rosu|t ot Ch|na's rap|d|y grow|ng oconomy
and trom tho now ba|anco that w||| |nov|tab|y rosu|t. Voroovor, tho
g|oba| o|| and gas markots do not ox|st |n a vacuum. 1hoy aro part ot a
much |argor and ovor moro donso notwork ot oconom|c ||nkagos and
connoct|ons, |nc|ud|ng hugo trado and t|nanc|a| and |nvostmont t|ows-
and, |ndood, t|ows ot poop|o. 1hoso connoct|ons, ot courso, gonorato
tho|r own tons|ons, part|cu|ar|y around trado and curronc|os. Yot
ovora||, tho mutua| bonot|ts and common |ntorosts much outwo|gh tho
po|nts ot cont||ct.
Whatovor tho tons|ons today, th|s dogroo ot |ntograt|on and
co||aborat|on wou|d havo boon |nconco|vab|o |n tho oar||or ora ot
controntat|on, whon Vao proc|a|mod that tho oast |s rod' and tho
3amboo Curta|n c|osod ott Ch|na trom tho rost ot tho wor|d.
POOR |N O|L"
On a 3unday n|ght, trom tho top t|oor ot tho Ch|na Wor|d |oto|, ono
|ooks down at an ond|oss stroam ot hoad||ghts, g||d|ng |n mu|t|p|o
stroams, trom tho tour |anos |n oach d|roct|on ot Chang'an Avonuo,
3o|j|ng's most |mportant road, onto tho o|ovatod 1h|rd l|ng load
oxprossway, wh|ch |s constant|y at capac|ty. 1h|s |s tho now Ch|na.
3at|sty|ng thoso stroams ot domand |s part ot Ch|na's prooccupat|on
whon |t comos to o||.
1horo was no way that Zhou O|ngzu, tho vonorab|o ch|ot oconom|st
ot Ch|na lat|ona| lotro|oum Company, cou|d havo |mag|nod tho
panorama ho was watch|ng, twonty t|oors down, whon ho jo|nod tho o||
|ndustry as a goo|og|st |n 10b2. At that t|mo, Ch|na's ont|ro product|on
was |oss than 8,b00 barro|s a day. As h|s t|rst ass|gnmont, ho was sont
to Ch|na's tar wost to jo|n an oar|y oxp|orat|on ottort. |o was ono ot just
a sma|| handtu| ot goo|og|sts go|ng |nto an |ndustry whoso prospocts
woro hard|y prom|s|ng. 0ocados oar||or, attor Wor|d War l, a 3tantord
Un|vors|ty protossor had do||vorod what had boon takon as tho
dot|n|t|vo vord|ct: Ch|na w||| novor produco |argo quant|t|os ot o||.' 1ho
moagor oxpor|onco ot tho succood|ng docados soomod to boar out
that conc|us|on.
Yot attor tho 3ocond Wor|d War, no ono cou|d doubt that o|| was
ossont|a| tor a modorn oconomy-and tor m|||tary m|ght and po||t|ca|
powor. 3ut Ch|na had v|rtua||y no o|| ot |ts own and had to dopond on
|mports to moot |ts noods. |o||ow|ng tho v|ctory ot Vao 1so-tung's
commun|st rovo|ut|on |n 1040, tho Un|tod 3tatos sought to ||m|t
Wostorn o|| oxports to Ch|na and thon, attor tho outbroak ot tho Koroan
War, to cut thom ott a|togothor, wh|ch constra|nod Ch|noso m|||tary
oporat|ons dur|ng tho war. 3o|t-ro||anco' bocamo an urgont
|mporat|vo, and Vao's t|vo-yoar p|ans mado tho dovo|opmont ot tho o||
|ndustry a vory h|gh pr|or|ty. 0osp|to d|sappo|nt|ng rosu|ts trom
oxp|orat|on, tho Ch|noso |oadorsh|p s|mp|y rotusod to accopt that
Ch|na was poor |n o||.'
1ho Ch|noso lovo|ut|on d|d havo ono assot on wh|ch to draw |n tho
soarch tor o||-|ts tratorna| ro|at|ons w|th |ts commun|st brothron, tho
3ov|ot Un|on, wh|ch was a |argo o|| producor. Wo woro just gott|ng
startod,' roca||od Zhou. Our major toachors woro tho luss|ans. Wo
ca||od tho luss|ans 'our b|g brothors.' ' 1ho 3ov|ots sont oxports,
oqu|pmont, tochno|ogy, and t|nanc|a| a|d to Ch|na, and a who|o
gonorat|on ot young Ch|noso wont ott |n tho othor d|roct|on, to
Voscow, to bo tra|nod |n potro|oum.
4
3omo now t|o|ds woro dovo|opod |n tho romoto wost, w|th 3ov|ot
ho|p, but tho ovora|| rosu|ts, as Zhou tound trom porsona| oxpor|onco,
woro a|most nog||g|b|o. loss|m|sm was so r|to that somo Ch|noso
oxports thought tho country shou|d turn to synthot|c o||, mak|ng
potro|oum trom |ts abundant coa| rosourcos, as tho Gormans had dono
dur|ng tho 3ocond Wor|d War.
DAO|NC : 1EE CREA1 CELEBRA1|ON"
3ut thon, unoxpoctod|y, |n tho grass|ands ot tho northoast, |n
Vanchur|a, a vast now o|| t|o|d was tound. lt was ca||od 0aq|ng-wh|ch
moans Groat Co|obrat|on.'
1ho dovo|opmont ot tho t|o|d, arduous as |t was, bocamo ovon moro
d|tt|cu|t whon tho brothorhood' w|th tho 3ov|ot Un|on sp||ntorod and
tho two countr|os bocamo b|ttor r|va|s tor |oadorsh|p ot tho commun|st
wor|d. Voscow abrupt|y pu||od out |ts poop|o and oqu|pmont, and
domandod ropaymont ot dobts. Vao ropa|d tho 3ov|ots |n v|tuporat|on,
donounc|ng thom as ronogados and scabs . . . s|avos and
accomp||cos ot |mpor|a||sm, ta|so tr|onds and doub|o-doa|ors.'
1ho Ch|noso woro now on tho|r own tor 0aq|ng. lo modorn
tochno|ogy. lo noarby urban aroas. lo hous|ng. 1housands and
thousands ot o|| t|o|d workors woro hast||y d|spatchod ||ko troops |n a
m|||tary campa|gn. 0osp|to tho harsh co|d, thoy s|opt |n tonts or huts or
ho|os |n tho ground or just out |n tho opon, thoy usod cand|os and
bont|ros tor ||ght and hoat, thoy scroungod tho countrys|do tor w||d
vogotab|os. Oporat|ons woro hoadquartorod |n catt|o shods. And thoy
workod torr|b|y hard. 1o mako mattors worso, tho 3ov|ots roducod
tho|r o|| oxports to Ch|na. Onco |mports aro cut ott, a|rp|anos cou|d bo
torcod to stop t|y|ng,' warnod ono son|or ott|c|a|, corta|n combat
voh|c|os cou|d bo torcod to stop oporat|ng.' |o addod, Wo shou|d not
ro|y on |mports aga|n.' |rom thon on, so|t-sutt|c|oncy and tho
dotorm|nat|on roprosontod by tho 3p|r|t ot 0aq|ng' bocamo tho
gu|d|ng pr|nc|p|os ot Ch|na's o|| dovo|opmont.
b
|RON NAN" WANC
1ho ombod|mont ot tho 3p|r|t ot 0aq|ng bocamo a dr|||or namod Wang
1|nx|. |o ach|ovod tamo across Ch|na as tho lron Van ot 0aq|ng
o||t|o|d' and was co|obratod as tho nat|ona| modo| workor.' Accord|ng
to |ogond, whon Wang had onco v|s|tod 3o|j|ng , ho had soon busos
w|th |argo un|ts on top that burnod coa| to mako gas to powor tho
voh|c|os. 1o Wang , th|s c|oar ov|donco ot Ch|na's shortago ot o|| was
an outrago. l s|mp|y want to now opon tho oarth w|th my t|st,' ho
doc|arod, to |ot tho b|ack o|| gush out and dump our backwardnoss |n
potro|oum |nto tho lac|t|c.'
Wang's toam dr|||od at a tur|ous rato. Wang h|mso|t wou|d not bo
stayod. Attor ono |njury, |t |s sa|d, ho cropt out ot tho hosp|ta| and wont
back to tho dr||||ng s|to, whoro ho d|roctod oporat|ons trom h|s
crutchos. ln h|s most tamous oxp|o|t, |n ordor to provont a b|owout that
wou|d havo dostroyod tho dr||||ng r|g , ho ordorod bags ot comont to bo
pourod |nto a p|t. 3|nco thoro was no m|xor, Wang jumpod |n and
m|xod tho comont w|th h|s |ogs, torosta|||ng tho b|owout and turthor
|njur|ng h|mso|t. |o||ow|ng tho succoss ot 0aq|ng, lrom|or Zhou En la|
wo|comod lron Van Wang and h|s to||ow 0aq|ng workors to 3o|j|ng as
nat|ona| horoos. Vao h|mso|t doc|arod that Ch|noso |ndustry shou|d
|oarn trom tho 0aq|ng o|| t|o|d.'
Vany othor t|o|ds to||owod, tho paco pushod by a tamous o|| m|n|stor
and |ator v|co prom|or, Kang 3h|on. Ch|na succoodod |n bocom|ng
so|t-sutt|c|ont |n potro|oum, wh|ch, tho Poop|o`s Lol|y announcod, had
b|own tho thoory ot o|| scarc|ty |n Ch|na sky h|gh.' Anothor pub||cat|on
doc|arod that, 1ho so-ca||od thoory that Ch|na |s poor |n o|| on|y sorvos
tho U.3. |mpor|a||st po||cy ot aggross|on and p|undor.' 1ho Un|tod
3tatos was not tho on|y antagon|st. 1ho v|ctory |n tho o|| campa|gn was
a|so ha||od as a tus|||ado aga|nst tho 3ov|ot rov|s|on|st ronogado
c||quo.'
0
RED CuARD5
ln tho m|d-1000s, Vao rocogn|zod that ho was bo|ng pushod as|do
bocauso ot tho d|sma| ta||uro ot h|s d|sastrous oconom|c po||cy, tho
Groat loap |orward, wh|ch had causod an ost|matod 80 m||||on
poop|o to d|o trom starvat|on. ln 1000 ho countorattackod and
doc|arod war on tho Commun|st larty |tso|t, charg|ng that |t had boon
capturod by ronogados w|th bourgoo|s monta||ty.' 1o carry out h|s
Cu|tura| lovo|ut|on,' Vao mob|||zod youthtu| zoa|ots, tho lod Guards,
who wagod a v|c|ous batt|o aga|nst a|| tho |nst|tut|ons ot soc|oty,
whothor ontorpr|sos, govornmont buroaus, un|vors|t|os, or tho party
|tso|t. lrom|nont t|guros woro hum|||atod, paradod around w|th donkoy
hoads, boaton up, sont to do manua| |abor, or k|||od. Un|vors|t|os
c|osod, and young poop|o woro d|spatchod to tactor|os or tho
countrys|do to to|| w|th tho massos. 1ho nat|on was |n turmo||.
7
3ut bocauso ot tho o|| |ndustry's |mportanco to nat|ona| socur|ty,
lrom|or Zhou En la| took |t undor h|s porsona| protoct|on, us|ng tho
army to |nsu|ato tho |ndustry and onsuro that |t kopt work|ng. 1h|s |od to
notab|o |ncongru|t|os. 0ur|ng tho day, l organ|zod product|on as
usua|,' roca||od Zhou O|ngzu, tho ch|ot oconom|st at CllC. At n|ght, l
wou|d s|t |n tront ot tho studonts and workors and say l was wrong and
apo|og|zo and wr|to out my orrors and apo|og|os. l wou|d ||ston vory
attont|vo|y to tho|r cr|t|c|sm and wr|to notos. 0ur|ng tho day, l was a
boss. At n|ght, l was a nobody.'
8
Evontua||y tho Cu|tura| lovo|ut|on wont too tar ovon tor Vao, |n torms
ot tho chaos |t had croatod, and ho usod tho army to thrott|o back tho
lod Guards.
EXPOR1 A5 NuCE O|L A5 WE CAN"
|onry K|ss|ngor, lros|dont l|xon's spoc|a| ass|stant tor nat|ona|
socur|ty, to|| ||| dur|ng a d|nnor |n h|s honor |n lak|stan |n 1u|y 1071.
lak|stan's pros|dont, tho d|nnor's host, stronuous|y suggostod that
K|ss|ngor, |n ordor to oscapo tho hoat and thus spood h|s rocovory,
shou|d rocuporato |n an ostato up |n tho much coo|or h|||s. 1h|s was
vory dot|n|to|y a d|p|omat|c |||noss. 1ho supposod tr|p to tho h|||s was a
ruso, to prov|do covor tor K|ss|ngor's roa| purposo. Voanwh||o,
K|ss|ngor h|mso|t-now codo-namod lr|nc|pa| 1ravo||or'-was g|von
a hat and sung|assos to d|sgu|so h|mso|t at tho a|rport pr|or to tak|ng
ott tor h|s actua| dost|nat|on, a|though tho d|sgu|so m|ght havo soomod
a ||tt|o oxcoss|vo s|nco |t was 4 a.m. |n tho morn|ng.
0
On|y a wook |ator d|d tho sonsat|ona| nows broak. |rom lak|stan,
K|ss|ngor had t|own socrot|y ovor tho ||ma|ayas to 3o|j|ng, croat|ng an
opon|ng |n tho 3amboo Curta|n that had surroundod Ch|na s|nco tho
commun|st v|ctory |n 1040. |a|t a yoar |ator, lros|dont l|chard l|xon
wont through that opon|ng. ln tho courso ot h|s h|stor|c v|s|t to 3o|j|ng ,
l|xon suppod w|th Vao, c||nkod g|assos w|th Zhou En la|, and
dramat|ca||y rosot tho tab|o ot |ntornat|ona| ro|at|ons.
|or both s|dos |t was a mattor ot roa|po||t|k. 1ho Un|tod 3tatos,
|ook|ng tor a way out ot tho sta|omatod v|otnam War, wantod to croato
a ba|anco aga|nst tho 3ov|ot Un|on. |or Ch|na, th|s was a moans to
strongthon |ts stratog|c pos|t|on aga|nst tho 3ov|ot Un|on and roduco
tho r|sk ot a two-tront war' w|th tho 3ov|ot Un|on and tho Un|tod
3tatos. 1h|s was no moro thoorot|ca| mattor, tor luss|an and Ch|noso
m|||tary torcos had a|roady c|ashod on tho bordor a|ong tho Amur and
Ussur| r|vors.
1ho Ch|noso had a socond sot ot roasons as wo||. 1ho most v|ru|ont
phaso ot tho Cu|tura| lovo|ut|on was ovor. v|co lrom|or 0ong
X|aop|ng and othors woro try|ng to got tho country work|ng aga|n. 1hoy
know that so|t-ro||anco cou|d not work. Ch|na noodod accoss to
|ntornat|ona| tochno|ogy and oqu|pmont to modorn|zo tho oconomy and
rostoro oconom|c growth. 3ut a vory b|g obstac|o stood |n tho way:
|ow to pay tor such |mports?
lotro|oum oxport-|od growth'-that was 0ong's answor. 1o
|mport, wo must oxport,' ho sa|d |n 107b. 1ho t|rst to my m|nd |s o||.'
1ho country must oxport as much o|| as wo can. Wo may obta|n |n
roturn many good th|ngs.'
3y th|s t|mo, 0ong was a|roady bocom|ng tho managor-|n-ch|ot ot
tho now stratogy ot opon|ng toward tho wor|d. A sta|wart commun|st
s|nco h|s studont and workor days |n |ranco attor Wor|d War l, ho had
omorgod as ono ot tho top |oadors attor tho commun|sts camo to
powor. |o thon bocamo ono ot tho toromost targots ot tho Cu|tura|
lovo|ut|on and ot h|s |ott|st r|va|s. ||s tam||y had suttorod much, h|s
son had boon pushod out ot an uppor-t|oor w|ndow and |ott para|yzod.
0ong h|mso|t had spont thoso yoars var|ous|y work|ng |n a tractor
ropa|r shop and by h|mso|t, |n so||tary cont|nomont. |o had spont many
hours pac|ng h|s courtyard, ask|ng h|mso|t what had gono so wrong
undor Vao and how Ch|na's oconomy cou|d bo rostorod. ln somo
ways, ho had a|ways boon a pragmat|st. (Evon wh||o organ|z|ng
undorground commun|st act|v|t|os |n |ranco attor Wor|d War l, ho had
a|so startod and run a succosstu| Ch|noso rostaurant.) 1ho traumas ot
tho Cu|tura| lovo|ut|on-nat|ona| and porsona|-on|y ro|ntorcod h|s
pragmat|sm and roa||sm. ||s tundamonta| mottos woro about bo|ng
pract|ca|-cross|ng tho r|vor by touch|ng tho stonos'-and tho most
tamous max|m ot a||: that ho d|dn't caro whothor a cat was b|ack or
wh|to so |ong as |t caught m|co.
10


|o||ow|ng Vao's doath and attor a br|ot strugg|o w|th tho rad|ca| Gang
ot |our,' 0ong socurod h|s pos|t|on as paramount |oador. |o cou|d
now |n|t|ato tho groat transtormat|on that wou|d |oad to Ch|na's
|ntograt|on w|th tho g|oba| oconomy-wh|ch tho 11th Congross ot tho
Commun|st larty, |n 1078, wou|d proc|a|m as tho h|stor|c po||cy ot
rotorm and opon|ng.'
1ho o|| |ndustry was contra| to tho opon|ng. 3y that t|mo, Ch|na-no
|ongor poor |n o||'-was produc|ng potro|oum |n oxcoss ot |ts own
noods and cou|d start oxport|ng |t. 1horo was a wa|t|ng markot noarby
-1apan-wh|ch wantod to roduco |ts ro||anco on tho V|dd|o East and,
at tho samo t|mo, dovo|op oxport markots |n Ch|na tor |ts own
manutacturos. 3uy|ng Ch|noso o|| wou|d ho|p on both counts.
As tho door bogan to opon to tho outs|do wor|d, tho Ch|noso o||
|ndustry d|scovorod, to |ts shock, how w|do was tho tochno|ogy gap
that soparatod |t trom tho |ntornat|ona| |ndustry. 3ut now, bo|storod by
|ts o||-oxport oarn|ngs, |t cou|d buy trom abroad tho dr||||ng r|gs,
so|sm|c capab|||t|os, and othor oqu|pmont that wou|d ||tt |ts tochn|ca|
ab|||t|os.
Wh||o Vao's doath and 0ong's ascons|on woro cr|t|ca| to tho
opon|ng ot Ch|na, thoso ovonts d|d not put an ond to tho turmo||.
lnt|at|on, corrupt|on, and |noqua||ty ombo|donod oppononts ot rotorm.
3o d|d tho b|oody 1080 controntat|on w|th studonts |n 1|ananmon
3quaro. ln tho attormath, am|d tho |ndoc|s|on ot tho |oadorsh|p, tho
ottorts to cont|nuo markot rotorm stagnatod. 3ook|ng to jump-start tho
ta|tor|ng rotorms, 0ong, |n 1anuary 1002, |aunchod h|s |ast groat
campa|gn-tho oooxoo, or southorn journoy.' 1h|s tr|p showcasod tho
boom|ng 3poc|a| Econom|c Zono ot 3honzhon, wh|ch was bocom|ng a
manutactur|ng contor tor oxports, and sought, tundamonta||y, to oraso
tho st|gma trom mak|ng monoy. ||s mossago was that tho on|y th|ng
that mattorod |s dovo|op|ng tho oconomy.' lt was dur|ng th|s tour that
0ong a|so mado a stunn|ng rovo|at|on-ho had novor actua||y road tho
b|b|o ot commun|sm, Kar| Varx's Los Koplto|. |o novor had tho t|mo,
ho sa|d. |o had boon too busy.
11
WORK5EOP OF 1EE WORLD
ln tho yoars attor 0ong's southorn journoy,' Ch|na conso||datod |ts
courso ot rotorm and movod toward |ntograt|on w|th tho g|oba|
oconomy. 1ho 1000s was a docado ot a now, much moro
|ntorconnoctod oconomy. On 1anuary 1, 100b, tho Wor|d 1rado
Organ|zat|on was ostab||shod to br|ng down barr|ors and tac|||tato
g|oba| trado and |nvostmont. Wor|d trado was grow|ng much tastor
than tho g|oba| oconomy |tso|t. Amor|can and Europoan compan|os
woro sott|ng up supp|y cha|ns that gathorod compononts trom d|ttoront
parts ot tho wor|d, assomb|od thom |n st||| othor parts, and thon packod
tho t|n|shod goods |nto conta|nors and sh|ppod thom across ocoans to
customors anywhoro |n tho wor|d. A|though Ch|na d|d not torma||y jo|n
tho W1O unt|| 2001, |t had by thon a|roady bocomo tho ||nchp|n |n th|s
now systom ot g|oba| supp|y cha|ns.
As tactor|os wont up a|| a|ong tho coasta| rog|on, tho |nscr|pt|on
Vado |n Ch|na' bocamo ub|qu|tous on a|| sorts ot products sh|ppod a||
ovor tho wor|d. Ch|na had now bocomo what was sa|d ot 3r|ta|n two
contur|os oar||or-tho workshop ot tho wor|d.' ln duo courso, thoso
now trado and |nvostmont ||nkagos wou|d havo much groator |mpact
on wor|d onorgy than anyono m|ght havo |mag|nod. |or any workshop
noods onorgy on wh|ch to run, and th|s now workshop ot tho wor|d
wou|d run on toss|| tuo|s.
1EE END OF 5ELF-5uFF|C|ENCY
A|roady, howovor, a tow yoars oar||or, Ch|na had crossod a groat
d|v|do |n torms ot onorgy. 3y 1008 potro|oum product|on cou|d no
|ongor koop up w|th tho r|s|ng domost|c domand ot tho rap|d|y grow|ng
oconomy. As a rosu|t, Ch|na wont trom bo|ng an o|| oxportor to an o||
|mportor. 1hough not at t|rst not|cod by tho rost ot tho wor|d, |t was tor
Ch|na an |mmod|ato shock. 1ho govornmont thought |t was a
d|sastor,' romomborod ono Ch|noso o|| oxport. lt was vory nogat|vo|y
roco|vod. |rom an |ndustry po|nt ot v|ow, wo to|t vory shamod. lt was a
|oss ot taco. Wo cou|dn't supp|y our own oconomy. 3ut somo scho|ars
and oxports to|d us, 'You can't bo so|t-sutt|c|ont |n ovoryth|ng. You
|mport somo th|ngs, and oxport othors.' '
12
1h|s addod groat|y to tho urgoncy to turthor modorn|zo tho structuro
ot tho o|| |ndustry-to movo trom tho a||-oncompass|ng m|n|str|os ot tho
potro|oum and chom|ca| |ndustr|os, basod on r|g|d contra| p|ann|ng, to
a systom basod on compan|os and rootod |n tho markotp|aco. 1ho
toundat|on tor th|s sh|tt had a|roady boon |a|d |n tho 1080s. 1ho throo
stato-ownod compan|os had omorgod trom tho m|n|str|os: tho Ch|na
lat|ona| lotro|oum Company, CllC, 3|nopoc, tho Ch|na
lotrochom|ca| Corporat|on, and ClOOC, tho Ch|na lat|ona| Ottshoro
O|| Company. 1ho noxt movo, bog|nn|ng |n tho |ato 1000s, was to
dramat|ca||y rostructuro tho throo compan|os |nto moro modorn,
tochno|og|ca||y advancod compan|os-and moro |ndopondont
ontorpr|sos. 1hoy wou|d nood to oarn a ||v|ng,' sa|d Zhou O|ngzu. lt
was at th|s po|nt that thoy wou|d go through llOs, opon|ng part|a|
ownorsh|p to sharoho|dors around tho wor|d. CllC's subs|d|ary was
g|von a now namo-lotroCh|na-wh||o 3|nopoc and ClOOC usod
tho|r ox|st|ng namos tor tho|r ||stod subs|d|ar|os. 1horo was a|so an
onormous cu|tura| chango. low you'd havo to bo compot|t|vo,' sa|d
Zhou. You novor had to bo compot|t|vo botoro.'
18
1EE CO Ou1" 51RA1ECY: u5|NC 1WO LEC5
1O WALK
Ch|na has bocomo a grow|ng prosonco |n tho g|oba| o|| and natura|
gas |ndustry. 1h|s now ro|o goos by tho namo ot tho go out' stratogy. lt
was onunc|atod as po||cy around 2000, though tho po||cy's roots
oxtond back to tho or|g|na| rotorms ot 0ong X|aop|ng.
1ho t|rst stops abroad woro vory sma|| onos, bog|nn|ng |n Canada,
thon 1ha||and, lapua-low Gu|noa, and lndonos|a. ln tho m|d-1000s,
CllC acqu|rod a v|rtua||y abandonod o|| t|o|d |n loru. 3y app|y|ng tho
k|nd ot |ntonso rocovory tochn|quos |t had honod to coax moro o|| out
ot comp|ox o|dor o|| t|o|ds |n Ch|na, |t took tho t|o|d trom 000 barro|s a
day to 7,000. 3ut thoso projocts woro sma|| and d|d not got much
attont|on. lt took t|mo and oxpor|onco tor tho cont|donco to bu||d tor
s|gn|t|cant |ntornat|ona| act|v|t|os. Wo know that, trom |ts bog|nn|ng |n
tho m|d-n|notoonth contury, tho o|| |ndustry was a|ways an |ntornat|ona|
|ndustry,' sa|d Zhou 1|p|ng, tho pros|dont ot lotroCh|na. lt you wantod
to bocomo an |ntornat|ona| o|| company |n tho roa| sonso, you had to
go out.' 3y tho bog|nn|ng ot tho now contury, a po||cy consonsus had
tormod around tho |doa ot |ntornat|ona| oxpans|on, a|ong w|th
cont|donco |n tho capab|||t|os ot tho Ch|noso compan|os to |mp|omont
|t.
14
ln gonora|, tho go out' phaso moant tho |ntornat|ona||zat|on ot
Ch|noso t|rms-that thoy shou|d bocomo compot|t|vo |ntornat|ona|
compan|os w|th accoss both to tho raw mator|a|s roqu|rod by tho
rap|d|y grow|ng oconomy and to tho markots |nto wh|ch to so|| tho|r
manutacturos. |or onorgy compan|os moro spoc|t|ca||y, |t moant that
tho part|y stato-ownod, part|y pr|vat|zod o|| compan|os shou|d own,
dovo|op, contro|, or |nvost |n toro|gn sourcos ot o|| and natura| gas. |or
tho o|| |ndustry, th|s was comp|omontod by anothor s|ogan-us|ng two
|ogs to wa|k'-ono, to turthor dovo|opmont ot tho domost|c |ndustry, tho
othor, tor |ntornat|ona| oxpans|on.
1oday tho |mpact ot tho go out' stratogy |s ov|dont wor|dw|do.
Ch|noso o|| compan|os aro act|vo throughout Atr|ca and lat|n Amor|ca
(as aro Ch|noso compan|os trom othor soctors). C|osor to homo thoy
havo acqu|rod s|gn|t|cant potro|oum assots |n no|ghbor|ng Kazakhstan
and havo ach|ovod somo pos|t|ons |n luss|a attor ropoatod tr|os. 1hoy
aro dovo|op|ng natura| gas |n 1urkmon|stan. As |atocomors |nto tho
|ntornat|ona| |ndustry, tho Ch|noso como oqu|ppod not on|y w|th o|| t|o|d
sk|||s but a w||||ngnoss and tho t|nanc|a| rosourcos to pay a prom|um to
got |nto tho gamo. A|so, part|cu|ar|y |n Atr|ca, thoy mako thomso|vos
partnors ot cho|co w|th vory s|gn|t|cant va|uo addod.' 1hat |s, thoy
br|ng govornmont-tundod dovo|opmont packagos-ho|p|ng to bu||d
ra||roads, harbors, and roads-somoth|ng that |s not |n tho too| k|t ot
trad|t|ona| Wostorn compan|os. 1h|s has ongondorod controvorsy.
Cr|t|cs chargo that Ch|na |s co|on|z|ng Atr|ca and us|ng Ch|noso rathor
than |oca| |abor. Ch|noso rop|y that thoy aro do|ng much to croato
markots tor Atr|can commod|ty oxports, and that oxport oarn|ngs aro
bottor than toro|gn a|d and do moro to st|mu|ato |ast|ng oconom|c
growth. (3omo ot thoso packagos havo ta||on apart.) Ch|noso banks,
|n coord|nat|on w|th tho Ch|noso o|| compan|os, havo a|so mado
mu|t|b||||on-do||ar |oans to a numbor ot countr|os that w||| bo pa|d back
|n tho torm ot o|| or gas ovor a numbor ot yoars. (Ono such doa| took
t|ttoon yoars to work out. )
1b
1ho onorgy socur|ty stratogy |s a|so tak|ng an obv|ous routo-
bu||d|ng p|po||nos to d|vors|ty, roduco dopondonco on soa-|anos, and
strongthon connoct|ons w|th supp||or countr|os. A now sot ot p|po||nos,
bu||t |n rocord t|mo, br|ngs o|| and gas trom 1urkmon|stan and
Kazakhstan to Ch|na. luss|a's $22 b||||on East 3|bor|a-lac|t|c Ocoan
l|po||no w|||, |n add|t|on to supp|y|ng o|| to tho lac|t|c (1apan and
Koroa pr|mar||y), a|so do||vor luss|an o|| to Ch|na-guarantood by a
$2b b||||on |oan that Ch|na advancod to luss|a. ln 3optombor 2010
Ch|noso pros|dont |u 1|ntao and luss|an pros|dont 0m|try Vodvodov
jo|nt|y pushod tho button to start tho t|ow ot o|| ovor tho luss|an-
Ch|noso bordor. 1ho potont|a| tor a |argo trado |n natura| gas was a|so
ha||od. At tho coromony, |u proc|a|mod a now start' |n Ch|noso-
luss|an ro|at|ons. A ro|at|onsh|p that was onco basod upon Varx and
lon|n was now rootod |n o|| and poss|b|y gas.
10
L|KE 1EROW|NC A NA1CE"
3ut tho groatost controvorsy ovor tho go out' stratogy camo not |n
Atr|ca but |n tho Un|tod 3tatos. ln 200b Chovron and ClOOC-
Ch|noso lat|ona| Ottshoro O|| Corporat|on-woro |ockod |n a batt|o
roya| to acqu|ro tho |argo U.3. |ndopondont company Unoca|, wh|ch
had s|gn|t|cant o|| and gas product|on |n 1ha||and and lndonos|a but
a|so had somo |n tho Gu|t ot Vox|co. 1ho compot|t|on botwoon tho two
compan|os was vory tough, w|th sharp argumonts about tho t|nanc|a|
torms and tho ro|o ot Ch|noso t|nanc|a| |nst|tut|ons, as wo|| as tho
t|m|ng ot tho rospoct|vo ottors. |or somo |n 3o|j|ng, a g|oba| takoovor
batt|o was not on|y untam|||ar but d|sconcort|ng. 1ho pr|co that ClOOC
put on tho tab|o was groator than tho ont|ro cost ot tho hugo 1hroo
Gorgos 0am projoct, wh|ch had takon docados to bu||d. Attor months
ot batt|o, Chovron omorgod v|ctor|ous w|th a $17.8 b||||on b|d.
3ut |n tho courso ot takoovor batt|o, a t|ory po||t|ca| controvorsy
oruptod |n Wash|ngton that was out ot sca|o comparod w|th tho |ssuos.
Attor a||, Unoca|'s ont|ro product|on |n tho Un|tod 3tatos amountod to
just 1 porcont ot tho tota| U.3. output. Vuch ot |t was |n tho Gu|t ot
Vox|co, |n jo|nt vonturos w|th othor compan|os, and tho on|y markot tor
that output was tho Un|tod 3tatos. Yot whon tho contost got to
Wash|ngton, as ono ot tho Amor|can part|c|pants sa|d, |t was ||ko
throw|ng a match |nto a room t|||od w|th gaso||no.' |or |t bocamo tho
tocus ot a t|rostorm ot ant|-Ch|noso sont|mont on Cap|to| |||| that was
a|roady suporchargod by tho contont|ous hot-button |ssuos ot trado,
curronc|os, and jobs. 1ho hoatod rhotor|c showod tho |ntons|ty, at |oast
|n somo quartors, ot susp|c|ons ot Ch|na's mot|vos and mothods. Ono
cr|t|c to|d a congross|ona| comm|ttoo that ClOOC's b|d t|t |nto a
pattorn' ot act|v|ty around tho g|obo' that |s om|nous |n |ts
|mp||cat|on.' Anothor chargod that ClOOC's b|d was part ot Ch|na's
stratogy tor dom|nat|on ot onorgy markots and ot tho Wostorn
lac|t|c.' Whatovor tho spoc|t|cs ot tho takoovor batt|o, tho takoaway
tor tho Ch|noso at tho ond ot tho po||t|ca| batt|o was that tho Un|tod
3tatos |tso|t was |oss hosp|tab|o to tho oponnoss toward toro|gn
|nvostmont that |t proachod to othors and that tho Ch|noso compan|os
shou|d rodoub|o tho|r |nvostmont ottort-but o|sowhoro. 1ho wor|d was
shockod that a Ch|noso company cou|d mako th|s k|nd ot b|d,' sa|d |u
Chongyu, at tho t|mo tho CEO ot ClOOC. 1ho Wost was say|ng that
Ch|na |s chang|ng |n torms ot such th|ngs as bu||d|ng h|ghways. 3ut |t
was not pay|ng attont|on to Ch|na |tso|t and how Ch|na had changod.'
ln tho yoars that to||owod, tho changos bocamo much moro ov|dont.
Ch|na's pros|dont mado h|gh|y v|s|b|o stato v|s|ts to a numbor ot o||
and commod|tyoxport|ng countr|os |n tho V|dd|o East and Atr|ca,
bog|nn|ng w|th 3aud| Arab|a. And whon Ch|na convonod a summ|t ot
Atr|can pros|donts to d|scuss oconom|c cooporat|on, 48 ot tho
pros|donts mado tho tr|p. Ch|na shou|d buy trom Atr|ca and Atr|ca
shou|d buy trom Ch|na,' sa|d Ghana's pros|dont. l'm ta|k|ng about tho
w|n-w|n.'
1ho wor|d movos on. ln 2010, t|vo yoars attor tho t|ory batt|o ovor
Unoca|, Chovron and ClOOC announcod that thoy woro toam|ng up to
oxp|oro tor o|| not |n tho Gu|t ot Vox|co but |n tho wators ott Ch|na. Wo
wo|como tho opportun|ty to partnor w|th ClOOC,' sa|d a son|or
Chovron oxocut|vo.
17
|NOCa"
ln tho docado-p|us s|nco tho shaky days ot tho or|g|na| llOs, tho
Ch|noso compan|os havo bocomo h|gh|y v|s|b|o p|ayors |n tho wor|d o||
markot.
1ho|r |ntornat|ona| ro|os havo |nst|gatod a v|gorous dobato outs|do
Ch|na as to what dr|vos thom. Ono agonda |s ostab||shod by tho
govornmont (wh|ch roma|ns tho major|ty sharoho|dor) and tho party,
both ot wh|ch ma|nta|n ovors|ght. 1hoy aro to moot nat|ona| objoct|vos
|n torms ot onorgy, oconom|c dovo|opmont, and toro|gn po||cy. 1ho
CEOs ot tho major compan|os a|so ho|d v|co m|n|stor|a| govornmont
rank-and many a|so ho|d son|or party rank.
At tho samo t|mo, tho compan|os aro dr|von by strong commorc|a|,
compot|t|vo objoct|vos that aro s|m||ar to thoso ot othor |ntornat|ona| o||
compan|os, and, |ncroas|ng|y, tho|r commorc|a| |dont|t|os dot|no thom.
1hoy aro |ndood bonchmarkod aga|nst tho wor|d oconomy and othor
|ntornat|ona| o|| compan|os by tho |nvostors |n tho|r ||stod subs|d|ar|os,
and thoy havo to bo rospons|vo to tho|r |nvostors' |ntorosts. ln add|t|on,
thoy aro subjoct to |ntornat|ona| rogu|at|on and |ntornat|ona|
govornanco standards. And thoy manago |argo and comp|ox
bus|nossos that, |ncroas|ng|y, aro oporat|ng on a g|oba| sca|o.
As Zhou 1|p|ng put |t, As a nat|ona| o|| company, wo havo to moot
tho rospons|b|||t|os ot guarantoo|ng o|| and gas supp|y to tho domost|c
markot. As a pub||c company ||stod |n low York, |ong Kong, and
3hangha|, wo must bo rospons|b|o to our sharoho|dors and str|vo to
max|m|zo sharoho|dor va|uo. And, ot courso, wo havo a rospons|b|||ty
to tho 1.0 m||||on omp|oyoos ot our company.'
ln short, Ch|noso o|| compan|os aro hybr|ds, somowhoro botwoon
tho tam|||ar |ntornat|ona| o|| compan|os,' lOCs, and tho stato-ownod
nat|ona| o|| compan|os, lOCs. 1hoy havo bocomo a pr|mo oxamp|o ot
a now catogory ca||od llOCs-tho |ntornat|ona| nat|ona| o||
compan|os. 1horo has boon a groat chango |n poop|o's ovora||
psycho|ogy and ph||osophy s|nco tho llO,' sa|d tho CEO ot ono ot tho
compan|os. Wo usod to tocus on how much wo producod. low |t's
tho va|uo ot what wo do.'
1oday wa|k |nto tho hoadquartors ot somo ot tho compan|os |n
3o|j|ng and what ono soos aro not oxhort|ng s|ogans but tho op|tomo
ot tho |ntornat|ona| bonchmark|ng-t|ash|ng d|sp|ays ot tho stock pr|co
|n low York, |ong Kong , and 3hangha|. Yot |n tho |obby ot CllC,
ono |s a|so grootod by a vory strong rom|ndor ot how tho |ndustry was
bu||t-a mass|vo statuo ot lron Van Wang.
What |s tho ba|anco |n thoso llOCs? 1ho Ch|noso compan|os aro
somot|mos portrayod ma|n|y as |nstrumonts' ot tho stato. A now study
trom tho lntornat|ona| Enorgy Agoncy conc|udos othorw|so-that
commorc|a| |ncont|vo |s tho ma|n dr|vor' and that thoy oporato w|th a
h|gh dogroo ot |ndopondonco' trom tho govornmont. As tho lEA puts |t,
thoy aro major|ty-ownod by tho govornmont' but thoy aro not
govornmont-run.' As thoy bocomo |ncroas|ng|y |ntornat|ona||zod, thoy
oporato moro ||ko othor |ntornat|ona| compan|os.
|or a|| concornod, tho dovo|opmont ot tho Ch|noso compan|os has
boon an ovo|ut|on. |u Chongyu, now tho cha|rman ot 3|nopoc,
summod up tho changos th|s way: Evo|v|ng so comp|oto|y trom tu||
stato-ownorsh|p to jo|n tho ranks ot major |ntornat|ona| corporat|ons |s
a hugo transtormat|on-ono that, back whon l startod |n tho o||
bus|noss |n tho o|| t|o|ds ot 0aq|ng , wo novor thought cou|d bo
poss|b|o. 3ack |n thoso days, Ch|na's |argost sourco ot toro|gn
oxchango was not manutactur|ng, but |n tact sa|os ot o|| to 1apan!
1oday ovoryth|ng around us has changod. 3ut so havo wo.'
18
PROPOR1|ON
Ch|noso compan|os w||| ||ko|y bocomo b|ggor, moro prom|nont
p|ayors, thoy w||| corta|n|y compoto, but thoy w||| a|so bo shar|ng tho
stago w|th ostab||shod Amor|can, Europoan, V|dd|o Eastorn, luss|an,
As|an, and lat|n Amor|can compan|os-and otton |n partnorsh|ps.
|or a|| tho ta|k about Ch|na proompt|ng' wor|d supp||os, |ts ont|ro
ovorsoas product|on |s |oss than that ot just ono ot tho supormajor
compan|os. lt's vory hard to conco|vo ot Ch|na ovor bo|ng |n a pos|t|on
to proompt wor|d supp||os. Voroovor, wh||o somo ot Ch|noso ovorsoas
product|on |s sh|ppod to Ch|na, most ot |t |s so|d |nto wor|d markots at
tho samo pr|cos as s|m||ar grados ot potro|oum. 0ost|nat|on |s
dotorm|nod by tho bost pr|co, |oca| and |ntornat|ona|, tak|ng |nto
account transportat|on costs. And that |s a|| tho moro truo ot o|| trom
jo|nt vonturos, |n wh|ch much ot Ch|na's |ntornat|ona| o|| |s producod.
1horo |s a turthor cr|t|ca| cons|dorat|on. Ch|noso |nvostmont and
ottort |n br|ng|ng moro barro|s to tho markots contr|buto to stab|||ty |n
tho g|oba| markot. |or woro thoso barro|s not torthcom|ng, tho grow|ng
domand trom Ch|na (and o|sowhoro) wou|d add moro prossuro and
|oad to h|ghor pr|cos. Add|t|ona| |nvostmont moans moro supp|y and
adds to onorgy socur|ty. 1ho Ch|noso o|| compan|os aro comm|tt|ng
moro cap|ta| and rosourcos to oxpand|ng lraq's o|| output, and tak|ng
moro r|sk, than tho compan|os ot any othor nat|on.
lndood, |t wou|d bo qu|to surpr|s|ng |t a country |n Ch|na's pos|t|on-
rap|d|y r|s|ng domand, rap|d|y grow|ng |mports, a wo||-ostab||shod
domost|c |ndustry, hugo ho|d|ngs ot do||ars-d|d not vonturo out |nto
tho rost ot tho wor|d to dovo|op now rosourcos. lndood, woro thoy not
do|ng so, thoy wou|d ||ko|y bo round|y cr|t|c|zod around tho wor|d tor not
|nvost|ng.
Voroovor, go out' |s not tho so|o stratogy ot tho Ch|noso
compan|os. About 7b porcont ot tho compan|os' output |s w|th|n Ch|na.
A|togothor, Ch|na's domost|c o|| product|on makos |t tho t|tth-|argost |n
tho wor|d-ahoad ot such |argo producors as Canada, Vox|co,
vonozuo|a, Kuwa|t, and l|gor|a. W|th|n tho Ch|noso |ndustry |tso|t
thoro |s ta|k about tho socond ago ot Ch|noso o||.' 1h|s moans tho
app||cat|on ot now tochno|og|os and now approachos to tho d|scovory
and dovo|opmont ot domost|c potro|oum rosourcos, as wo|| as a much
groator tocus on what aro |ncroas|ng|y soon as abundant but
undovo|opod domost|c rosourcos ot natura| gas, |nc|ud|ng sha|o gas.
1hoso aro tho now commorc|a| roa||t|os-Ch|na as a grow|ng
consumor ot o||, Ch|na as an |ncroas|ng|y |mportant part|c|pant |n tho
wor|d o|| |ndustry. 3ut thoro |s a|so a socur|ty d|mons|on, wh|ch ar|sos
trom grow|ng dopondonco tor a country tor wh|ch so|t-ro||anco' had
boon such a strong |mporat|vo tor so many yoars.
10
CE|NA |N 1EE FA51 LANE
|n tho |ato 1000s, whon onorgy socur|ty proposa|s woro prosontod to
tho Ch|noso govornmont, thoy woro tab|od. 1hoy sa|d thoro was no
onorgy socur|ty |ssuo,' sa|d a son|or adv|sor, and that was part|y r|ght.
lt was a bon|gn markot.'
3ut that changod as o|| consumpt|on surgod, |ncroas|ng tho ro||anco
on |mports, and pr|cos startod tho|r upward trok. A country that had
boon so|t-sutt|c|ont |n o|| as a mattor ot po||cy tound |tso|t |ncroas|ng|y
dopondont upon tho g|oba| markot-somoth|ng that was anathoma |n
|ts oar||or and vory d|ttoront stago ot dovo|opmont. 1h|s dopondonco
mado onorgy socur|ty a contra| concorn |n 3o|j|ng. As ono ot tho
country's top ott|c|a|s put |t, Ch|na's onorgy socur|ty |ssuo |s o|| supp|y
socur|ty.'
3y 2008 a now tactor had turthor |ncroasod tho anx|oty about onorgy
socur|ty-tho war |n lraq. |or 3o|j|ng, |t was hard to bo||ovo that tho
promot|on ot domocracy |n tho V|dd|o East was what propo||od tho
Un|tod 3tatos |nto lraq |n Varch 2008. lt not that, |t had to bo
somoth|ng moro concroto, moro urgont, moro cr|t|ca|, moro
throaton|ng. ln short, |t had to bo o||. And |t tho Un|tod 3tatos was
worr|od onough about o|| to |aunch a tu||-sca|o |nvas|on, thon, |n tho
v|ow ot many Ch|noso, onorgy socur|ty was c|oar|y much moro
|mportant-and urgont.
1
lart ot tho now |nsocur|ty aroso trom approhons|on about tho soa-
|anos, tho oconom|c h|ghways tor tho wor|d commorco that woro
|ncroas|ng|y |mportant as tho ||to||nos tor Ch|noso o|| |mports-and
|ndood tor Ch|noso trado |n gonora|. |a|t ot tho country's G0l
doponds on soa-|anos. ln lovombor 2008, sovon months attor tho
|nvas|on ot lraq, lros|dont |u 1|ntao roportod|y to|d a Commun|st
larty contoronco that tho country had to so|vo what bocamo known as
tho Va|acca 0||omma. 1h|s rotorrod to Ch|na's ro||anco on tho
Va|acca 3tra|t, tho narrow watorway connoct|ng tho lnd|an Ocoan and
tho 3outh Ch|na 3oa and through wh|ch passos moro than 7b porcont
ot Ch|na's o|| |mports. Corta|n powors havo a|| a|ong oncroachod on
and tr|od to contro| nav|gat|on through tho stra|t,' |u |s sa|d to havo
doc|arod. Corta|n powors' was an obv|ous ouphom|sm tor tho Un|tod
3tatos.
2
1ho grow|ng attont|on to r|sk was ro|ntorcod by what happonod |n
2004: tho unant|c|patod jump |n both Ch|noso and g|oba| domand tor
o|| and tho consoquont rap|d|y r|s|ng pr|cos. An onorgy prob|om had
a|roady bocomo ov|dont |n Ch|na trom |ato 2002. 3ut |n|t|a||y |t was a
coa| and o|octr|c|ty prob|om, not an o|| prob|om. Ch|na doponds on
coa| tor 70 porcont ot |ts tota| onorgy and about 80 porcont ot |ts
o|octr|c|ty. 1ho oconomy was grow|ng so tast that t|ght supp||os ot coa|
turnod |nto outr|ght shortagos. At tho samo t|mo, o|octr|c powor p|ants
and tho transm|ss|on notwork cou|d not koop up w|th tho domand tor
powor. 1ho country s|mp|y ran out ot o|octr|c|ty. As brownouts and
b|ackouts h|t most ot tho prov|ncos, a sonso ot cr|s|s gr|ppod tho
country. |actor|os woro work|ng ha|t days or ovon shutt|ng down
bocauso ot shortagos ot onorgy, wh||o sa|os ot d|oso| gonorators
soarod as dosporato |ndustr|a| ontorpr|sos rosortod to mak|ng tho|r
own o|octr|c|ty. lowor was so short |n somo parts ot tho country that
tratt|c ||ghts woron't work|ng, and ch||dron woro back to do|ng tho|r
homowork by cand|o||ght. |oto|s |n 3o|j|ng woro roquostod to koop
room thormostats abovo 70 dogroos |ahronho|t, and tho|r statts
ordorod to uso tho sta|rs rathor than tho o|ovators.
8
On|y ono short-torm a|tornat|vo to coa| was ava||ab|o tor sat|sty|ng
tho acco|orat|ng onorgy domand-o||. 1hat |s why Ch|na's o|| domand
|n 2004 grow not by tho ant|c|patod 7 or 8 porcont but that much h|ghor
10 porcont, roqu|r|ng a rap|d r|so |n potro|oum |mports. 1ho Ch|noso
o|| compan|os hurr|od|y stoppod up tho|r ottorts both to |ncroaso
domost|c product|on and to accoss add|t|ona| supp||os |ntornat|ona||y.
Around th|s t|mo, tho thosos about poak o|| and ||m|tat|ons on tuturo
supp|y woro pormoat|ng d|scuss|ons |n 3o|j|ng, as o|sowhoro |n tho
wor|d. 1ho ovor|ay ot a toar ot |mm|nont and pormanont shortago,
wh|ch was so common |n th|s por|od, addod to a porvas|vo sonso ot
cr|s|s about tho adoquacy and ava||ab|||ty ot tuturo supp||os and
whothor a now r|va|ry wou|d omorgo.
PE1RO-R|VALRY?
3ut what wou|d a now-onorgy-socur|ty stratogy' |ook ||ko? 1h|s
bocamo part ot what has bocomo a cont|nu|ng dobato about tho
poss|b|||ty ot a potro-r|va|ry botwoon tho Un|tod 3tatos and Ch|na.
3omo stratog|sts |n 3o|j|ng worry about Ch|na's dopond|ng on a wor|d
o|| markot that thoy assort |s unro||ab|o, r|ggod aga|nst thom, and |n
wh|ch tho Un|tod 3tatos has, |n tho|r v|ow, oxcoss|vo |nt|uonco. 3omo
ot thom ovon arguo that tho Un|tod 3tatos has a stratogy to |ntord|ct
soa-borno Ch|noso o|| |mports-cut ott Ch|na's ovorsoas o|| ||to||no'-
|n tho ovont ot a controntat|on ovor what has boon tor docados tho
most cr|t|ca| |ssuo botwoon tho two nat|ons, tho so|t-govorn|ng |s|and
ot 1a|wan and |ts ro|at|onsh|p to ma|n|and Ch|na. 1hoy cr|t|c|zo tho
prosonco ot tho U.3. lavy |n tho rog|ona| soas and U.3. support tor
1a|wan-ovon as oconom|c ||nks botwoon 1a|wan and tho loop|o's
lopub||c cont|nuo to grow. 3omo ot tho m|||tary |oadors donounco tho
Un|tod 3tatos, |n tho words ot ono adm|ra|, as a hogomon.'
1ho rovorso ot such toars can bo tound among somo stratog|sts |n
tho Un|tod 3tatos. 1horo aro thoso who arguo that Ch|na, dr|von by a
vorac|ous appot|to tor rosourcos and contro|, has a grand stratogy to
projoct |ts dom|nanco ovor As|a wh||o a|so sook|ng to proompt
substant|a| wor|d o|| supp||os. Ch|na |s sa|d to bo pursu|ng th|s stratogy
w|th a s|ng|o-m|ndod morcant|||sm, backod up by grow|ng m|||tary
powor. 1hoy po|nt, tor ov|donco, to doub|o-d|g|t |ncroasos |n Ch|noso
dotonso spond|ng, a rap|d nava| bu||dup, Ch|na's pursu|t ot nava| and
av|at|on tochno|ogy, and |ts potont|a| tor dovo|op|ng a b|uo wator navy'
that wou|d projoct nava| powor tar boyond Ch|na's no|ghborhood.
Voroovor, Ch|na has ostab||shod a notwork ot stratog|c ports, basos,
and ||ston|ng posts a|ong tho lnd|an Ocoan. 1hoso cr|t|cs spoc|t|ca||y
c|to tho dovo|opmont ot now m|ss||os that soom a|mod d|roct|y at U.3.
soa powor-spoc|t|ca||y a|rcratt carr|ors-and at upsott|ng tho socur|ty
ot soa-|anos that U.3. soa powor protocts-socur|ty trom wh|ch Ch|na,
as much as any nat|on, d|roct|y bonot|ts.
A|| th|s cou|d st|r up tho spoctor ot a nava| arms raco rom|n|scont ot
tho Ang|o-Gorman nava| raco that d|d so much to |nt|amo tho tons|ons
that |gn|tod tho ||rst Wor|d War. 0osp|to an oxtons|vo and grow|ng
oconom|c ro|at|onsh|p |n tho yoars that |od up to August 1014, 3r|ta|n
and Gormany woro dr|von apart by r|va|ry and tho susp|c|ons arousod
by tho|r nava| raco, by anx|oty ovor contro| ot soa-|anos and accoss to
rosourcos, by compot|t|on ovor who wou|d havo what p|aco |n tho sun
-and by grow|ng nat|ona||st|c tor vor. Echoos ot tho Ang|o-Gorman
nava| raco can bo hoard |n today's argumonts.
Controvorsy ovor tho 3outh Ch|na 3oa has a|roady croatod somo
tons|on botwoon tho Un|tod 3tatos and Ch|na. 1hat soa's 1.8 m||||on
squaro m||os aro boundod on tho wost by Ch|na, v|otnam (wh|ch ca||s
tho rog|on tho East 3oa), and Va|ays|a, down to 3|ngaporo and tho
3tra|t ot Va|acca, and thon, com|ng up on tho oast, by lndonos|a,
3runo|, tho lh|||pp|nos, and at tho top, by 1a|wan. 1hrough |ts wators
pass most ot tho trado botwoon East As|a and tho V|dd|o East, Atr|ca,
and Europo-|nc|ud|ng most ot tho onorgy rosourcos sh|ppod to
Ch|na, 1apan, and 3outh Koroa. lt's roa||y a ||to||no ot our commorco,
ot our transport, tor a|| ot us, Ch|na, 1apan, Koroa, and 3outhoast As|a,
and tho countr|os boyond to tho wost,' sa|d tho socrotary gonora| ot
A3EAl, tho assoc|at|on ot ton 3outhoast As|an countr|os.
4
ln 2002 Ch|na and tho A3EAl countr|os s|gnod an agroomont that
soomod to sott|o r|va| c|a|ms. 3ut |ator somo Ch|noso m|||tary ott|c|a|s
bogan to spoak ot Ch|na's und|sputod sovoro|gnty' ovor tho 3outh
Ch|na 3oa, contro| ot wh|ch thoy o|ovatod to what thoy ca||od boxlo |lyl,
a coro |ntorost.' Othors |n tho Ch|na toro|gn po||cy commun|ty havo
subsoquont|y doscr|bod tho assort|on ot coro |ntorost' as rock|oss'
and mado w|th no ott|c|a| author|zat|on.' lt Ch|na woro to succosstu||y
assort such an |ntorost, |t wou|d contro| tho cr|t|ca||y |mportant
morchant sh|pp|ng |anos as wo|| as bo |n a pos|t|on to dony troodom ot
passago to tho U.3. lavy. lot surpr|s|ng|y, tho A3EAl countr|os, as
wo|| as tho Un|tod 3tatos, havo rojoctod Ch|na's c|a|ms. 3t|||, to
undor||no thoso c|a|ms, a Ch|noso submar|no wont down to tho
doopost part ot tho soa, whoro |ts crow p|antod a Ch|noso t|ag.
b
Enorgy rosourcos aro an |ncroas|ng|y |mportant part ot tho
argumont. 3ubstant|a| o|| and gas rosourcos aro producod around tho
3outh Ch|na 3oa, notab|y |n lndonos|a, 3runo|, and Va|ays|a.
Est|matos ot tho und|scovorod o|| |n tho 3outh Ch|na 3oa rango
botwoon 1b0 b||||on and 200 b||||on barro|s, wh|ch |s moro than onough
to st|r compot|t|on, a|though tar trom provon. A|though Ch|na and
v|otnam havo workod out somo jo|nt-product|on agroomonts, thoy aro
at odds ovor ownorsh|p ot othor oxp|orat|on aroas. lart|cu|ar|y
contont|ous aro tho 3prat|y ls|ands, whoso wators aro thought to bo
r|ch |n rosourcos and aro c|a|mod |n who|o or |n part by sovora|
countr|os. Voanwh||o, |n tho East Ch|na 3oa, 1apan and Ch|na havo
had a |ong d|sputo, wh|ch rocurront|y t|aros up, ovor sovoro|gnty and
dr||||ng r|ghts.
lt |s oxact|y thoso k|nds ot tons|ons that can tostor, b|ow up |nto
|nc|donts, and |oad to much moro sor|ous and d|srupt|vo
consoquoncos. 1hat oxp|a|ns tho urgoncy tor t|nd|ng tramoworks that
can moot tho |ntorosts ot tho var|ous nat|ons |nvo|vod.
RE5PON5|BLE 51AKEEOLDER5"
Wh||o thoso tons|ons pors|st, Ch|na's d|roct anx|oty ovor onorgy
socur|ty appoars to havo oasod. |u 1|ntao ottorod h|s own answor to
tho Va|acca 0||omma whon ho prosontod, at a G8 moot|ng |n 2000, a
dot|n|t|on ot what ho ca||od g|oba| onorgy socur|ty |n wh|ch |mport|ng
countr|os ||ko tho Un|tod 3tatos and Ch|na aro |ntordopondont. Enorgy
|nsocur|ty tor Ch|na, ho has sa|d, a|so moans onorgy |nsocur|ty tor tho
Un|tod 3tatos-and v|co vorsa. 1hus co||aborat|on |s ono ot tho ma|n
answors to tho d||ommas ot onorgy socur|ty.
lart ot th|s sh|tt |s basod on Ch|na's grow|ng roa||zat|on that |t can
obta|n tho add|t|ona| onorgy |t noods by part|c|pat|ng |n tho samo
g|oba| oconomy trom wh|ch |t has bonot|tod so cons|dorab|y. ln s|mp|o
words, Ch|na can buy tho onorgy |t noods. 1hat was not so obv|ous a
tow yoars ago, but oxpor|onco s|nco has shown that |t |s om|nont|y
toas|b|o. 1h|s app||os not on|y to o|| but a|so to natura| gas, tho |mports
ot wh|ch aro grow|ng. 1horo's no othor so|ut|on but to ro|y on tho
markotp|aco,' sa|d an onorgy stratog|st |n 3o|j|ng. What's d|ttoront
about oxport|ng to Amor|ca and |mport|ng onorgy trom o|sowhoro?
Ch|na |s part ot wor|d markots.'
Voroovor, Ch|na has vory |argo coa| rosorvos. Add|ng |n
domost|ca||y producod o|| and hydropowor, Ch|na |s moro than 80
porcont so|t-sutt|c|ont |n torms ot ovora|| onorgy. A s|gn ot groator
cont|donco |s tho chango |n tho d|scuss|on about mak|ng synthot|c o||
trom coa|. 1h|s was a vory h|gh pr|or|ty whon o|| pr|cos woro sp|k|ng
and somo poop|o woro prod|ct|ng pormanont shortago, but now tho
Ch|noso ta|k about |ts dovo|opmont moro as an |nsuranco po||cy
aga|nst d|srupt|on rathor than a |argo-sca|o subst|tut|on.
0
An ottort to roduco tho tons|ons |s ov|dont w|th|n tho |argor
tramowork ot ro|at|ons. lt |s bu||t on tho rocogn|t|on ot tho now roa||ty-
Ch|na's prom|nont p|aco |n tho g|oba| oconomy and tho wor|d
commun|ty. 1ho adm|n|strat|on ot Goorgo W. 3ush |n|t|a||y doscr|bod
Ch|na as a stratog|c compot|tor' w|th a|| tho |mp||cat|ons that wont w|th
that. 3ut as tho yoars passod, a moro cooporat|vo approach omorgod,
basod upon a mutua| undorstand|ng ot tho |ntordopondonco. l|s|ng
powor' and poacotu| r|so' woro tho way that son|or Ch|noso had
como to doscr|bo tho|r country's now ro|o and pos|t|on. 3omo Ch|noso
stratog|sts havo omphas|zod tho nood to manago and amo||orato tho
|nov|tab|o tons|ons that wou|d ar|so botwoon a |atocomor and an
ostab||shod powor. |or |ts part, tho Un|tod 3tatos prottorod tho
concopt ot rospons|b|o stakoho|dor,' an |doa t|rst proposod by lobort
Zoo|||ck, at tho t|mo doputy socrotary ot stato and subsoquont|y
pros|dont ot tho Wor|d 3ank. 1ho argumont was that Ch|na cou|d p|ay
a |argor construct|vo ro|o |n d|vorso |ntornat|ona| aronas that was
commonsurato w|th |ts now staturo. 1ho Ch|noso camo to |ntorprot
rospons|b|o stakoho|dor' as moan|ng sharod |ntornat|ona|
rospons|b|||t|os' tor tho |ntornat|ona| systom trom wh|ch thoy aro
bonot|t|ng-and wh|ch thoy aro ho|p|ng to shapo.
1h|s now or|ontat|on has bocomo ombod|od |n a sot ot
arrangomonts tor addross|ng |ssuos, dotus|ng tons|ons, and
tundamonta||y prov|d|ng stratog|c roassuranco. 1hoso |nc|udo a
stratog|c and oconom|c d|a|oguo' botwoon tho two countr|os and an
onorgy and onv|ronmont cooporat|on tramowork,' wh|ch was |aunchod
at tho ond ot tho 3ush adm|n|strat|on and cont|nuod by tho Obama
adm|n|strat|on. Ch|na's co||aborat|on w|th tho lntornat|ona| Enorgy
Agoncy and |ts part|c|pat|on |n tho lntornat|ona| Enorgy |orum onab|o
groator a||gnmont and |oss tons|on on onorgy-socur|ty |ssuos. On a
g|oba| bas|s, tho G7 and tho G8 c|ub ot tho major |ndustr|a| countr|os
now sharos tho stago w|th tho G20, wh|ch oxpands tho tab|o to |nc|udo
tho major dovo|op|ng countr|os, w|th Ch|na obv|ous|y |n a vory
prom|nont pos|t|on. 1ho ro|ovanco ot tho G20 was mado c|oar whon |t
bocamo an ossont|a| torum tor coord|nat|on dur|ng tho t|nanc|a| cr|s|s
ot 2008-0.
A|| ot th|s doos not guarantoo that compot|t|on ovor onorgy, and
tons|ons about accoss and socur|ty, w||| not t|aro up and bocomo moro
throaton|ng. 3ut |t doos moan that an ostab||shod tramowork ox|sts to
hand|o such |ssuos and to ho|p provont tho|r osca|at|on |nto somoth|ng
moro sor|ous. Ono Ch|noso doc|s|on makor summod up tho ovo|ut|on
ot th|nk|ng th|s way: 1ho govornmont cons|dors onorgy socur|ty vory
|mportant, a t|rst pr|or|ty. 3ut thoro |s a chango ot undorstand|ng. low
wo rocogn|zo that wo havo |ots ot opt|ons and cho|cos to so|vo onorgy
socur|ty |ssuos.'
7
1h|s |s a|| tho moro |mportant as Ch|na's o|| consumpt|on |s dost|nod
to r|so as |t movos at rocord spood |nto tho auto ago.
1EE FA51 LANE
Ch|na |s mak|ng tho trans|t|on to a mass automob||o cu|turo as othor
countr|os havo a|roady dono, but |t |s do|ng so at an oxtraord|nary rato
and on a sca|o novor soon botoro. ln tho Un|tod 3tatos, o|| accounts tor
about 40 porcont ot tota| onorgy consumpt|on. ln Ch|na, dosp|to rap|d
domand growth, o|| |s on|y 20 porcont ot tota| onorgy uso, and tho
|argost part ot that o|| |s usod as tuo| |n |ndustry or as d|oso| |n trucks
and tarm oqu|pmont. 3ut that |s chang|ng sw|tt|y. As tho Ch|noso
automob||o |ndustry movos |nto tho tast |ano, tho |mpact w||| bo to|t not
on|y across tho nat|on but g|oba||y.
ln 1024 |onry |ord, a|roady known wor|dw|do tor h|s Vodo| 1,
roco|vod an unoxpoctod |ottor. l havo . . . road ot your romarkab|o
work |n Amor|ca,' wroto Ch|na's pros|dont 3un Yat-son. And l th|nk
you can do s|m||ar work |n Ch|na on a much vastor and moro
s|gn|t|cant sca|o.' |o cont|nuod: ln Ch|na you havo an opportun|ty to
oxpross your m|nd and |doa|s |n tho ondur|ng torm ot a now |ndustr|a|
systom.' 1ho |nv|tat|on was a|| tho moro grac|ous as 3un h|mso|t was
h|gh|y part|a| to 3u|ck, mado by |ord's groat r|va|, Gonora| Votors. 3y
tho |ato 1020s, |ord Votor was a|roady sh|pp|ng cars to Ch|na and
had oponod a sa|os and sorv|co branch |n that country. 3ut 3un Yat-
son's droam was not to bo roa||zod.
ln tho now |ndustr|a| systom' that tho tr|umphant Vao |mposod attor
1040, tho automob||o had v|rtua||y no p|aco. Evon as |ato as 1088,
Ch|na producod towor than 10,000 cars. 3y thon, howovor, Vao was
gono, and tho croat|on ot an automob||o |ndustry had boon |dont|t|od
as nocossary to tho rotorms that 0ong X|aop|ng was |ntroduc|ng. lt
was part ot a modorn soc|oty, ono ot tho p|||ars' ot oconom|c
dovo|opmont, cr|t|ca| to tochn|ca| advanco and to croat|ng jobs tor
thoso mov|ng trom tarms |nto c|t|os.
3ut how to do |t? Ch|na was so tar boh|nd tho Un|tod 3tatos and
1apan |n torms ot tochno|ogy and |ndustr|a| capab|||ty, and had boon
so |so|atod, that thoro was no po|nt |n try|ng to start trom scratch.
And so tho answor turnod out to bo jo|nt vonturos. 1ho t|rst ono,
howovor, 3o|j|ng 1oop, novor tu|t|||od tho or|g|na| hopos. vo|kswagon
scorod tho t|rst succosstu| jo|nt vonturos whon |t toamod up, bog|nn|ng
|n tho m|d-1080s, w|th 3hangha| Automot|vo lndustry Corporat|on and
Ch|na's ||rst Auto Works. Yot by 1000 Ch|na was st||| produc|ng on|y
42,000 cars a yoar, and tho roads st||| bo|ongod to tho groat swarms ot
b|cyc||sts. 3ut Gonora| Votors, 1oyota, and |yunda| woro a|so
ostab||sh|ng jo|nt vonturos, to bo jo|nod by l|ssan and |onda, among
othors.
Ch|na's accoss|on to tho W1O |n 2001 roa||y |gn|tod tho growth ot
tho auto |ndustry-tuo|od by tho omorgonco ot d|st|nct|y |oca|
compan|os w|th such namos as Chory, Goo|y, Groat Wa||, l|tan,
Chang'an, and 3r||||anco. As tho Ch|noso sa|os grow, tho othor
|ntornat|ona| automakors roa||zod that thoy cou|d not attord to bo |ott
out ot tho most dynam|c automob||o markot |n tho wor|d, and thoy too
s|gnod up tor jo|nt vonturos.
lndood, auto oxocut|vos cou|d now soo a po|nt on tho hor|zon whon
Ch|na m|ght actua||y ovortako tho Un|tod 3tatos as tho wor|d's |argost
automob||o markot. lt was |nov|tab|o, thoy sa|d. lt was just a mattor ot
t|mo. ln 2004 Gonora| Votors prod|ctod that |t cou|d happon as oar|y
as 202b. 3omo wont turthor and sa|d |t cou|d happon as oar|y as
2020. Vaybo ovon 2018. 3ut, thoy wou|d add, that wou|d bo a roa|
strotch.
As th|ngs turnod out, |t happonod much soonor-|n 2000, am|d tho
Groat locoss|on. 1hat yoar Ch|na, acco|orat|ng |n tho tast |ano, not
on|y ovortook tho Un|tod 3tatos but pu||od |nto a c|oar |oad. 1ho
mass|vo and sw|tt Ch|noso oconom|c st|mu|us program targotod tho
automob||o |ndustry as ono ot tho coro p|||ars ot growth' w|th tax cuts
on now voh|c|os, cash subs|d|os, and pr|co roduct|ons on somo
voh|c|os. Car sa|os |ncroasod 40 porcont ovor tho prov|ous yoar, wh||o
|n that samo yoar U.3. sa|os p|ummotod to tho |owost |ovo| s|nco 1082.
3oon |n porspoct|vo, tho sh|tt |n ro|at|vo pos|t|ons was staggor|ng. ln
2000, 17.8 m||||on now cars woro so|d |n tho Un|tod 3tatos, comparod
w|th 1.0 |n Ch|na. 3y 2010 on|y 11.b m||||on woro so|d |n tho Un|tod
3tatos, wh||o Ch|na had roachod 17 m||||on. 3y 2020 sa|os |n Ch|na
cou|d roach 80 m||||on-and koop go|ng.
Au1O NA1|ON5: u.5. AND CE|NA
3ourco: l|3 G|oba| lns|ght

Amor|can automakors may bo strugg||ng at homo but not |n tho
boom|ng Ch|noso markot. Gonora| Votors now doos so|| moro
automob||os |n Ch|na than |n tho Un|tod 3tatos. 1ho namo 3u|ck may
not anymoro oxudo c|ass to Amor|can or Europoan oars, but tho b|ack
3u|ck X|n 3h| 1| (low Contury') |uxury sodan had a powortu| a||uro tor
Ch|noso. 3u|ck was so dom|nant a brand that by tho oar|y 1080s, ono
out ot ovory s|x cars on Ch|na's stroots was an |mportod 3u|ck. lot
on|y had 3u|ck boon 3un Yat-son's tavor|to car, but a|so much tavorod
by Zhou En la|. lndood, whon GV t|rst startod manutactur|ng cars |n
tho country, tho Ch|noso |ns|stod that 3u|ck bo tho brand namo, and tor
sovora| yoars 3u|ck |od as a |uxury car. Aud|, Vorcodos, and 3VW
m|ght havo ovortakon tho |uxury sogmont, but 3u|ck st||| roma|ns a
sta|wart |n tho markot.
8
CO|NC Ou1~ON WEEEL5
3omo ot tho Ch|noso compan|os aro a|roady produc|ng |noxpons|vo
automob||os that aro bo|ng so|d |n |ncroas|ng numbors |nto dovo|op|ng
countr|os. Ch|noso compan|os, ||ko lnd|an manutacturors, a|so havo
tho|r oyo on a now, potont|a||y vory b|g markot-cars pr|cod trom
$2,b00 to $7,b00 and a|mod at tho hundrods ot m||||ons ot poop|o
c||mb|ng up tho rungs ot tho |ncomo |addor.
3ut tho spoctor that haunts 0otro|t and 1okyo and 3tuttgart and tho
othor auto c|t|os |s whothor-and whon-Ch|na's auto compan|os
(supportod by |oca| compononts supp||ors) w||| roach a |ovo| ot
soph|st|cat|on at wh|ch thoy can d|roct|y compoto |n tho Un|tod 3tatos
and Europo aga|nst tho ||kos ot GV, |ord, 1oyota, and 0a|m|or. lr|co
w||| ||ko|y not bo onough. Assur|ng qua||ty and satoty w||| a|so bo
ossont|a|. |uo| ott|c|oncy w||| bo a cr|tor|a. 1hoy w||| a|so havo to bu||d
doa|or notworks.
Ono Ch|noso company that has part|y so|vod that prob|om |s Goo|y,
wh|ch got startod |n 1080 mak|ng compononts tor rotr|gorators and
on|y producod |ts t|rst car |n 1008. W|th|n a docado |t was ono ot tho
top domost|c Ch|noso manutacturors. ln 2010 Goo|y purchasod vo|vo
trom cash-strappod |ord, g|v|ng |t an |nstant g|oba| sa|os and doa|or
notwork. lt |s not c|oar whothor that moans Goo|ys w||| ovontua||y go |nto
Amor|can and Europoan showrooms. 3ut by produc|ng vo|vos |n
Ch|na, Goo|y wou|d havo a potont|a||y upmarkot brand w|th wh|ch to
cha||ongo 3VW and Vorcodos at homo.


1ho rap|d oxpans|on |n Ch|na's auto |ndustry |s add|ng many jobs and
st|mu|at|ng domost|c consumpt|on-two stops that Ch|na's trad|ng
partnors havo, tor yoars, boon ca|||ng tor. At tho samo t|mo, th|s |s
caus|ng worry among Ch|na's |oadorsh|p about add|ng to tuturo o||
|mports as wo|| as about tho qua||ty ot ||to. Ch|na's major c|t|os aro
a|roady c|oggod w|th tratt|c tor wh|ch thoy woro not bu||t, and tho do|ays
and congost|on-and grow|ng po||ut|on-ombody tho costs ot such
succoss. 3omo prod|ct that |t 3o|j|ng cont|nuos to add cars at |ts
curront rato ot 2,000 voh|c|os a day, avorago spoods |n tho c|ty cou|d
drop to n|no m||os an hour.
0
1EE PR|CE OF 5uCCE55
1ho abstract G0l and onorgy consumpt|on numbors to|| an
oxtraord|nary story. lovor has tho wor|d soon so many poop|o mov|ng
so qu|ck|y out ot povorty |nto a wor|d ot oconom|c growth and
oxpand|ng opportun|t|os. 1ho scourgos ot hungor and ma|nour|shmont
aro rocod|ng rap|d|y. 3ut thoro |s an onv|ronmonta| pr|co. Wator |s a
groat prob|om, both bocauso ot potont|a| shortagos and bocauso ot
po||ut|on trom untroatod wasto. 3ut |t |s tho a|r that carr|os tho burdon
ot tho rap|d|y grow|ng onorgy consumpt|on. lnd|v|dua| Ch|noso too| tho
po||ut|on |n tho|r |ungs and |n tho|r hoa|th.
CE|NA'5 R|5E: CDP AND 1O1AL ENERCY DENAND
3ourco: l|3 CElA, l|3 G|oba| lns|ght, lntornat|ona| Enorgy Agoncy,
Ch|na lat|ona| 3uroau ot 3tat|st|cs

1ho major sourco ot a|r po||ut|on |s coa|, whothor burnod |n |nd|v|dua|
homos tor cook|ng and hoat|ng or usod to gonorato o|octr|c|ty or
burnod |n tactor|os. E|octr|c|ty domand |s grow|ng at about 10 porcont.
1ho rap|d|y grow|ng automob||o t|oot |s add|ng to tho po||ut|on |n major
c|t|os. logu|at|ons aro sook|ng to push now cars to Europoan |ovo|s ot
po||ut|on contro|, but w|th m|xod rosu|ts.
Voanwh||o, |n rocont yoars Ch|na has bocomo |oss onorgy ott|c|ont,
rovors|ng a |ong trond. 3otwoon 1080 and 2000, Ch|na's oconomy
quadrup|od, and |ts onorgy uso on|y doub|od. 3uch a rocord |n onorgy
ott|c|oncy was a cons|dorab|o ach|ovomont. W|th tho now contury,
howovor, tho ro|at|onsh|p suddon|y rovorsod. Enorgy consumpt|on
startod grow|ng much moro rap|d|y than tho oconomy. |rom 2001
onward, a hugo wavo ot |nvostmont st|mu|atod onormous oxpans|on |n
|ndustry, part|cu|ar|y hoavy |ndustry. Vany ot tho tactor|os-o|d and
now-woro qu|to |nott|c|ont |n how thoy usod onorgy. As Ch|na
bocamo tho workshop ot tho wor|d, |ts onorgy-|ntons|vo hoavy
|ndustr|os woro oporat|ng at doub|o-t|mo supp|y|ng tho wor|d's markot.
Ch|na, tor |nstanco, bocamo tho |argost producor ot stoo|-a|most ha|t
ot tho wor|d's ont|ro output-and tho b|ggost oxportor ot stoo| |n tho
wor|d. 1hus |t wou|d bo corroct, at |oast |n part, to say that as Ch|noso
product|on has supp|antod onorgy-|ntons|vo output |n tho Un|tod 3tatos
and Europo, somo sharo ot onorgy consumpt|on that usod to tako
p|aco |n tho Un|tod 3tatos and Europo has |n ottoct m|gratod to Ch|na.
Or to put |t moro sharp|y, tho Un|tod 3tatos and Europo havo
outsourcod part ot tho|r onorgy consumpt|on to Ch|na. As a rosu|t ot
tho rap|d r|so |n onorgy uso, 3o|j|ng has put consorvat|on-onorgy
ott|c|oncy-at tho vory top ot |ts pr|or|t|os.
10
As |n othor countr|os, c||mato chango and om|ss|ons aro bocom|ng
an |ncroas|ng|y |mportant tactor |n roshap|ng Ch|na's onorgy po||c|os.
3ut c||mato chango |s a|so a mochan|sm to tack|o othor moro
|mmod|ato and, trom tho Ch|noso po|nt ot v|ow, much moro urgont
prob|oms-onv|ronmonta| dogradat|on, r|s|ng onorgy domand, and
onorgy socur|ty. 1o roduco carbon |s a|so to roduco a|r po||ut|on and
conta|n onorgy uso, and thus modu|ato |mports ot onorgy.
POWER 5uRCE
ln tho socond docado ot tho twonty-t|rst contury, ono ot Ch|na's groat
cha||ongos |s to onsuro that |t has tho o|octr|c|ty |ts rap|d|y grow|ng
oconomy noods and at tho samo t|mo protoct tho oconomy aga|nst tho
onv|ronmonta| consoquoncos ot tast oconom|c growth. |or a numbor
ot yoars, Ch|na was add|ng on an annua| bas|s tho oqu|va|ont ot tho
ont|ro |nsta||od capac|ty ot a |ranco or a 3r|ta|n. 1h|s avoragod out to
anothor now, tu||-s|zod coa|-t|rod p|ant go|ng |nto sorv|co ovory wook or
two. 1ho tompo has s|owod down somowhat, but onormous capac|ty |s
st||| bo|ng addod on an annua| bas|s.
lt |s hard to comprohond tho sca|o and paco ot growth. A dozon
yoars ago, Ch|na's gonorat|ng capac|ty was not much moro than a
th|rd that ot tho Un|tod 3tatos. 1oday |t oxcoods tho Un|tod 3tatos.
3otwoon 200b and 2010, Ch|na's tota| o|octr|c|ty capac|ty doub|od. lt
|s as though tho country bu||t |n just ha|t a docado a now o|octr|ca|
systom ot |dont|ca| s|zo to tho systom |n p|aco |n 200b! About 22
porcont ot now capac|ty addod |n 2000 was hydropowor, and about 11
porcont w|nd. latura| gas has just 2 porcont. 3t|||, tho bu|k ot tho now
capac|ty-0b porcont-|s coa| (|owor than tho 77 porcont |n 200b). 3ut
th|s a|so moans that now, h|gh|y ott|c|ont, suporcr|t|ca| and u|tra-
suporcr|t|ca| coa| p|ants, w|th moro po||ut|on contro|s, aro bo|ng
brought on ||no, wh||o o|dor, moro-po||ut|ng and |oss-ott|c|ont coa|
p|ants aro bo|ng rot|rod oar|y.
Coa| w||| cont|nuo to bo tho ma|nstay ot tho o|octr|c powor |ndustry.
As a rosu|t ot grow|ng domand tor coa|, Ch|na |s no |ongor so|t-
sutt|c|ont |n that rosourco o|thor. Onco a s|gn|t|cant coa| oxportor,
Ch|na |s tho wor|d's socond |argost |mportor ot coa|.
3ut groator d|vors|t|cat|on among tuo| sourcos w||| st||| bo sought. A
substant|a| part ot tho country's targot tor non-toss||-tuo| onorgy w||| bo
mot by |argo hydropowor p|ants. 1ho 1hroo Gorgos 0am, wh|ch bogan
produc|ng o|octr|c|ty |n 2008, has an |nsta||od powor-gonorat|on
capac|ty oqu|va|ont to about twonty nuc|oar p|ants. About 80 nuc|oar
powor p|ants aro o|thor undor construct|on or |n p|ann|ng.
3tato Gr|d, tho |argost ut|||ty |n tho wor|d, |s spond|ng about $b0
b||||on a yoar to bu||d what somo cons|dor tho most tochno|og|ca||y
advancod gr|d systom |n tho wor|d. 1h|s |s anothor way to promoto
ott|c|oncy. Ch|na noods what 3tato Gr|d cha|rman l|u Zhonya ca||s a
strong ooo smart gr|d' to transport powor thousands ot m||os trom tho
wost and tho north across tho country to tho |oad contors on tho oast
coast and |n tho contor ot tho country. 1h|s wou|d a|so roduco tho
hoavy burdon ot coa| transport by truck or ra||. 1ho hugo w|nd potont|a|
ot tho sparso|y popu|atod lorthwost |s soon as part|cu|ar|y dos|rab|o. lt
|s not on|y c|oan onorgy, but |s a|so an accoss|b|o domost|c sourco
that can bo harnossod to moot Ch|na's tuturo nood. 3ut |t |s on|y
accoss|b|o w|th a vast oxpans|on ot |ong-d|stanco transm|ss|on.
11
ln |ts 12th ||vo Yoar l|an, adoptod |n 2011, Ch|na put turthor
omphas|s on what |t ca||od |ts omorg|ng-onorgy po||cy-to
d|sproport|ona||y push tor a|tornat|vos to coa| and o||, wh|ch moans
ronowab|os (|nc|ud|ng hydropowor), nuc|oar, natura| gas, o|octr|c
voh|c|os-and ott|c|oncy.
ENERCY AND FORE|CN POL|CY
Whon |t comos to o||, thoro aro r|sks ot a c|ash ot |ntorosts botwoon
Ch|na and othor countr|os, notab|y w|th tho countr|os ot 3outhoast As|a
and 1apan. |ow roa| thoso r|sks bocomo w||| dopond upon how tho
nat|ons |nvo|vod dot|no and adjust tho|r mar|t|mo pos|t|ons.
ln torms ot ro|at|ons w|th tho Un|tod 3tatos, tho roa| r|sks wou|d
como not trom compot|t|on |n tho markotp|aco but wou|d moro ||ko|y
ar|so whon o|| and gas dovo|opmont bocomos ombro||od |n
goopo||t|ca| concorns, toro|gn po||cy, and human r|ghts |ssuos. Ono ot
thoso |ssuos was 3udan, whoro a Ch|noso-|od consort|um producos
substant|a| amounts ot o||. vonozuo|a cou|d bocomo an |ssuo, as |ugo
Chvoz |s do||borato|y try|ng to p|ay a Ch|na card'-br|ng|ng |n
Ch|noso |nvostmont and promot|ng Ch|na as an a|tornat|vo markot |n
h|s campa|gn aga|nst tho Un|tod 3tatos. 3ut that doos not soom a||
that strong a hand.
3ut curront|y thoro |s on|y ono country whoro tho r|sk ot onorgy and
toro|gn po||cy |ntorosts co|||d|ng |s h|gh. 1hat country |s lran, |n ||ght ot
|ts nuc|oar program and pursu|t ot nuc|oar woapons. As a rosu|t, lran
prosonts tho most comp|ox, contont|ous, and potont|a||y most d|tt|cu|t
|ssuo. Wostorn and 1apanoso o|| and natura| gas compan|os havo
w|thdrawn or aro |n tho procoss ot w|thdraw|ng trom lran ow|ng to |ts
standott w|th tho Un|tod lat|ons ovor nuc|oar woapons and tho
grow|ng body ot sanct|ons. 1h|s croatos a vacuum, and thus an
opportun|ty tor Ch|na to socuro a s|gn|t|cant pos|t|on tor |ts go out'
stratogy |n ono ot tho major V|dd|o East o|| and gas producors.
Ch|noso compan|os havo nogot|atod, at |oast on papor, tons ot b||||ons
ot do||ars ot contracts tor |nvostmont |n tho lran|an o|| and gas |ndustry
that wou|d prov|do accoss to substant|a| o|| and gas rosourcos, but
thoy aro not mov|ng tast. At tho samo t|mo, Ch|na has a |argor |ntorost
|n tho stab|||ty ot tho ont|ro Gu|t rog|on, on wh|ch |t doponds tor a
s|gn|t|cant amount ot |ts |mports. Ch|noso compan|os havo prom|nont
ro|os |n lraq.
Ch|na has gonora||y gono a|ong w|th U.l. sanct|ons but has
opposod thom on tho onorgy soctor. As tons|ons mount, and votos
como up |n tho U.l. 3ocur|ty Counc||, Ch|na's oconom|c ||nks w|th lran,
and |ts w||||ngnoss or unw||||ngnoss to rostr|ct |ts own doa||ngs w|th lran,
cou|d bocomo a cr|t|ca| toca| po|nt |n |ts ro|at|ons w|th tho Un|tod
3tatos and Europo. 1hat cou|d ongondor, |t not managod carotu||y,
much w|dor tons|ons, attoct|ng tho structuro ot ovora|| co||aborat|on |n
tho wor|d commun|ty. ln tho words ot tho lntornat|ona| Enorgy Agoncy,
what w||| happon to tho |argost |nvostmont' to wh|ch tho Ch|noso
compan|os havo comm|ttod roma|ns unc|oar.'
12
1EE OVERLAP OF |N1ERE515
3o much has happonod s|nco tho d|scuss|on that n|ght at tho ond ot
tho 1000s, |n tho ch|||y courtyard ot tho Ch|na C|ub rostaurant |n
3o|j|ng, about Ch|na's nood to bonchmark |tso|t aga|nst tho g|oba| o||
|ndustry. 1hon Ch|na was on|y a m|nor part ot a g|oba| |ndustry. 1oday
|t |s tho s|ng|o most dynam|c, rap|d|y chang|ng o|omont |n tho g|oba| o||
markot. Yot tho tast growth ot Ch|noso onorgy consumpt|on and
surg|ng o|| |mports br|ngs uncorta|nty, both tor Ch|na and tor tho othor
major |mportors. 1ho potont|a| tor cont||ct gots most ot tho attont|on.
Yot thoro aro a|so tho common |ntorosts botwoon Ch|na and othor
o|| consumors, part|cu|ar|y tho Un|tod 3tatos. 1hoso two countr|os aro
bound togothor-much moro connoctod porhaps than many rocogn|zo
-|n tho g|oba| notworks ot trado and t|nanco that tuo| oconom|c
growth. Voro spoc|t|ca||y, thoy havo sharod |ntorosts as tho wor|d's two
|argost potro|oum consumors. 1ho Un|tod 3tatos and Ch|na oach
|mport about ha|t ot tho|r o|| roqu|romonts. ln tho caso ot Ch|na, that
sharo |s ||ko|y to |ncroaso. A|togothor, botwoon thom, thoy account tor
8b porcont ot wor|d potro|oum consumpt|on. 3oth bonot|t trom stab|o
markots, opon to trado and |nvostmont, and |mprovod onorgy socur|ty.
3ut Ch|noso cont|donco noods to bo onhancod |n tho ro||ab|||ty ot tho
g|oba| markot and tho |nst|tut|ons ma|nta|n|ng |ts socur|ty. ln turn,
groator transparoncy about onorgy uso and |nvontor|os |n Ch|na wou|d
bu||d cont|donco and croato groator c|ar|ty tor othor |mportors. 3oth
countr|os sharo common |ntorosts |n oncourag|ng groator onorgy
ott|c|oncy, promot|ng |nnovat|on |n ronowab|os and a|tornat|vo onorgy
as wo|| as convont|ona| onorgy, and |n manag|ng carbon to roduco tho
throat ot c||mato chango. 1hoy havo dot|nod a common c|oan-onorgy
agonda. Voroovor, as ho|dors ot tho wor|d's |argost and socond-
|argost coa| rosorvos, thoy dopond upon coa| tor substant|a| parts ot
tho|r o|octr|c|ty gonorat|on, and thus sharo |ntorosts |n t|nd|ng a
pathway to commorc|a| c|oan coa|.
Whon a|| th|s |s addod up, thoro |s much room tor cooporat|on. 3uch
co||aborat|on wou|d |mprovo tho onorgy and oconom|c pos|t|ons ot
both countr|os. And that, |n turn, wou|d contr|buto to tho socur|ty and
wo||-bo|ng ot both countr|os as wo|| as that ot tho g|oba| commun|ty.
PAR1 1WO
5ocuring tho 5uIy
11
|5 1EE WORLD RuNN|NC Ou1 OF O|L?
5|nco tho bog|nn|ng ot tho twonty-t|rst contury, a toar has como to
porvado tho prospocts tor o|| and a|so toods anx|ot|os about ovora||
g|oba| stab|||ty. 1h|s toar, that tho wor|d |s runn|ng out ot o||, comos w|th
a namo: poak o||. lt arguos that tho wor|d |s noar or at tho po|nt ot
max|mum output, and that an |noxorab|o doc||no has a|roady bogun, or
|s soon to sot |n. 1ho consoquoncos, |t |s sa|d, w||| bo gr|m: An
unprocodontod cr|s|s |s just ovor tho hor|zon,' wr|tos ono advocato ot
tho poak o|| thoory. 1horo w||| bo chaos |n tho o|| |ndustry, |n
govornmonts and |n nat|ona| oconom|os.' Anothor warns ot
consoquoncos |nc|ud|ng war, starvat|on, oconom|c rocoss|on,
poss|b|y ovon tho oxt|nct|on ot homo sap|ons.' 1ho dato ot tho poak
has tondod to movo torward. lt was supposod to arr|vo by
1hanksg|v|ng 200b. 1hon tho unbr|dgoab|o supp|y domand gap' was
oxpoctod to opon up attor 2007.' 1hon |t wou|d arr|vo |n 2011. low
somo say thoro |s a s|gn|t|cant r|sk ot a poak botoro 2020.'
1
1ho poak o|| thoory ombod|os an ond ot tochno|ogy/ond ot
opportun|ty' porspoct|vo, that thoro w||| bo no moro s|gn|t|cant
|nnovat|on |n o|| product|on, nor s|gn|t|cant now rosourcos that can bo
dovo|opod.
1ho poak may bo tho bost-known |mago ot tuturo supp|y. 3ut thoro |s
anothor, moro appropr|ato, way to v|sua||zo tho courso ot supp|y: as a
p|atoau. 1ho wor|d has docados ot turthor product|on growth botoro
t|atton|ng out |nto a p|atoau-porhaps somot|mo around m|dcontury-
at wh|ch t|mo a moro gradua| doc||no w||| bog|n.
ABOVECROuND R|5K5
1o bo suro, thoro's hard|y a shortta|| ot r|sks |n tho yoars ahoad.
0ovo|op|ng tho rosourcos to moot tho roqu|romonts ot a grow|ng wor|d
|s a vory b|g and oxpons|vo cha||ongo. 1ho lntornat|ona| Enorgy
Agoncy ost|matos that now dovo|opmont w||| roqu|ro as much as $8
tr||||on ovor tho noxt quartor contury. lrojocts w||| grow |argor and moro
comp|ox and thoro |s no shortago ot goo|og|ca| cha||ongos.
2
3ut many ot tho most doc|s|vo r|sks w||| bo what aro ca||od abovo
ground.' 1ho ||st |s |ong, and thoy aro oconom|c, po||t|ca|, and m|||tary:
What po||c|os do govornmonts mako, what torms do thoy roqu|ro, how
do thoy |mp|omont tho|r cho|cos, and what |s tho qua||ty and t|mo||noss
ot doc|s|on mak|ng? 0o countr|os prov|do compan|os w|th accoss to
dovo|op rosourcos and do compan|os ga|n a ||conso to oporato? What
|s happon|ng to costs |n tho o|| t|o|d? What |s tho ro|at|onsh|p botwoon
stato-ownod nat|ona| o|| compan|os and tho trad|t|ona| |ntornat|ona| o||
compan|os, and botwoon |mport|ng and oxport|ng countr|os? |ow
stab|o |s a country, and how b|g aro throats trom c|v|| war, corrupt|on,
and cr|mo? What aro tho ro|at|ons botwoon contra| govornmonts and
rog|ons and prov|ncos? What aro tho throats ot war and turmo|| |n
d|ttoront parts ot tho wor|d? |ow vu|norab|o |s tho supp|y systom to
torror|sm?
A|| ot thoso aro s|gn|t|cant and sobor quost|ons. |ow thoy p|ay out-
and |ntoract-w||| do much to dotorm|no tuturo |ovo|s ot product|on. 3ut
thoso aro not |ssuos ot phys|ca| rosourcos, but ot what happons abovo
ground.
Voroovor, doc|s|on mak|ng on tho bas|s ot a poak o|| v|ow can
croato r|sks ot |ts own. A|| lar|jan|, tho spoakor ot lran's par||amont,
doc|arod that lran noods |ts nuc|oar program bocauso toss|| tuo|s aro
com|ng to an ond. Wo know tho oxp|rat|on dato ot our rosorvos.' 3uch
an oxpoctat|on |s surpr|s|ng com|ng trom a country w|th tho wor|d's
socond-|argost convont|ona| natura| gas rosorvos and among tho
wor|d's |argost o|| rosorvos.
8
1h|s poak o|| thoory may soom now. ln tact, |t has boon around tor a
|ong t|mo. 1h|s |s not tho t|rst t|mo that tho wor|d has run out ot o||. lt |s
tho t|tth. And th|s t|mo too, as w|th tho prov|ous op|sodo, tho poak
prosumos ||m|tod tochno|og|ca| |nnovat|on and that oconom|cs doos
not roa||y mattor.
RuNN|NC Ou1 ACA|N~AND ACA|N
1ho modorn o|| |ndustry was born |n 18b0 whon Co|ono|' Edw|n 0rako
h|t o|| noar tho sma|| t|mbor town ot 1|tusv|||o |n northwost lonnsy|van|a.
lt grow up |n tho h|||s and rav|nos surround|ng 1|tusv|||o |n what has
bocomo known as tho O|| log|on. Othor product|on contors a|so
omorgod |n tho |ato n|notoonth contury-|n tho luss|an Emp|ro, around
3aku, on tho Casp|an 3oa and |n tho Caucasus, |n tho 0utch East
lnd|os, and |n Ga||c|a, |n tho Austro-|ungar|an Emp|ro. 3ut
lonnsy|van|a was tho 3aud| Arab|a ot tho day-and thon somo-
supp|y|ng Europo and As|a, as wo|| as lorth Amor|ca. 1ho pr|mary
markot tor o|| |ts t|rst 40 yoars was |||um|nat|on, to prov|do ||ght|ng,
rop|ac|ng wha|o o|| and othor t|u|ds usod |n o|| |amps. lotro|oum
qu|ck|y bocamo a g|oba| bus|noss. 1ohn 0. lockoto||or bocamo tho
r|chost man |n tho wor|d not bocauso ot transportat|on but bocauso ot
|||um|nat|on.
Yot o|| t|ow|ng up trom tho oarth's |ntor|or was mystor|ous. Wo||s
m|ght sond o|| shoot|ng up |nto tho sky and thon run dry tor roasons no
ono know. loop|o bogan to toar that tho o|| wou|d run out. 1ho 3tato
Goo|og|st ot lonnsy|van|a warnod |n 188b that tho amaz|ng oxh|b|t|on
ot o||' was on|y a tomporary and van|sh|ng phonomonon-ono wh|ch
young mon w||| ||vo to soo como to |ts natura| ond.' 1hat samo yoar,
1ohn Archbo|d, lockoto||or's partnor |n 3tandard O||, was to|d that tho
doc||no |n Amor|can product|on was a|most |nov|tab|o. A|armod, ho
so|d somo ot h|s 3tandard O|| sharos at a d|scount. lator, hoar|ng that
thoro m|ght bo o|| |n Ok|ahoma, ho rop||od, Why, l'|| dr|nk ovory ga||on
producod wost ot tho V|ss|ss|pp|.' Yot not |ong attor, now t|o|ds woro
d|scovorod-|n Oh|o, Kansas, and thon tho hugo t|o|ds ot Ok|ahoma
and 1oxas.
4
1hoso now supp||os appoarod just |n t|mo, tor an ont|ro|y now sourco
ot domand-tho automob||o-was rap|d|y rop|ac|ng tho trad|t|ona|
|||um|nat|on markot, wh|ch |n any ovont was bo|ng crushod by
o|octr|c|ty. 1ho arr|va| ot tho motor car turnod o|| trom an |||um|nant |nto
tho tuo| ot mob|||ty.
ln 1014 tho Europoan nat|ons wont to war th|nk|ng |t wou|d bo a
short cont||ct. 3ut Wor|d War l turnod |nto tho |ong, arduous, and b|oody
batt|o ot tronch wartaro. lt a|so bocamo a mochan|zod war. 1ho now
|nnovat|ons trom tho |ato n|notoonth and oar|y twont|oth contur|os-
cars, trucks, and p|anos-woro, moro rap|d|y than anyono had
ant|c|patod, prossod |nto |argo-sca|o m|||tary sorv|co. Ono ot tho most
|mportant |nnovat|ons t|rst appoarod on tho batt|ot|o|d |n 1010. lt was
|n|t|a||y codo-namod tho c|storn' but was soon bottor known as tho
tank.' As o|| wont to Europo to support tho mob|||ty ot A|||od torcos, a
gaso||no tam|no gr|ppod tho Un|tod 3tatos. ln tact, 1018 saw tho
h|ghost gaso||no pr|cos, |n |nt|at|on-adjustod torms, ovor rocordod |n
tho Un|tod 3tatos. ln ordor to ho|p ro||ovo tho shortago, a nat|ona|
appoa| wont out tor Gaso||no|oss 3undays,' on wh|ch poop|o wou|d
absta|n trom dr|v|ng. ln rosponso, lros|dont W||son ruotu||y announcod,
l supposo l must wa|k to church.'
3y tho t|mo tho war ondod, no ono cou|d doubt o||'s stratog|c
|mportanco. lord Curzon, soon to bocomo 3r|ta|n's toro|gn socrotary,
summod |t up: 1ho A|||od causo had t|oatod to v|ctory upon a wavo ot
o||.' 3ut tor tho socond t|mo, tho toar took ho|d that tho wor|d was
runn|ng out ot o||-part|y dr|von by tho surg|ng domand growth trom tho
|ntorna| combust|on ong|no. 3otwoon 1014 and 1020, tho numbor ot
rog|storod motor voh|c|os |n tho Un|tod 3tatos grow t|voto|d. W|th|n
tho noxt two to t|vo yoars,' doc|arod tho d|roctor ot tho Un|tod 3tatos
3uroau ot V|nos, tho o|| t|o|ds ot th|s country w||| roach tho|r max|mum
product|on, and trom that t|mo on wo w||| taco an ovor-|ncroas|ng
doc||no.' lros|dont W||son |amontod, 1horo soomod to bo no mothod
by wh|ch wo cou|d assuro ourso|vos ot tho nocossary supp|y at homo
and abroad.'
b
3ocur|ng now supp||os bocamo a stratog|c objoct|vo. 1hat |s ono ot
tho major roasons that, attor Wor|d War l, tho throo oastornmost o||-
prospoct|vo prov|ncos ot tho now-dotunct Ottoman 1urk|sh Emp|ro-
ono Kurd|sh, ono 3unn| Arab, and ono 3h|a Arab-woro cobb|od
togothor to croato tho now stato ot lraq.
1ho pormanont shortago d|d not |ast vory |ong. low aroas oponod
up and now tochno|og|os omorgod, tho most notoworthy bo|ng so|sm|c
tochno|ogy. 0ynam|to oxp|os|ons sot ott son|c wavos, onab||ng
oxp|orors to |dont|ty prospoct|vo undorground tormat|ons and map
goo|og|ca| toaturos that m|ght havo trappod o|| and gas. Vajor now
d|scovor|os woro mado |n tho Un|tod 3tatos and othor countr|os. 3y
tho ond ot tho 1020s, |nstoad ot pormanont shortago, tho markot was
bog|nn|ng to sw|m |n o||. 1ho d|scovory ot tho East 1oxas o|| t|o|d |n
1081 turnod tho surp|us |nto an onormous g|ut: o|| p|ungod tomporar||y
to as ||tt|o as ton conts a barro|, dur|ng tho Groat 0opross|on somo
gaso||no stat|ons gavo away who|o ch|ckons as prom|ums to |uro |n
customors.
1ho outbroak ot Wor|d War ll turnod that g|ut |nto an onormous and
|mmonso|y va|uab|o stratog|c rosorvo. Out ot sovon b||||on barro|s usod
by tho A|||os, s|x b||||on camo trom tho Un|tod 3tatos. O|| provod to bo
ot koy |mportanco |n so many d|ttoront aspocts ot tho strugg|o. 1apan's
toar ot |ack ot accoss to o||-wh|ch, |n tho words ot tho ch|ot ot |ts
lava| Gonora| 3tatt, wou|d turn |ts batt|osh|ps |nto noth|ng moro than
scarocrows'-was ono ot tho cr|t|ca| tactors |n 1apan's doc|s|on to go
to war. ||t|or mado h|s tatotu| doc|s|on to |nvado tho 3ov|ot Un|on not
on|y bocauso ho hatod tho 3|avs and tho commun|sts, but a|so so that
ho cou|d got h|s hands on tho o|| rosourcos ot tho Caucasus. 1ho
Gorman U-boat campa|gn tw|co camo c|oso to cutt|ng tho o|| ||no trom
lorth Amor|ca to Europo. 1ho A|||os, |n turn, woro dotorm|nod to
d|srupt tho o|| supp||os ot both Gormany and 1apan. lnadoquato
supp||os ot tuo| put tho brakos on both Gonora| Erw|n lommo|'s
campa|gn |n lorth Atr|ca (3hortago ot potro|,' ho wroto h|s w|to, lt's
onough to mako ono woop') and Gonora| Goorgo latton's swoop
across |ranco attor tho 0 0ay |and|ng.
0
Wor|d War ll ondod, ||ko Wor|d War l, w|th a protound rocogn|t|on ot
tho stratog|c s|gn|t|canco ot o||-and, tor tho th|rd t|mo, w|dosproad
toar about runn|ng out ot o||. 1hoso toars woro ho|ghtonod by tho tact
that, |mmod|ato|y attor tho war, tho Un|tod 3tatos crossod a groat
stratog|c d|v|do. lo |ongor so|t-sutt|c|ont |n potro|oum, |t bocamo a not
|mportor. 3ut tor a numbor ot yoars, quotas ||m|tod |mports to about 10
porcont ot tota| consumpt|on.
Onco aga|n, tho spoctor ot g|oba| shortago rocodod, as tho opon|ng
up ot tho vast t|o|ds ot tho V|dd|o East and tho dovo|opmont ot now
tochno|og|os |od to ovorsupp|y and ta|||ng pr|cos. 1h|s downward trond
cu|m|natod |n cuts |n tho wor|d o|| pr|co |n 10b0 and 1000 by tho major
o|| compan|os that brought t|vo o||-oxport|ng countr|os togothor |n
3aghdad |n 1000 to tound tho Organ|zat|on ot lotro|oum Export|ng
Countr|os-OlEC-|n ordor to dotond tho|r rovonuos. O|| roma|nod
choap, convon|ont, and abundant, and |t bocamo tho tuo| tor tho
postwar oconom|c m|rac|os |n |ranco, Gormany, lta|y, and 1apan.
3ut by tho bog|nn|ng ot tho 1070s, surg|ng |n potro|oum
consumpt|on, dr|von by a boom|ng wor|d oconomy, was runn|ng up
aga|nst tho ||m|ts ot ava||ab|o product|on capac|ty. At tho samo t|mo,
nat|ona||sm was r|s|ng among oxport|ng countr|os, and tons|ons woro
mount|ng |n tho V|dd|o East. 1ho spoctor ot rosourco shortago was |n
tho a|r, prom|nont|y promotod by tho C|ub ot lomo study 7bo Llmlts o
Orowtb on tho prod|camont ot mank|nd.' 1o w|do acc|a|m, |t warnod
that curront tronds wou|d moan not on|y rap|d rosourco dop|ot|on but
a|so portondod tho unsusta|nab|||ty ot |ndustr|a| c|v|||zat|on.
7
ln Octobor 1078 Arab countr|os |aunchod tho|r surpr|so attack on
lsrao|, |n|t|at|ng tho Octobor War. ln rosponso to U.3. rosupp|y ot
armamonts to a bo|oaguorod lsrao|, Arab oxportors ombargood o||
sh|pmonts. 1ho o|| markot wont |nto a hyporpan|c, and w|th|n months
potro|oum pr|cos quadrup|od. 1hoy doub|od aga|n botwoon 1078 and
1081 whon tho lran|an lovo|ut|on topp|od tho pro-Wostorn shah and
d|sruptod o|| t|ows. A|| th|s soomod to bo proot ot tho C|ub ot lomo
thos|s ot |oom|ng shortagos. Ono most prom|nont sc|ont|st, a tormor
cha|rman ot tho Atom|c Enorgy Comm|ss|on, warnod: Wo aro ||v|ng |n
tho tw|||ght ot tho potro|oum ago.' 1ho CEO ot a major o|| company put
|t d|ttoront|y. 1ho wor|d, ho sa|d, had roachod tho t|p ot tho o||
mounta|n,' tho h|gh po|nt ot supp|y, and was about to ta|| down tho
othor s|do. 1h|s was tho tourth t|mo tho wor|d was sa|d to bo runn|ng
out ot o||.
8
1ho toar ot pormanont shortago |gn|tod a trant|c soarch tor now
supp||os and tho doub|o-t|mo dovo|opmont ot now rosourcos. Vajor
now prov|ncos woro d|scovorod and brought on stroam trom A|aska's
lorth 3|opo and trom tho lorth 3oa. At tho samo t|mo, govornmont
po||c|os |n tho |ndustr|a| countr|os promotod groator tuo| ott|c|oncy |n
automob||os and oncouragod o|octr|c ut|||t|os to sw|tch away trom o|| to
|ncroasod uso ot coa| and nuc|oar powor.
1ho |mpact was onormous-and surpr|s|ng|y sw|tt. W|th|n ha|t a
docado, what was supposod to bo tho pormanont shortago turnod |nto
a hugo g|ut. ln 1080 tho pr|co ot o|| co||apsod. lnstoad ot tho prod|ctod
$100 a barro|, |t to|| as |ow as $10 a barro|. lr|cos rocovorod |n tho
|ato 1080s, sp|kod w|th tho Gu|t cr|s|s |n 1000, and thon soomod to
stab|||zo aga|n. 3ut, |n tho |ato 1000s, tho As|an t|nanc|a| cr|s|s
proc|p|tatod yot anothor pr|co co||apso.
1EE F|F1E 1|NE
3y tho bog|nn|ng ot tho twonty-t|rst contury, o|| pr|cos woro onco aga|n
robound|ng. lt was around that t|mo that toar about runn|ng out ot o||
bogan to ga|n prom|nonco aga|n, tor tho t|tth t|mo. 3ut |t was no |ongor
tho o|| mounta|n.' lt was now somoth|ng |ott|or-tho poak.'
Acco|oratod growth ot o|| consumpt|on |n Ch|na and othor omorg|ng
oconom|os-and tho shoor sca|o ot prospoct|vo domand-
undorstandab|y ro|ntorcod tho anx|oty about tho adoquacy ot tuturo
supp||os. loak o|| a|so bocamo ontw|nod w|th tho r|s|ng concorns
about c||mato chango, and tho spoctor ot |mpond|ng shortago
prov|dod turthor |mpotus to movo away trom carbon-basod tuo|s.
1ho poak thoory, |n |ts prosont tormu|at|on, |s protty stra|ghttorward.
lt arguos that wor|d o|| output |s curront|y at or noar tho h|ghost |ovo| |t
w||| ovor roach, that about ha|t tho wor|d's rosourcos havo boon
producod, and that tho po|nt ot |mm|nont doc||no |s noar|ng. lt's qu|to a
s|mp|o thoory and ono that any boor dr|nkor undorstands,' ono ot tho
|oadors ot tho curront movomont put |t. 1ho g|ass starts tu|| and onds
ompty and tho tastor you dr|nk |t tho qu|ckor |t's gono.' (Ot courso, that
assumos ono knows how b|g tho g|ass |s.) 1ho thoory owos |ts
|nsp|rat|on and structuro, and |ndood |ts art|cu|at|on, to a goo|og|st
who, though |ong s|nco passod trom tho scono, cont|nuos to shapo tho
dobato, V. K|ng |ubbort. lndood, h|s namo |s |noxtr|cab|y ||nkod to that
porspoct|vo-|mmorta||zod |n |ubbort's loak.'
0
N. K|NC EuBBER1
Var|on K|ng |ubbort was ono ot tho om|nont oarth sc|ont|sts ot h|s
t|mo and ono ot tho most controvors|a|. 3orn |n 1oxas, ho d|d a|| h|s
un|vors|ty oducat|on, |nc|ud|ng h|s lh.0., at tho Un|vors|ty ot Ch|cago,
whoro ho to|dod phys|cs and mathomat|cs |nto goo|ogy. ln tho 1080s,
wh||o toach|ng at Co|umb|a Un|vors|ty |n low York C|ty, ho bocamo
act|vo |n a movomont ca||od 1ochnocracy. |o|d|ng po||t|c|ans and
oconom|sts rospons|b|o tor tho dobac|o ot tho Groat 0opross|on,
1ochnocracy promotod tho |doa that domocracy was a sham and that
sc|ont|sts and ong|noors shou|d tako ovor tho ro|ns ot govornmont and
|mposo rat|ona||ty on tho oconomy. 1ho hoad ot 1ochnocracy was
ca||od tho Groat Eng|noor. Vombors woro un|torms and sa|utod whon
tho Groat Eng|noor wa|kod |nto tho room. |ubbort sorvod as |ts
oducat|ona| d|roctor tor 1b yoars and wroto tho manua| by wh|ch |t
oporatod. l had a box soat at tho 0opross|on,' ho |ator sa|d. Wo had
manpowor and raw mator|a|s. Yot wo shut tho country down.'
1ochnocracy onv|s|onod a no-growth soc|oty and tho o||m|nat|on ot tho
pr|co systom, to bo rop|acod by tho w|so adm|n|strat|on ot tho
1ochnocrats. |ubbort wantod to promoto a soc|a| structuro that was
basod on phys|ca| ro|at|ons, thormodynam|cs' rathor than a monotary
systom. |o bo||ovod that a pocun|ary' systom, m|s|ntormod by tho
h|orog|yph|cs' ot oconom|sts, was tho road to ru|n.
A|though cantankorous and combat|vo, |ubbort was, as a toachor,
domand|ng and compo|||ng. l tound h|m to bo arrogant, ogot|st|ca|,
dogmat|c, and |nto|orant ot work ho porco|vod to bo |ncorroct,' roca||od
ono adm|r|ng tormor studont. 3ut abovo a||, l judgod h|m to bo a groat
sc|ont|st dod|catod to so|v|ng prob|oms basod on s|mp|o phys|ca| and
mathomat|ca| pr|nc|p|os. |o to|d mo that ho had a ||m|tod ||tot|mo |n
wh|ch to tra|n and pass on what ho know, and that ho cou|dn't wasto
h|s t|mo w|th poop|o that cou|dn't comprohond.'
|ubbort d|d not havo an oasy ro|at|onsh|p w|th h|s Co|umb|a
co||oaguos. Whon Co|umb|a ta||od to g|vo h|m tonuro, ho packod up
and wont to work as a goo|og|st tor 3ho|| O||.
10
Co||og|a||ty was not ono ot h|s v|rtuos. Coworkors tound h|m
abras|vo, ovor|y cont|dont |n h|s own op|n|ons, d|sm|ss|vo ot thoso who
d|sagrood w|th h|m, and ||| d|sgu|sod |n h|s contompt ot thoso w|th
d|ttoront po|nts ot v|ow.
A g|ttod sc|ont|st, but w|th doop-soatod |nsocur|t|os,' |n tho words ot
ono scho|ar, |ubbort was so ovorboar|ng that |t was a|most pa|ntu| tor
othors to work w|th h|m. At 3ho||, tho young goo|og|sts ass|gnod to h|m
novor managod to |ast moro than a yoar. ||na||y, tho t|rst toma|o
goo|og|st to graduato trom l|co Un|vors|ty, Vartha lou 3roussard,
was sont to h|m. Ovorpopu|at|on' was ono ot |ubbort's tavor|to
thomos. 0ur|ng hor job |ntorv|ow, ho askod 3roussard |t sho |ntondod
to havo ch||dron. 1hon, |n ordor to conv|nco hor not to, ho to|d hor to go
to tho b|ackboard to ca|cu|ato at oxact|y what po|nt tho wor|d wou|d
roach ono porson por squaro motor.
|rom 3ho|| ho movod to tho U.3. Goo|og|ca| 3urvoy, whoro ho was
|n a pormanont batt|o w|th somo ot h|s co||oaguos. |o was tho most
d|tt|cu|t porson l ovor workod w|th,' sa|d lotor loso, h|s boss at tho
U3G3.
Yot |ubbort a|so bocamo rocogn|zod as ono ot tho |oad|ng t|guros
|n tho t|o|d and mado a var|oty ot major contr|but|ons, |nc|ud|ng a
som|na| papor |n 10b7, 1ho Vochan|cs ot |ydrau||c |ractur|ng.' Ono
ot h|s tundamonta| objoct|vos was to movo goo|ogy trom what ho
ca||od |ts natura|-h|story phaso' to phys|ca| sc|onco phaso,' t|rm|y
basod |n phys|cs, chom|stry, and |n part|cu|ar, |n r|gorous
mathomat|cs. K|ng |ubbort, mathomat|c|an that ho |s,' sa|d tho ch|ot
goophys|c|st ot ono ot tho o|| compan|os, basod h|s |ook ahoad on
tacts, |og|ca||y and ana|yt|ca||y ana|yzod.' |our docados attor turn|ng
h|m down tor tonuro, Co|umb|a |mp||c|t|y apo|og|zod by award|ng h|m
tho vot|oson lr|zo, ono ot tho h|ghost honors |n Amor|can goo|ogy.
11
A1 1EE PEAK
ln tho |ato 1040s, |ubbort's |ntorost was p|quod whon ho hoard
anothor goo|og|st say that b00 yoars ot o|| supp|y roma|nod |n tho
ground. 1h|s cou|dn't poss|b|y bo truo, ho thought. |o startod do|ng h|s
own ana|ys|s. ln 10b0 at a moot|ng |n 3an Anton|o, ho unvo||od tho
thoory that wou|d torovor bo ||nkod to h|s namo. |o doc|arod that U.3.
o|| product|on was ||ko|y to h|t |ts poak somowhoro botwoon 100b and
1070. 1h|s was what bocamo |ubbort's loak.
||s prod|ct|on was grootod w|th much controvorsy. l wasn't suro
thoy woron't go|ng to hang mo trom tho noarost ||ght post,' ho sa|d
yoars |ator. 3ut whon U.3. product|on d|d h|t |ts poak |n 1070, to||owod
by tho shock ot tho 1078 ombargo, |ubbort appoarod moro than
v|nd|catod. |o was a prophot. |o bocamo tamous.
12
1ho poak|ng ot U.3. output po|ntod to a major goopo||t|ca|
roarrangomont. 1ho Un|tod 3tatos cou|d no |ongor |argo|y go |t a|ono.
A|| through tho 1000s, ovon w|th |mports, domost|c product|on had
supp||od 00 porcont ot domand. lo |ongor. 1o moot |ts own grow|ng
noods, tho Un|tod 3tatos wont trom bo|ng a m|nor |mportor to a major
|mportor, doop|y onmoshod |n tho wor|d o|| markot. 1ho rap|d growth ot
U.3. o|| |mports, |n turn, was ono ot tho koy tactors that |od to tho vory
t|ght o|| markot that sot tho stago tor tho 1078 cr|s|s.
|ubbort was vory poss|m|st|c on tho prospocts tor tuturo supp|y. ln
tonos rom|n|scont ot tho 3tato Goo|og|st ot lonnsy|van|a |n 188b, ho
warnod that tho ora ot o|| wou|d bo on|y a br|ot b||p |n mank|nd's
h|story. ln 1078 ho prod|ctod that ch||dron born |n 100b wou|d soo a||
tho wor|d's o|| usod up |n tho|r ||tot|mos. |uman|ty, ho sa|d, was about
to ombark upon a por|od ot non-growth.'
18
WEY 5uPPL|E5 CON1|NuE 1O CROW
|ubbort usod a stat|st|ca| approach to projoct tho k|nd ot doc||no curvo
that ono m|ght oncountor |n somo-but not a||-o|| t|o|ds, and thon
assumo that tho Un|tod 3tatos was ono g|ant o|| t|o|d. |ubbort's
to||owors havo adoptod that approach to g|oba| supp||os. |ubbort's
or|g|na| projoct|on tor U.3. product|on was bo|d and, at |oast
suport|c|a||y, accurato. ||s modorn-day adhoronts |ns|st that U.3.
output has cont|nuod to to||ow |ubbort curvos w|th on|y m|nor
dov|at|ons.' 3ut |t a|| comos down to how ono dot|nos m|nor.' |ubbort
got tho dato r|ght, but h|s projoct|on on supp|y was tar ott. |ubbort
groat|y undorost|matod tho amount ot o|| that wou|d bo tound-and
producod-|n tho Un|tod 3tatos.
3y 2010, U.3. product|on was tour t|mos h|ghor than |ubbort had
ost|matod-b.0 m||||on barro|s por day vorsus |ubbort's 1071
ost|mato ot no moro than 1.b m||||on barro|s por day-a quartor ot tho
actua| numbor.
14
Cr|t|cs po|nt out that |ubbort |ott two koy o|omonts out ot h|s ana|ys|s
-tochno|og|ca| progross and pr|co. |ubbort was |mag|nat|vo and
|nnovat|vo |n h|s uso ot mathomat|cs |n h|s projoct|on,' roca||od lotor
loso. 3ut thoro was no concopt ot tochno|og|ca| chango, oconom|cs,
or how now rosourco p|ays ovo|vo. lt was a vory stat|c v|ow ot tho
wor|d.' |ubbort a|so assumod that thoro was an accurato ost|mato ot
u|t|mato|y rocovorab|o rosourcos, whon |n tact |t |s a constant|y mov|ng
targot.
A|though ho soomod a stubborn |conoc|ast, ovon a contrar|an,
|ubbort was actua||y a man ot h|s t|mos. |o mado h|s koy projoct|ons
dur|ng tho 10b0s, an ora ot ro|at|vo|y |ow, and t|at, pr|cos and a por|od
ot tochno|og|ca| stagnat|on. |o c|a|mod that ho had tu||y assumod
|nnovat|on, |nc|ud|ng |nnovat|on that had not yot occurrod. Yot tho
|mpact ot tochno|og|ca| chango was m|ss|ng trom h|s projoct|ons. 1ho
m|d-1000s markod tho bog|nn|ng ot a now ora |n tochno|og|ca|
advanco and capab|||t|os.
1b
|ubbort a|so |ns|stod that pr|co d|d not mattor. Econom|cs-tho
torcos ot supp|y and domand-woro, |ubbort ma|nta|nod, |rro|ovant to
tho t|n|to phys|ca| cacho ot o|| that can bo oxtractod trom tho oarth.
lndood, |n tho samo sp|r|t, thoso today who quost|on tho |mm|nonco ot
doc||no aro otton d|sm|ssod by poak adhoronts as oconom|sts'-
ovon |t thoy aro |n tact goo|og|sts. Yot |t |s not c|oar why pr|co-w|th a||
tho mossagos |t sonds to poop|o about a||ocat|ng rosourcos and
mak|ng cho|cos and dovo|op|ng now tochno|og|os-wou|d app|y |n so
many othor roa|ms but not |n torms ot o||. Act|v|ty goos up whon pr|cos
go up, act|v|ty goos down whon pr|cos go down. ||ghor pr|cos
st|mu|ato |nnovat|on and oncourago poop|o to t|guro out |ngon|ous now
ways to |ncroaso supp|y. 1ho otton-c|tod provod rosorvos' aro not just
a phys|ca| concopt, account|ng tor a t|xod amount |n tho storohouso.'
1hoy aro a|so an oconom|c concopt-how much can bo rocovorod at
prova|||ng pr|cos-and thoy aro bookod on|y whon |nvostmont |s mado.
And thoy aro a tochno|og|ca| concopt, tor advancos |n tochno|ogy w|||
tako rosourcos that woro not phys|ca||y accoss|b|o or oconom|ca||y
v|ab|o and turn thom |nto rocovorab|o rosorvos.
1ho gonora| h|story ot tho o|| and gas |ndustry, as w|th v|rtua||y a||
|ndustr|os, |s ono ot tochno|og|ca| advanco. low tochno|og|os aro
dovo|opod to |dont|ty now rosourcos and to produco moro trom
ox|st|ng t|o|ds. |or |nstanco, |n a typ|ca| o|| t|o|d, on|y about 8b to 40
porcont ot tho o|| |n p|aco |s producod us|ng trad|t|ona| mothods. Vuch
tochno|ogy |s bo|ng dovo|opod and app||od to ra|s|ng that rocovory
rato. 1hat |nc|udos tho |ntroduct|on ot tho d|g|ta| o|| t|o|d ot tho tuturo.
3onsors aro dop|oyod |n a|| parts ot tho t|o|d, |nc|ud|ng |n tho wo||s.
1h|s dramat|ca||y |mprovos tho c|ar|ty and comprohons|vonoss ot data
and tho commun|cat|on botwoon tho t|o|d and a company's tochno|ogy
contors, and a||ows oporators to ut|||zo moro powortu| comput|ng
rosourcos to procoss |ncom|ng data. lt w|do|y adoptod, tho d|g|ta| o||
t|o|d' cou|d a|so mako |t poss|b|o to rocovor, wor|dw|do, an onormous
amount ot add|t|ona| o||-by ono ost|mato, an oxtra 12b b||||on barro|s
ot o||-a|most oqu|va|ont to lraq's rosorvos.
10
1EE 5uPERC|AN1
ln tho 2000s, tho |mm|nont doc||no ot output trom 3aud| Arab|a
bocamo a contra| tonot ot poak o|| thoory. 1ho argumont tocusod on
tho suporg|ant Ghawar t|o|d, tho |argost o|| t|o|d |n tho wor|d. 1ho t|rst
wo|| was dr|||od |n Ghawar |n 1048, ton yoars attor tho or|g|na|
d|scovory ot o|| |n 3aud| Arab|a. lt took docados to roa||y undorstand
tho oxtont ot th|s oxtraord|nary t|o|d, mado moro comp||catod by tho
tact that |t |s roa||y a notwork ot t|vo t|o|ds, wh|ch havo boon dovo|opod
ovor docados ow|ng to Ghawar's co|ossa| s|zo. 1ho |atost sogmont
wont |nto dovo|opmont on|y |n 2000.
17
1ho contont|on that 3aud| Arab|a's ovora|| product|on |s |n doc||no |s
somowhat odd, tor 3aud| capac|ty has |ncroasod |n rocont yoars. Attor
moro than s|xty yoars, Ghawar |s st|||, |n tho words ot 3aud| Aramco
lros|dont Kha||d A|-|a||h, robust |n m|dd|o ago.' lnvostmont
roqu|romonts aro go|ng up. 3ut at a product|on rato ot ovor b m||||on
barro|s por day, Ghawar cont|nuos to bo h|gh|y product|vo. 1ho
app||cat|on ot now tochno|og|os cont|nuos to un|ock rosourcos and
opon up now hor|zons.
18
D|5COVER|E5 VER5u5 ADD|1|ON5
As proot tor poak o||, |ts advocatos arguo that tho d|scovory rato tor
now o|| t|o|ds |s doc||n|ng. 3ut th|s obscuros a cruc|a| po|nt. Vost ot tho
wor|d's supp|y |s not tho rosu|t ot d|scovor|os, but ot rosorvos and
add|t|ons. Whon a t|o|d |s t|rst d|scovorod, vory ||tt|o |s known about |t,
and |n|t|a| ost|matos aro ||m|tod and gonora||y consorvat|vo. As tho
t|o|d |s dovo|opod, bottor know|odgo omorgos about |ts rosorvos and
product|on. Voro wo||s aro dr|||od, and w|th bottor know|odgo, provon
rosorvos aro vory otton |ncroasod.
1ho d|ttoronco |n tho ba|anco botwoon d|scovor|os and rov|s|ons
and add|t|ons |s dramat|c. Accord|ng to ono study by tho Un|tod 3tatos
Goo|og|ca| 3urvoy, 80 porcont ot o|| rosorvos |n tho Un|tod 3tatos aro
tho rosu|t not ot what |s ost|matod at t|mo ot d|scovory but ot tho
rov|s|ons and add|t|ons that como w|th turthor dovo|opmont. 1ho
d|ttoronco was summod up by Vark Voody-3tuart, tho tormor
cha|rman ot loya| 0utch 3ho||, roca|||ng h|s own days as an
oxp|orat|on goo|og|st out |n tho t|o|d: Wo usod to joko a|| tho t|mo that
much moro o|| was d|scovorod by tho potro|oum ong|noors, dovo|op|ng
and oxpand|ng tho t|o|ds, than by us oxp|orors, who actua||y tound tho
t|o|ds.'
1ho oxamp|os prov|dod by many t|o|ds and bas|ns po|nt to anothor
tundamonta| woaknoss ot |ubbort's argumont and |ts app||cat|on to
tho ont|ro wor|d. ln 10b0 |ubbort drow a bo||-shapod curvo, tho doc||no
s|do wou|d bo tho m|rror |mago ot tho ascond|ng s|do. lndood, ho
mado |t so sharp on both s|dos that tor somo yoars |t was ca||od
|ubbort's l|mp|o.' 3omo o|| t|o|ds do doc||no |n th|s symmotr|ca|
tash|on. Vost do not. 1hoy ovontua||y do roach a phys|ca| poak ot
product|on and thon otton p|atoau and moro gradua||y doc||no, rathor
than ta|||ng sharp|y |n output. As ono studont ot rosourco ondowmonts
has obsorvod, 1horo |s no |nhoront roason why a curvo that p|ots tho
h|story ot product|on ot a typo ot toss|| onorgy shou|d havo a
symmotr|ca| bo||-shapod curvo.'
10
1ho p|atoau |s |oss dramat|c. 3ut, basod on curront know|odgo, |t |s
a moro appropr|ato |mago tor what |s ahoad than tho poak. And tho
wor|d |s st|||, |t wou|d soom, many yoars away trom ascond|ng to that
p|atoau.
EOW NuCE O|L?
At tho ond ot 2000, attor a yoar's worth ot product|on, tho wor|d's
provod o|| rosorvos woro 1.b tr||||on barro|s, s||ght|y moro than woro at
tho bog|nn|ng ot that yoar. 1hat moans that tho d|scovor|os and
rov|s|ons and add|t|ons woro sutt|c|ont to rop|aco a|| tho o|| that was
producod |n 2000-a pattorn common to many yoars. lop|ac|ng that
product|on |s ono ot tho tundamonta| jobs ot tho wor|dw|do o|| |ndustry.
lt |s cha||ong|ng and roqu|ros onormous |nvostmont-and a |ong t|mo
hor|zon. Work on a t|o|d whoso rosorvos woro judgod provod |n 2000
m|ght havo bogun moro than a docado oar||or. lop|ac|ng rosorvos |s
ovon moro cha||ong|ng bocauso ot a natura| doc||no rato |n o|| t|o|ds-
on a wor|dw|do bas|s, about 8 porcont.
What aro tho prospocts tor tho tuturo? Ono answor |s drawn trom an
ana|ys|s us|ng a databaso that |nc|udos 70,000 o|| t|o|ds and 4.7
m||||on |nd|v|dua| wo||s, comb|nod w|th ox|st|ng product|on and 8b0
now projocts. 1ho conc|us|on |s that tho wor|d |s c|oar|y not runn|ng out
ot o||. |ar trom |t. 1ho ost|matos tor tho wor|d's tota| stock ot o|| koop
grow|ng.
1ho wor|d has producod about 1 tr||||on barro|s ot o|| s|nco tho start
ot tho |ndustry |n tho n|notoonth contury. Curront|y, |t |s thought that
thoro aro at |oast b tr||||on barro|s ot potro|oum rosourcos, ot wh|ch 1.4
tr||||on |s sutt|c|ont|y dovo|opod and tochn|ca||y and oconom|ca||y
accoss|b|o to count as provod p|us probab|o rosorvos. 3asod upon
curront and prospoct|vo p|ans, |t appoars tho wor|d ||qu|d product|on
capac|ty shou|d grow trom about 08 m||||on barro|s por day |n 2010 to
about 110 mbd by 2080. 1h|s |s about a 20 porcont |ncroaso.
20
3ut-and thoro aro many bots-bog|nn|ng w|th a|| tho po||t|ca| and
othor abovoground r|sks that havo boon onumoratod oar||or. Voroovor,
atta|n|ng such a |ovo| |n 2080 w||| roqu|ro turthor dovo|opmont ot curront
and now projocts, wh|ch |n turn roqu|ros accoss to tho rosourcos.
W|thout accoss, tho tuturo supp|y p|cturo bocomos moro prob|omat|c.
WORLD L|Ou|D5 PRODuC1|ON5 1040~2011
Vl||loos o borro|s por ooy
3ourco: l|3 CElA, ElA

Ach|ov|ng that |ovo| a|so roqu|ros tho dovo|opmont ot moro
cha||ong|ng rosourcos and a w|don|ng ot tho dot|n|t|on ot o|| to |nc|udo
what aro ca||od non-trad|t|ona| or unconvont|ona| o||s. 3ut th|ngs do not
stand st|||. W|th tho passago ot t|mo, tho unconvont|ona|s bocomo, |n
a|| ot tho|r var|oty, ono ot tho p|||ars ot tho wor|d's tuturo potro|oum
supp|y. And thoy ho|p oxp|a|n why tho p|atoau cont|nuos to rocodo |nto
tho hor|zon.
12
uNCONVEN1|ONAL
E. l. W||||ams was both a sp|r|tua||st and a shrowd bus|nossman. ln
tho 1880s ho bogan to organ|zo soancos on a ranch ho had bought
south ot 3anta 3arbara, Ca||torn|a, wh|ch ho had namod 3ummor|and.
|o a|so wont |nto roa| ostato. |o wroto othor sp|r|tua||sts, prom|s|ng
that 3ummor|and cou|d bo a boacon ||ght to tho wor|d' and that thoro
thoy cou|d bottor both tho sp|r|tua| and mator|a| cond|t|on ot mank|nd.'
1o mako |t oasy tor prospoct|vo mombors to gathor tor soancos and
summor camps, ho so|d thom |ots to bu||d tho|r own cottagos tor $2b
oach. 3ut soon tho |ots woro bo|ng tovor|sh|y roso|d tor up to $7,b00
oach. O|| had boon d|scovorod bonoath tho |ots.
W||||ams jumpod |nto tho o|| bus|noss. 1ho most product|vo wo||s
woro tho onos c|osost to tho boach. Why not go r|ght out |nto tho
ocoan? W||||ams bu||t a sor|os ot p|ors and bogan dr||||ng |nto tho
soabod.
Untortunato|y, tho ottshoro dr||||ng d|d not work out that wo||, and
product|on potorod out w|th|n a docado or so. 1ho p|ors woro |ott
doro||ct tor many docados unt|| thoy woro t|na||y washod away |n a
t|orco storm. Yot wh||o 3ummor|and novor tu|t|||od W||||ams's groat
v|s|on, ho had ach|ovod somoth|ng o|so. |o had p|onoorod ottshoro
dr||||ng.
1
1oday about 80 porcont ot tota| wor|d o|| product|on-20 m||||on
barro|s por day-|s producod ottshoro, |n both sha||ow and doop
wators. 1ho tota| g|oba| doopwator output |n 2010 was a|most s|x
m||||on barro|s por day- |argor than any country oxcopt tor 3aud|
Arab|a, luss|a, and tho Un|tod 3tatos. A|togothor, doopwator
product|on cou|d roach 10 m||||on barro|s by 2020.
0oopwator product|on |s ono ot tho bu||d|ng b|ocks ot what |s known
as unconvont|ona| supp|y. 1hoso unconvont|ona|s aro a var|od |ot.
What jo|ns thom |s that tho|r dovo|opmont doponds on tho advanco ot
tochno|ogy. 1ho unconvont|ona|s aro an |mportant part ot today's
potro|oum supp|y and w||| bocomo ovon moro |mportant |n tho tuturo.
L|Ou|D5 W|1E CA5
1ho b|ggost sourco ot nonconvont|ona| o|| |s somoth|ng that has boon
part ot tho onorgy bus|noss tor a |ong t|mo, though not vory wo|| known.
1hoso aro tho ||qu|ds that accompany tho product|on ot natura| gas.
Condonsatos aro capturod trom gas whon |t comos out ot tho wo||.
latura| gas ||qu|ds aro soparatod out whon tho gas |s procossod tor
|njoct|on |nto a p|po||no. 3oth aro s|m||ar to h|gh-qua||ty ||ght o||s.
1ho|r output |s |ncroas|ng vory tast, ow|ng to tho growth ot natura|-
gas product|on wor|dw|do and tho bu||d|ng ot now tac|||t|os |n tho
V|dd|o East. ln 2010 thoso gas-ro|atod ||qu|ds addod up to a|most 10
m||||on barro|s por day. 3y 2080 thoy cou|d bo ovor 18 m||||on barro|s
por day, rough|y 1b porcont ot tota| wor|d o||-or ||qu|ds-product|on.
2
Ou1 OF 5|CE1 OF LAND
ln tho t|rst docados ot tho twont|oth contury, to||ow|ng tho oar|y ottorts ot
|. l. W||||ams and othor p|onoors, o|| had cont|nuod to movo ottshoro,
but ottshoro had boon ||m|tod to p|attorms |n |akos |n 1oxas and
lou|s|ana and |n vonozuo|a's o||-r|ch lako Varaca|bo.
0r||||ng out |n tho ocoan on troostand|ng p|attorms, subjoct to wavo
prossuros and tho t|dos, was an a|togothor d|ttoront mattor. Attor
Wor|d War ll, an |ndopondont company namod Korr-VcGoo doc|dod
to go out to soa bocauso |t t|gurod that |ts bost shot at roa| c|ass-ono'
acroago was ottshoro-ma|n|y bocauso tho |argor compan|os thought
dr||||ng ottshoro, out ot s|ght ot |and, was probab|y |mposs|b|o.
On a br|ght 3unday morn|ng |n Octobor 1047, work|ng ton and a ha|t
m||os ottshoro w|th a cobb|od-togothor ||tt|o t|ot|||a ot surp|us Wor|d War
ll sh|ps and bargos, Korr-VcGoo struck o||. 3poctacu|ar Gu|t ot
Vox|co 0|scovory,' hoad||nod Ol| ooo Oos 1ooroo|. lovo|ut|onary'
was |ts judgmont.
8
An oxtondod |oga| batt|o botwoon tho todora| govornmont and tho
coasta| statos, wh|ch wont a|| tho way up to tho 3upromo Court, s|owod
tho dovo|opmont ot tho ottshoro |ndustry |n tho Un|tod 3tatos. 1ho t|ght
was ovor turt-that |s, as to whom tho wators bo|ongod' and thus to
whom wou|d go tho roya|t|os and tax rovonuos. Ono rosu|t was tho
|nvont|on ot tho concopt ot tho outor-cont|nonta| sho|t-tho OC3-
wh|ch was doomod tho oxc|us|vo prov|nco ot tho todora| govornmont.
1ho coasta| wators ot tho statos oxtondod out just throo m||os-oxcopt
|n tho casos ot ||or|da and 1oxas, both ot wh|ch had tho hott to wrost
n|no m||os trom tho|r strugg|o w|th Wash|ngton. 3y tho ond ot tho
1000s, tho sha||ow wators ot tho ottshoro woro start|ng to bocomo a
s|gn|t|cant sourco ot o||.
ln 1anuary 1000 dr|||ors at work on a wo|| ott tho coast ot 3anta
3arbara, not tar trom tho or|g|na| 3ummor|and p|ay, |ost contro|. 1ho
wo|| suttorod a b|owout, an uncontro||od ro|oaso ot o||. 1ho wo|| |tso|t
was cappod. 3ut thon o|| startod to |oak through a noarby t|ssuro,
croat|ng an o|| sp||| that b|ackonod |oca| boachos, put a ha|t to now
dr||||ng ott tho coast ot Ca||torn|a, and |ncroasod ottshoro rogu|at|on.
1ho oozo on tho boachos-and on o||-soakod b|rds-bocamo ono ot
tho omb|omat|c |magos |n tho nat|on's now onv|ronmonta|
consc|ousnoss. 3anta 3arbara a|so markod tho bog|nn|ng ot a novor-
ond|ng batt|o ovor ottshoro dr||||ng that p|ttod onv|ronmonta| act|v|sts
aga|nst o|| and gas compan|os.
1EE NOR1E 5EA AND 1EE B|R1E OF NON-OPEC
Yot n|no months attor 3anta 3arbara, toward tho ond ot 1000, a now
ora oponod |n wators much harshor and cha||ong|ng than thoso tound
ott 3anta 3arbara-tho stormy lorth 3oa, botwoon lorway and
3r|ta|n. 3y thon, o|| compan|os had dr|||od 82 oxpons|vo wo||s |n tho
lorwog|an soctor ot tho lorth 3oa. A|| had como up dry. Ono ot tho
compan|os, lh||||ps lotro|oum, attor dr||||ng yot anothor dry ho|o, was
about to g|vo up and go back homo to 3art|osv|||o, Ok|ahoma. 3ut thon
|t doc|dod to dr||| ono moro wo||-s|nco |t had a|roady propa|d tor tho
dr||||ng r|g. At tho ond ot Octobor 1000, |t struck tho Ekot|sk o|| t|o|d. lt
turnod out to bo a g|ant.
1ho ottshoro |ndustry dovo|opod w|th romarkab|o spood-spurrod
by tho 1078 o|| ombargo and tho quadrup||ng ot pr|co, and by tho push
by Wostorn govornmonts tor tho dovo|opmont ot socuro, now sourcos
ot o||. G|ant p|attorms, roa||y m|n|-|ndustr|a| c|t|os, woro bu||t, somo ot
thom hundrods ot m||os out at soa. 1hoso structuros, and tho
|ntrastructuro that supportod thom, had to bo dos|gnod to w|thstand
w|nds up to 180 m||os por hour and tho torr|ty|ng|y dostruct|vo 100
Yoar Wavo.' 1ho lorth 3oa camo on ||no oxtraord|nar||y tast. 3y 108b
tho lorth 3oa-3r|t|sh and lorwog|an soctors comb|nod-was
produc|ng 8.b m||||on barro|s por day, and |t had bocomo ono ot tho
p|||ars ot what had a|roady bocomo known as non-OlEC.'
1O 1EE FRON1|ER
1ho lorth 3oa was st||| |n ro|at|vo|y sha||ow wators. ln tho Un|tod
3tatos, |t soomod as though tho ottshoro' had gono about as tar as |t
cou|d-|nto dopths ot 000 toot ot wator, at tho odgo ot tho cont|nonta|
sho|t. 3oyond that tho soabod ta||s away sharp|y, to dopths ot
thousands ot toot, wh|ch soomod wo|| boyond tho roach ot any
tochno|ogy. 0ospondont about what soomod b|oak tuturo prospocts,
o||mon bogan to rotor to tho Gu|t ot Vox|co as tho doad soa.'
3ut a tow compan|os woro try|ng to t|nd a way to push boyond tho
sha||ow wators-both |n tho Gu|t ot Vox|co and o|sowhoro, most
notab|y tho Campos 3as|n ott tho northoast coast ot 3raz||. lotrobras,
3raz||'s stato-ownod o|| company, was chargod w|th roduc|ng tho
nat|on's hoavy dopondonco on potro|oum |mports. ln 1002, attor yoars
ot work, lotrobras broko tho doopwator barr|or by succosstu||y p|ac|ng
tho Var||m p|attorm |n 2,b02 toot ot wator.
Voanwh||o, 3ho|| O|| was us|ng now so|sm|c tochno|og|os to |dont|ty
prom|s|ng prospocts |n tho doopor wators ot tho Gu|t ot Vox|co. ln
1004 |ts Augor p|attorm-wh|ch toworod twonty-s|x stor|os abovo tho
soa-wont |nto product|on |n 2,804 toot ot wator. lt had takon n|no
yoars trom tho acqu|s|t|on ot tho |oasos and an oxpond|turo ot $1.2
b||||on, and ovon w|th|n 3ho|| |t had boon rogardod as a hugo gamb|o.
Yot tho rosourco provod much r|chor than ant|c|patod, and ovontua||y
tho comp|ox was produc|ng ovor 100,000 barro|s a day. Augur oponod
up tho doopwator tront|or |n tho Gu|t ot Vox|co and turnod |t |nto a
g|oba| hot spot ot act|v|ty and tochno|og|ca| advanco. 1ho todora|
govornmont's |oaso sa|os tor tho doop wators ot tho Gu|t ot Vox|co |od
to |ntonso compot|t|ons tor prospocts among compan|os. 1ho bonus
paymonts and roya|t|os mado |t a major rovonuo sourco tor tho
govornmont.
4


1ho growth ot tho doopwator soctor wor|dw|do was oxtraord|nary-
trom 1.b m||||on barro|s a day |n 2000 to b m||||on by 2000. 3y that
po|nt, somo 14,000 oxp|oratory and product|on wo||s had boon dr|||od
|n tho doop wators around tho wor|d. lt bocamo customary to doscr|bo
doopwator product|on as tho groat now tront|or tor tho wor|d o||
|ndustry. Among tho most prospoct|vo aroas woro at tho cornors ot
what was ca||od tho Go|don 1r|ang|o-tho wators ott 3raz|| and Wost
Atr|ca and tho Gu|t ot Vox|co. 3y 2000 tho sha||ow and doop wators ot
tho Gu|t ot Vox|co togothor woro supp|y|ng 80 porcont ot U.3.
domost|c o|| product|on. 1hat yoar, tor tho t|rst t|mo s|nco 1001, U.3.
o|| product|on |ncroasod, |nstoad ot doc||n|ng, and tho doopwator was
tho |argost s|ng|o sourco ot growth. ln tact, |n 2000 tho Gu|t ot Vox|co
was tho tastost-grow|ng o|| prov|nco |n tho wor|d.
b
DEEPWA1ER EOR|ZON
On tho morn|ng ot Apr|| 20, 2010, a ho||coptor took ott trom tho
lou|s|ana coast and hoadod out ovor wators so smooth as to bo
a|most g|assy. lts dost|nat|on was tho 0oopwator |or|zon, a dr||||ng
p|attorm oporat|ng 48 m||os ott tho lou|s|ana coast. A t|tth-gonorat|on
som|submors|b|o dr||||ng r|g, tho 0oopwator |or|zon was a marvo| ot
sca|o and soph|st|catod ong|noor|ng. 1ho passongors that morn|ng
|nc|udod oxocut|vos trom 1ransocoan, wh|ch ownod tho dr||||ng r|g, and
3l, wh|ch had boon tho contractor ot tho r|g s|nco |t had boon
|aunchod n|no yoars oar||or. 1hoy woro t|y|ng out to honor tho
0oopwator |or|zon and |ts toam tor |ts outstand|ng satoty rocord.
1ho |ocat|on was V|ss|ss|pp| Canyon 3|ock 2b2, on a prospoct
known as Vacondo. 1ho 0oopwator |or|zon had boon on s|to tor
o|ghty days. 1ho wo|| had doscondod through a|most t|vo thousand toot
ot wator and thon had pushod on through moro than anothor 18,000
toot ot donso rock undor tho soabod, whoro |t had mado anothor major
Gu|t ot Vox|co d|scovory and |t was now a|most at tho ond ot tho job.
A|| that was |ott to do was p|ug tho wo|| w|th comont, and thon tho r|g
wou|d movo on to anothor s|to. At somo |ator dato, whon a pormanont
product|on p|attorm was |n p|aco, tho Vacondo wo|| wou|d bo
unp|uggod and wou|d bog|n produc|ng. 1ho crow had oncountorod
somo trustrat|ng prob|oms a|ong tho way, notab|y what woro ca||od gas
k|cks trom pockots ot natura| gas. At t|mos Vacondo had boon ca||od
tho wo|| trom ho||.' 3ut now that a|| soomod boh|nd thom.
A docado oar||or, Vacondo wou|d havo boon at tho vory odgo ot tho
tront|or, but by 2010 tho tront|or |n tho Gu|t ot Vox|co had movod
boyond Vacondo to d|scovor|os as doop as 8b,000 toot-tw|co that ot
Vacondo.
low, on board tho 0oopwator |or|zon, |t was a mattor ot wrapp|ng
up ovor tho noxt tow days-h|gh|y oxact|ng and tochn|ca||y comp|ox
work, but a|so tam|||ar |n torms ot what noodod to bo dono. 1ho n|ght
botoro, Apr|| 10, |t was doc|dod to d|sponso w|th a comont bond |og,
wh|ch wou|d havo prov|dod cr|t|ca| data to dotorm|no |t tho wo|| was
soa|od |s a socuro way. lt was doomod unnocossary. Ovora||, th|ngs
soomod to bo procood|ng norma||y.
At 7:bb p.m. tho ovon|ng ot Apr|| 20, t|na| tosts woro conc|udod on
tho prossuro |n tho wo||. Attor somo d|scuss|on, tho rosu|ts woro
judgod sat|stactory. 1hat was a m|s|ntorprotat|on. |or doop down |n
tho oarth, many thousands ot toot bo|ow tho soabod, somoth|ng
|ns|d|ous, undotoctod, was bog|nn|ng to happon. O|| and, ovon moro
dangorous, gas woro soop|ng through tho comont that was moant to
koop tho wo|| soa|od.
At 0:41 p.m., tho capta|n ot a no|ghbor|ng sh|p, tho 0amon
3ankston, saw mud shoot|ng up abovo tho dr||||ng r|g w|th
oxtraord|nary torco. |o hurr|od|y ca||od tho 0oopwator |or|zon. 1ho
ott|cor on tho br|g to|d h|m thoro was troub|o' w|th tho wo|| and to pu||
away as tast as poss|b|o. 1hon tho ||no wont doad.
WE EAVE A 5|1uA1|ON"
On tho r|g |tso|t, ono ot tho dr|||ors ca||od a supor|or |n a pan|c. Wo
havo a s|tuat|on. 1ho wo|| has b|own out.' loop|o bogan to scramb|o,
but tho rosponso |n thoso cr|t|ca| m|nutos was hamporod by contus|on,
poor commun|cat|on, unc|oar |ntormat|on, and |ack ot tra|n|ng tor that
k|nd ot oxtromo s|tuat|on.
Yot thoro was st||| ono |ast wa|| ot dotonso-tho 4b0-ton, b-story-ta||
b|owout provontor, s|tt|ng on tho bottom ot tho ocoan t|oor. Equ|ppod
w|th powortu| p|ncor||ko dov|cos ca||od shoar rams, |t was moant to
s||co |nto tho p|po and soa| tho wo||, conta|n|ng any potont|a| b|owout ot
surg|ng o|| and gas. lt was tho ta||-sato dov|co |t a|| o|so ta||od, tho t|na|
|mprognab|o ||no ot protoct|on. 1ho b|owout provontor was act|vatod.
1ho un|mag|nab|o happonod. 1ho p|ncors ta||od to tu||y cut |nto tho
p|po-by 1.4 |nchos.
At about 0:47 p.m. thoro was a torr|ty|ng h|ss|ng sound. lt was tho
worst sound that tho crow cou|d poss|b|y hoar. lt moant that gas was
oscap|ng up trom tho wo||. 1ho gas oncountorod a spark. At 0:40 a
thundor|ng oxp|os|on rockod tho r|g, and thon a socond b|ast, and a
sor|os moro. 1ho r|g |ost a|| |ts powor. lt hoavod and shook v|o|ont|y.
Who|o parts ot tho structuro woro b|own to p|ocos, sta|rways crumb|od
and d|sappoarod a|togothor. Workors woro tossod th|s way and that.
1ho ont|ro r|g was ongu|tod |n t|orco t|amos.
3omo crow mombors dovo d|roct|y |nto tho soa. Vany p||od |nto tho
two ||toboats, somo droadtu||y |njurod and |n awtu| pa|n, and ovontua||y
mado |t to tho 0amon 3ankston. Othors woro pu||od trom tho soa. 1ho
Coast Guard arr|vod just botoro m|dn|ght and bogan a soarch-and-
roscuo m|ss|on. On Apr|| 22, two days attor tho acc|dont, tho
0oopwator |or|zon, guttod and dotormod, sank. 1ho noxt day tho
soarch tor add|t|ona| surv|vors was ca||od ott. E|ovon ot tho 120 crow
mombors had por|shod.
0
1EE RACE 1O CON1A|N
At tho t|mo ot tho acc|dont, no ostab||shod mothods ox|stod tor
staunch|ng tho t|ow ot a doopwator acc|dont, othor than tho propor
oporat|on ot tho b|owout provontor. lt |t ta||od, tho on|y opt|on was to
dr||| a ro||ot wo|| that wou|d |ntorcopt tho damagod wo|| so that |t cou|d
bo soa|od. 3ut that wou|d tako throo months or moro. 3oth |ndustry and
govornmont soom, |n rotrospoct, to havo assumod that a catastropho
ot such d|mons|ons was |mposs|b|o. lt was an acc|dont, sa|d 3l's thon
ch|ot oxocut|vo 1ony |ayward, that a|| our corporato do||borat|ons to|d
us s|mp|y cou|d not happon.'
7
Ovor rocont docados, a handtu| ot sor|ous acc|donts and major
b|owouts had occurrod. 1ho worst |n torms ot |oss ot ||to was a t|ro on
tho l|por A|pha p|attorm |n 1088, ott tho coast ot 3cot|and, that took
107 ||vos. 1hat d|sastor had |od to major rotorms |n lorth 3oa
rogu|at|on and satoty pract|cos. 1ho |ast b|g b|owout |n tho Gu|t ot
Vox|co was a Vox|can wo|| |n tho Gu|t ot Campocho, ott tho Yucatn,
|n 1070. ln August 2000, a wo|| |n tho 1|mor 3oa botwoon Austra||a
and lndonos|a sp|||od up to 2,000 barro|s a day tor ton wooks. 3ut no
notoworthy b|owouts had occurrod |n U.3. wators s|nco 3anta 3arbara
|n 1000. 3otwoon 1071 and 2000, accord|ng to tho U.3. 0opartmont
ot tho lntor|or, tho tota| numbor ot barro|s ot o|| that had sp|||od |n
todora| wators as tho rosu|t ot b|owouts was a m|n|scu|o 1,800 barro|s
-an avorago ot 4b barro|s a yoar.
8
3ut now tho unth|nkab|o had happonod, and tho t|ow had to bo
stoppod. 1ho rosu|t was an ovordr|vo procoss ot h|gh-toch ong|noor|ng
|mprov|sat|on by 3l, |ts contractors, othor compan|os, outs|do
spoc|a||sts, govornmont oxports, and govornmont sc|ont|sts who know
||tt|o about o|| to bog|n w|th but qu|ck|y bocamo oxports.
A who|o host ot approachos tor stomm|ng tho t|ow woro tr|od. 1hoy
a|| ta||od. ||na||y, |n m|d-1u|y, o|ghty-o|ght days attor tho acc|dont, a
now|y dos|gnod capp|ng stack was put |n p|aco. 1hat ondod tho sp|||.
lo moro o|| was |oak|ng out ot tho Vacondo wo||. 1wo months |ator, on
3optombor 10, attor tho ro||ot wo|| connoctod w|th tho or|g|na| wo||, tho
govornmont pronouncod Vacondo ottoct|vo|y doad.'
0
F|CE1|NC 1EE 5P|LL"
ln tho Gu|t |tso|t, tho t|sh|ng |ndustry, whoso boats cou|d not go out, was
hardost h|t oconom|ca||y, a|ong w|th tour|sm at boach rosorts. 1ho
marshy coasta| wators ot lou|s|ana woro among tho aroas worst
attoctod.
As w|th tho b|owout |tso|t, both govornmont and |ndustry woro
unproparod to doa| w|th tho onv|ronmonta| consoquoncos. 1ho O||
lo||ut|on Act and tho O|| 3p||| l|ab|||ty 1rust |und had boon ostab||shod
two docados oar||or, |n tho attormath ot tho Exxon va|doz acc|dont |n
A|aska, to rospond to an acc|dont |nvo|v|ng a tankor. 3ut tho |oss ot o||
trom a tankor, howovor sor|ous, was a t|n|to atta|r. A tankor on|y ho|d
so much o||.
1ho rosponso to a b|owout on th|s sca|o had to bo |nvontod. A vast
navy ot sh|ps ot a|| sorts, 0,700 |n a||, woro dop|oyod to |ntorcopt and
capturo tho o||, onshoro, a sma|| army was s|m||ar|y ra|sod to c|oan up
tho boachos. A|togothor, tho c|oan-up campa|gn on||stod 4b,000
poop|o.
3omo sa|d that |t wou|d tako docados tor tho Gu|t to rocovor and
that somo parts ot |t m|ght novor rocovor. 3ut |n August 2010, tho
lat|ona| Acadom|os ot 3c|oncos ost|matod that throo quartors ot tho
sp|||od o|| had a|roady ovaporatod, boon capturod, or had d|sso|vod. lt
was bocom|ng c|oar that tho consoquoncos ot Vacondo wou|d not bo
as sovoro as had t|rst boon toarod.
10
1ho soa |tso|t prov|dod a major so|ut|on. 1ho natura| soopago ot o||
trom t|ssuros |n tho bottom ot tho Gu|t-ost|matod to bo as much as a
m||||on barro|s ot o|| a yoar-comb|nod w|th tho warm wators, had
nurturod m|crobos known as hydrocarbono|ost|c, whoso spoc|a|ty |s
toast|ng on o||. |or thom, Vacondo o|| was an unoxpoctod bonanza,
and thoy wont to work on |t. As a rosu|t, tho o|| b|odogradod and
d|sappoarod much tastor than had boon oxpoctod. On 3optombor 20,
2010, tho day attor tho ott|c|a| announcomont that tho wo|| had boon
k|||od, tho Now York 7lmos roportod that tho onv|ronmonta|
consoquoncos woro prov|ng tar |oss |ong |ast|ng than toarod. As tho
wooks pass, ov|donco |s |ncroas|ng,' sa|d tho 7lmos, that tho gu|t
rog|on appoars to havo oscapod tho d|rost prod|ct|ons ot tho
spr|ng.'
11
Ovor tho noxt sovora| months, turthor rosoarch cont|rmod
that tho m|crobos had o||m|natod much ot tho o|| and gas that had
|oakod trom tho wo||. As ono sc|ont|st put |t, 1ho bactor|a k|ckod on
moro ottoct|vo|y than wo oxpoctod.'
12
Vany uncorta|nt|os about tho |ongor-torm consoquoncos roma|n-
as to whothor a damag|ng carpot ot Vacondo o|| has sott|od ovor tho
Gu|t's t|oor around tho wo||, tho |mpact on tho do||cato marshos and
wot|ands a|ong tho coast, and tho |ong-torm ottoct on aquat|c ||to and
w||d||to. On|y t|mo w||| to||.
1EE COVERNNEN1 AND 1EE CONPANY
|or many yoars, 8b porcont ot tho U.3. outor-cont|nonta| sho|t had
boon c|osod to dr||||ng. On Varch 81, 2010, throo wooks pr|or to tho
acc|dont, lros|dont 3arack Obama had bogun tho procoss ot opon|ng
aroas ott tho coast ot v|rg|n|a and |n tho oastorn Gu|t tor tuturo
oxp|orat|on. 1ho oppos|t|on trom h|s own po||t|ca| baso was |ntonso.
Attor tho acc|dont, thoso aroas woro qu|ck|y w|thdrawn and onco aga|n
put ott-||m|ts.
18
1ho Obama adm|n|strat|on p|acod a morator|um on a|| dr||||ng |n tho
Gu|t ot Vox|co. ln duo courso, tho morator|um was ott|c|a||y ||ttod. 3ut |t
soomod c|oar that a do tacto s|ow paco was go|ng to prova|| tor somo
t|mo, as a rosu|t ot moro thorough rov|ows and ro-rov|ows, moro
comp|ox and t|mo-consum|ng rogu|at|on, a s|ow|ng-down ot doc|s|on
mak|ng, and a poss|b|o |mmob|||zat|on ot doc|s|on mak|ng a|togothor.
1ho Obama adm|n|strat|on roorgan|zod tho rogu|atory apparatus tor
tho ottshoro to avo|d any h|nt ot coz|noss' botwoon rogu|ators and
|ndustry. 3atoty ott|c|a|s now had to carry tho|r own |unchos whon thoy
t|ow a coup|o ot hundrod m||os out to |nspoct p|attorms, and thoy woro
proh|b|tod trom accopt|ng anyth|ng onco thoro, ovon a bott|o ot co|d
wator on a hot day.


1ho acc|dont and |ts consoquoncos domonstratod that tho ab|||t|os to
oxp|oro and produco |n tho doop wator had run ahoad ot tho capac|ty
to doa| w|th a ta||uro ot a|| tho satoty systoms. Undor oxtromo duross,
tho |oarn|ng about what to do had boon comprossod trom yoars |nto
months. 3ovora| compan|os camo togothor |n tho attormath to
ostab||sh, w|th an |n|t|a| b||||on do||ars, a nonprot|t Var|no Wo||
Conta|nmont Corporat|on that wou|d havo tho sk|||s and too|s, |n tho
ovont ot a major acc|dont, to c|oso a wo|| qu|ck|y and c|oan up tho sp|||.
1wo dozon othor compan|os tormod tho |o||x Wo|| Conta|nmont
Group, a doopwator conta|nmont consort|um that can rap|d|y prov|do
oxport|so and oqu|pmont |n tho ovont ot an acc|dont. |o||x |s tho
company whoso oqu|pmont was usod to actua||y shut tho Vacando
wo||.
As to tho causo ot tho acc|dont, tho conc|us|on (as |s so otton tho
caso |n a postmortom on a major acc|dont) |s that tho causo was not
ono th|ng but rathor a sor|os ot orrors, om|ss|ons, and co|nc|doncos-
human judgmont, ong|noor|ng dos|gn, mochan|ca|, and oporat|ona|-
a|| |ntoract|ng to bu||d to a croscondo ot d|sastor. Woro ono s|ng|o
|nc|dont not to havo occurrod, thoro m|ght not havo boon a d|sastor.
14
1hat was corta|n|y tho conc|us|on ot tho nat|ona| comm|ss|on
appo|ntod by lros|dont Obama. 1ho wo|| b|ow out bocauso a numbor
ot soparato r|sk tactors, ovors|ghts, and outr|ght m|stakos comb|nod to
ovorwho|m tho satoguards moant to provont just such an ovont trom
happon|ng,' |t sa|d. 1ho comm|ss|on cont|nuod, 3ut most ot tho
m|stakos and ovors|ghts at Vacondo can bo tracod back to a s|ng|o
ovorarch|ng ta||uro-a ta||uro ot managomont.' lt addod, A b|owout |n
doop wator was not a stat|st|ca| |nov|tab|||ty.' 1ho d|agnosos and
dobato about what had gono wrong-and what cou|d bo |oarnod trom
tho oxpor|onco-w||| go on tor yoars.
1b
1ho rosourco-r|ch doop wators ot tho Gu|t ot Vox|co w||| ||ko|y
roma|n ono ot tho ma|n p|||ars ot domost|c U.3. onorgy supp|y. 1ho
ottshoro o|| |ndustry has cons|dorab|o oconom|c as wo|| as onorgy
s|gn|t|canco. ln 2010 about 400,000 jobs dopondod upon tho ottshoro
|ndustry just |n tho tour Gu|t statos ot 1oxas, lou|s|ana, V|ss|ss|pp|,
and A|abama. Voroovor, tho ottshoro o|| and gas |ndustry cou|d
gonorato as much as a th|rd ot a tr||||on do||ars ot govornmont rovonuos
|n taxos and roya|t|os ovor a ton-yoar por|od.
10
3ut tho Gu|t ot Vox|co was c|oar|y go|ng to bo moro qu|ot and |oss
act|vo, at |oast tor a tow yoars ahoad. ln rosponso, somo ot tho dr||||ng
r|gs, tho workhorsos ot oxp|orat|on, bogan to |oavo tho Gu|t and
m|grato to othor parts ot tho wor|d that st||| saw tho doop wator as ono
ot tho groat tront|ors ot wor|d onorgy.
1EE PRE5AL1: 1EE NEX1 FRON1|ER
1ho most obv|ous dost|nat|ons woro tho othor po|nts |n tho Go|don
1r|ang|o-Wost Atr|ca and, moro than anyth|ng o|so, 3raz||. 3y th|s
t|mo, 3raz|| had a|roady |oaptroggod ahoad ot tho Un|tod 3tatos to
bocomo tho wor|d's |argost doopwator producor. Wo had to t|nd o||,'
sa|d 1oso 3org|o Gabr|o|||, tho pros|dont ot lotrobras. Wo d|dn't t|nd
any onshoro and so wo had to go ottshoro.' 1oday 3raz|| |s on track to
bocomo ono ot tho wor|d's major o|| producors, oxcood|ng vonozuo|a,
wh|ch tor a|most a contury has boon tho dom|nant producor |n lat|n
Amor|ca. 1ho roason |s a major advanco |n capab|||t|os that has
oponod up a mass|vo now hor|zon.
1ho ottshoro 3antos 3as|n strotchos b00 m||os, para||o||ng tho
southorn coast ot 3raz||. 3onoath tho soabod |s a |ayor ot sa|t,
avorag|ng moro than a m||o th|ck. O|| had boon producod bonoath sa|t
|n othor aroas, |nc|ud|ng tho Gu|t ot Vox|co, but novor through so |argo
a soct|on. lt was thought that thoro m|ght bo o|| bo|ow tho sa|t |ayor |n
tho 3antos 3as|n, but |t soomod |mposs|b|o to do tho so|sm|c work-
mapp|ng tho undorground structuros-bocauso tho sa|t d|sporsod tho
so|sm|c s|gna|s so much that thoy cou|d not bo |ntorprotod. 1ho
broakthrough was puro mathomat|cs,' sa|d Gabr|o|||. Wo dovo|opod
tho a|gor|thms that onab|od us to tako out tho d|sturbancos and |ook
r|ght through tho sa|t |ayor.'
1ho t|rst d|scovory was tho larat| t|o|d. lotrobras was a|so dr||||ng
w|th |ts partnors 3G and Ga|p |n tho 1up| t|o|d, tho most d|tt|cu|t wo|| tho
company had ovor undortakon. lt cost $2b0 m||||on and wont through
0,000 toot ot wator and thon anothor 1b,000 toot undor tho soabod. lt
roqu|rod s|gn|t|cant now tochno|og|os to copo w|th tho pocu||ar|t|os ot
tho sa|t |ayor, wh|ch, ||ko s|udgo, koops sh|tt|ng.
Whon Gu||hormo Estro||a, lotrobras's hoad ot oxp|orat|on, roportod
to tho board on tho outcomo ot tho wo||, ho bogan w|th a |ong
d|scuss|on about what had happonod 100 m||||on yoars ago whon tho
cont|nonts ot Atr|ca and lat|n Amor|ca had pu||od apart, dopos|t|ng tho
sa|t abovo tho o|| rosorvo|rs, wh|ch woro a|roady |n p|aco and thus
bocamo known as tho prosa|t.
As wo ||stonod to h|m,' sa|d Gabr|o|||, wo thought that Estro||a |s a
groat goo|og|st, but that ho was droam|ng. 3ut thon ho to|d us tho
numbors, and wo woro thr|||od.'
1hat wo|| had d|scovorod a suporg|ant t|o|d-at |oast b b||||on to 8
b||||on barro|s ot rocovorab|o rosorvos-tho b|ggost d|scovory s|nco
Kashagan |n Kazakhstan |n 2000. As othor wo||s havo boon dr|||od, |t
has bocomo c|oar that tho prosa|t |n tho 3antos 3as|n cou|d bo a hugo
now sourco ot o||. 3raz||'s thon pros|dont, lu|z lnc|o lu|a da 3||va,
doscr|bod |t as a socond |ndopondonco tor 3raz||.'
17
lt dovo|opmont procoods moro or |oss as p|annod and thoro aro no
major d|sappo|ntmonts, 3raz|| cou|d, w|th|n a docado and a ha|t, bo
produc|ng c|oso to s|x m||||on barro|s por day, wh|ch wou|d bo tw|co tho
curront output ot vonozuo|a. 1ho |nvostmont wou|d bo hugo-ha|t a
tr||||on do||ars or moro-but |t wou|d catapu|t 3raz|| to tho top rank
among tho wor|d's o|| producors, mak|ng |t ono ot tho toundat|ons ot
wor|d supp|y |n tho docados ahoad.
FRON FR|NCE 1O NA|N51REAN: CANAD|AN O|L
5AND5
ln Apr|| 2008, a tow wooks attor tho start ot tho lraq War, a U.3. 3onato
hoar|ng convonod to oxam|no |ntornat|ona| onorgy socur|ty |ssuos. 1ho
cha|rman ot tho toro|gn ro|at|ons subcomm|ttoo was start|od by what
ho hoard. 3omoth|ng vory dramat|c has happonod that poop|o havo
not much tocusod on,' sa|d ono w|tnoss. lt was tho t|rst major |ncroaso
|n wor|d o|| rosorvos s|nco tho m|d-1080s.' 3ut |t was not |n tho V|dd|o
East. lt was otton sa|d that lraq had tho socond-|argost o|| rosorvos |n
tho wor|d. 3ut that was no |ongor truo. Canada had just mado an
oxtraord|nary upward adjustmont |n |ts provon o|| rosorvos-trom b
b||||on barro|s to 180 b||||on, putt|ng |t |n tho numbor two pos|t|on, r|ght
attor 3aud| Arab|a.
18
At t|rst, surpr|so, ovon skopt|c|sm, grootod tho Canad|an
announcomont. 3ut |t has como to bo gonora||y accoptod |n tho yoars
s|nco. 1h|s part|cu|ar unconvont|ona| potro|oum rosourco-Canad|an
o|| sands-a|so happons to bo stratog|ca||y p|acod on tho doorstops ot
tho Un|tod 3tatos.
|or many yoars, o|| sands-somot|mos ca||od tar sands-had
soomod, at bost, a|most boyond tho tr|ngo ot pract|ca||ty and woro
gonora||y d|sm|ssod as ot ||tt|o s|gn|t|canco. Yot ovor tho |ast tow yoars,
tho o|| sands havo provod to bo tho tastost-grow|ng sourco ot now
supp||os |n lorth Amor|ca. 1ho|r oxpand|ng output w||| push Canada
up |n tho rank|ngs to bo tho t|tth-|argost o||-produc|ng country |n tho
wor|d. 1ho s|gn|t|canco tor tho Un|tod 3tatos |s groat. lt tho o|| sands'
woro an |ndopondont country, thoy wou|d bo tho |argost s|ng|o sourco
ot U.3. crudo o|| |mports.
10
1ho o|| sands aro tound pr|mar||y |n tho northorn part ot tho
Canad|an prov|nco ot A|borta, |nc|ud|ng an aroa known as tho
Athabasca rog|on. 1hoso sands aro composod ot v|scous b|tumon
omboddod |n sand and c|ay. 1h|s aspha|t||ko b|tumon, a torm ot vory
hoavy o||, |s a so||d that tor tho most part doos not t|ow ||ko
convont|ona| o||. 1hat |s what makos |ts commorc|a| oxtract|on so
cha||ong|ng. 3ut whon tho woathor |s warm, a ||tt|o b|t ot tho b|tumon
doos oozo out ot tho ground as th|ck, tar||ko ||qu|d. ln oar||or contur|os
|oca| lnd|ans wou|d uso that soop to cau|k tho|r canoos.
ln tho t|rst docados ot tho twont|oth contury, a tow sc|ont|sts |ntr|guod
by thoso soops, a|ong w|th promotors |urod by tho v|s|ons ot r|chos,
bogan to mako tho trok to tho Athabasca l|vor |n northorn A|borta and
tho |so|atod outpost ot |ort VcVurray-a c|ustor ot a dozon |og
bu||d|ngs connoctod to tho outs|do wor|d by ma|| do||vory tour t|mos a
yoar, woathor porm|tt|ng. 1ho oxpod|t|ons tound |nd|cat|ons that tho
spraw||ng swampy |ow|ands around |ort VcVurray woro r|ch |n o||
sand dopos|ts, but thoro was no obv|ous way to oxtract tho rosourco. ln
102b a chom|st at tho Un|vors|ty ot A|borta t|na||y tound a so|ut|on tor
soparat|ng tho b|tumon trom tho sand and c|ay and gott|ng |t to t|ow-
but on|y |n h|s |aboratory. 0ocados ot rosoarch ta||od to ovorcomo tho
batt||ng cha||ongo ot oxtract|ng a ||qu|d o|| out ot tho sands |n any
commorc|a| way.
3ut a tow rotusod to g|vo up on tho o|| sands. Ono ot thom was 1.
|oward low, tho cha|rman ot 3un O||, who, as ono ot h|s co||oaguos
sa|d, was onamorod ot tho rosourco up thoro.' ln 1007 3un |aunchod
tho t|rst at-sca|o o|| sands projoct. lo nat|on can bo |ong socuro |n th|s
atom|c ago un|oss |t |s amp|y supp||od w|th potro|oum,' sa|d low. O||
trom tho Athabasca aroa must ot nocoss|ty p|ay an |mportant ro|o.' 1ho
sands at what was ca||od tho Groat Canad|an O|| 3ands lrojoct woro
m|nod, and thon troatod abovo ground so as to turn tho b|tumon |nto a
||qu|d. 3ut tor many yoars tho rosu|ts trom tho Groat Canad|an O||
3ands woro anyth|ng but groat. 1ho vonturo oncountorod ono
ong|noor|ng prob|om attor anothor.
20
ln add|t|on to tho groat tochn|ca| cha||ongos, tho oporat|ng
cond|t|ons woro daunt|ng. ln tho w|ntor, tho tomporaturo droppod to-
40|. 1ho swampy torra|n, known as muskog, troozos so hard that a
truck can bo dr|von on |t. ln tho spr|ng, |t turns |nto such a swampy bog
that a truck can s|nk so tar |nto |t that you |oso |t.
1ho bus|noss onv|ronmont was a|so tough. ln tho 1070s Canada
adoptod a h|gh|y nat|ona||st|c, h|gh-tax nat|ona| onorgy po||cy. lt may
havo rot|octod tho tompor ot tho t|mo, but |t was ||| su|tod tor a h|gh-
r|sk, mu|t|yoar, mu|t|b||||on-do||ar ontorpr|so. 0ovo|opmont sta||od as
compan|os packod up and wont o|sowhoro to |nvost.
NECA-RE5OuRCE
lt was not unt|| tho |ato-1000s that tho o|| sands t|na||y bogan to provo
thomso|vos as a |argo-sca|o commorc|a| rosourco, tac|||tatod by a
cruc|a| tax rotorm and |oss-r|g|d govornmont |ntorvont|on, and by major
advancos |n tochno|ogy. 1ho m|n|ng procoss was modorn|zod,
oxpandod |n sca|o, and mado moro t|ox|b|o. ||xod convoyor bo|ts woro
rop|acod w|th hugo trucks w|th tho b|ggost t|ros |n tho wor|d, and w|th
g|ant shovo|s that gathor up o|| sands and carry thom to upgradors that
soparato out tho b|tumon. lot|n|ng procossos thon upgrado tho
b|tumon |nto h|ghor-qua||ty synthot|c crudo o||, ak|n to ||ght, swoot crudo
o||, wh|ch can bo procossod |n a convont|ona| rot|nory |nto gaso||no,
d|oso|, jot tuo|, and a|| tho othor norma| products.
At tho samo t|mo, a broakthrough |ntroducod an a|tornat|vo way ot
produc|ng o|| sands-not w|th m|n|ng but rathor |n s|tu (lat|n tor |n
p|aco'), that |s, w|th tho cruc|a| ||nk |n tho product|on cha|n dono |n
p|aco-undorground. 1h|s was vory s|gn|t|cant tor many roasons,
|nc|ud|ng tho tact that 80 porcont ot tho o|| sands rosourco |s too doop
tor surtaco m|n|ng.
1ho |n s|tu procoss usos natura| gas to croato suporhot stoam that |s
|njoctod to hoat tho b|tumon undorground. 1ho rosu|t|ng ||qu|d-a
comb|nat|on ot b|tumon and hot wator-|s t|u|d onough to t|ow |nto a
wo|| and to tho surtaco. 1ho bost-known procoss |s 3AG0-tor stoam-
ass|stod grav|ty dra|nago, and pronouncod as sog-ooo.' lt has boon
doscr|bod as tho s|ng|o most |mportant dovo|opmont |n o|| sands
tochno|ogy' |n a ha|t contury.
21
A|togothor, s|nco 1007, ovor $120 b||||on ot |nvostmont has t|owod
|nto A|borta's o|| sands, now dot|nod as a moga-rosourco.' O|| sands
product|on moro than doub|od trom 000,000 barro|s por day |n 2000 to
a|most 1.b m||||on barro|s por day |n 2010. 3y 2020 |t cou|d doub|o
aga|n to 8 mbd-an output that wou|d bo h|ghor than tho curront o||
product|on ot o|thor vonozuo|a or Kuwa|t. Add|ng |n |ts convont|ona|
output, Canada cou|d roach a|most 4 mbd by 2020.


Yot tho dovo|opmont ot o|| sands br|ngs |ts own cha||ongos. 1ho
projocts aro |argo |ndustr|a| dovo|opmonts |n ro|at|vo|y romoto aroas. ln
torms ot now o|| dovo|opmont, thoy aro among tho h|ghost |n cost,
ospoc|a||y whon compot|t|on hoats up tor both |abor and oqu|pmont.
1ho ottsott|ng tactor |s that thoro |s no oxp|orat|on r|sk, tho rosourco
doos not dop|oto |n tho way that a convont|ona| o|| wo|| doos, and tho
projocts w||| havo a vory |ong ||to.
Ono onv|ronmonta| cha||ongo ar|sos trom tho |oca| |mpacts ot m|n|ng
dovo|opmont, wh|ch aro v|sua||y dramat|c. 3ut thoy aro a|so ||m|tod. 1o
dato, tho ont|ro tootpr|nt trom m|n|ng o|| sands |s an aroa that adds up
to about 280 squaro m||os ot |and |n a prov|nco ot A|borta that |s about
tho s|zo ot 1oxas. Whon part ot a surtaco m|no |s oxhaustod, tho
oporators aro roqu|rod to rostoro tho |and to |ts or|g|na| cond|t|on.
V|n|ng wastos, a sort ot yogurt||ko s|udgo, aro dopos|tod |n ta|||ng
ponds. 1hoso tox|c ponds, ||ko tho rost ot tho |ndustry, aro rogu|atod by
tho prov|nco. locont|y tho rogu|atory author|t|os havo roqu|rod now
procossos to turthor roduco tho |mpact ot thoso poo|s. A|togothor tho
ta|||ng ponds covor an aroa oqu|va|ont to about 00 squaro m||os.
22
1ho othor s|gn|t|cant onv|ronmonta| |ssuo |s dot|n|to|y not |oca| and |s
a|so tho most controvors|a|. 1h|s |s groonhouso gas om|ss|ons, |n
part|cu|ar carbon d|ox|do (CO
2
), assoc|atod w|th tho |n s|tu product|on
procoss. 1hoso om|ss|ons aro h|ghor than tho om|ss|ons ro|oasod
trom tho product|on ot tho avorago barro| ot o|| bocauso ot tho hoat
that must bo gonoratod undorground to got tho b|tumon to t|ow.
|ow much groator |s tho |mpact comparod w|th convont|ona| o||?
1ho bost way to assoss tho |mpact |s trom a wo|| to whoo|s' ana|ys|s.
1hat moasuros tho tota| CO
2
om|ttod a|ong tho ont|ro cha|n, trom tho
|n|t|a| product|on to what |s burnod |n tho auto ong|no and comos out
tho ta||p|po. A rango ot stud|os t|nds that a barro| ot o|| sands adds
about b to 1b porcont moro CO
2
to tho atmosphoro than an avorago
barro| ot o|| usod |n tho Un|tod 3tatos. 1ho roason tho d|ttoronco |s so
sma|| |s that, by tar, most ot tho CO
2
|s producod by tho combust|on |n
an auto ong|no and comos out ot tho ta||p|po.
28
1ho tochno|og|os tor produc|ng o|| sands cont|nuo to ovo|vo, and
|ncroas|ng |ngonu|ty |s bo|ng app||od to shr|nk|ng tho onv|ronmonta|
tootpr|nt and roduc|ng tho CO
2
om|ss|ons |n tho product|on procoss.
As tho |ndustry grows |n sca|o, |t w||| roqu|ro w|dor co||aborat|on on tho
l80 cha||ongos not on|y among compan|os and tho prov|nco ot
A|borta but a|so w|th Canada's todora| govornmont.
Yot tho vory sca|o ot tho rosourco, and |ts ro||ab|||ty, puts a prom|um
on |ts cont|nuod ovo|ut|on ot th|s part|cu|ar |ndustry. O|| sands aro, attor
a||, an onormous rosourco. |or tho 17b b||||on barro|s ot rocovorab|o o||
sands |s on|y 10 porcont ot tho ost|matod 1.8 tr||||on barro|s ot o||
sands |n p|aco.' 1ho dovo|opmont ot tho othor 00 porcont roqu|ros
turthor tochno|og|ca| progross.
ABOVECROuND R|5K5
1ho on|y othor concontrat|on ot unconvont|ona| o|| rosourcos |n tho
ont|ro wor|d that r|va|s Canada's o|| sands |s tho Or|noco bo|t |n tho
|ntor|or ot vonozuo|a. 1horo, too, tho o|| |s |n tho torm ot b|tumon
omboddod |n c|ays and sands. W|th now tochno|og|os and a good
doa| ot |nvostmont, tho potont|a| output ot tho Or|noco |s hugo. Yot what
m|ght havo boon ant|c|patod |n torms ot supp||os trom tho Or|noco has
boon much roducod |n rocont yoars-not bocauso ot ||m|ts ot tho
rosourco |tso|t but bocauso ot what has happonod abovoground.
Vay 0ay, 2007, bogan |n vonozuo|a w|th a show ot strongth. 1ho
army swopt |n to so|zo o|| tac|||t|os |n tho |aja, tho Or|noco O|| 3o|t.
1h|s was a pro|udo to tho momont whon lros|dont |ugo Chvoz,
drossod |n rod tat|guos, took to tho p|attorm |n tho |ndustr|a| comp|ox ot
1oso to announco to assomb|od o|| workors what was a|roady obv|ous
-ho was tak|ng ovor th|s vast |ndustr|a| ontorpr|so. 1h|s |s tho truo
nat|ona||zat|on ot our natura| rosourcos,' ho proc|a|mod as jots
stroakod ovorhoad. 1o undor||no tho po|nt, boh|nd h|m hung a g|ant
bannor that road, |u|| O|| 3ovoro|gnty. load to 3oc|a||sm.' ||s
aud|onco was o|| workors who had tradod tho|r norma| b|uo ho|mots tor
rovo|ut|onary-rod ho|mots and had donnod rod 1-sh|rts co|obrat|ng
nat|ona||zat|on.
1h|s was ono ot a |ong sor|os ot stops by Chvoz to subord|nato tho
country's po||t|ca| |nst|tut|ons and oconomy to h|s 3o||var|an
lovo|ut|on. 3ut tho Or|noco was a un|quo pr|zo. Covor|ng b4,000
squaro m||os and strotch|ng 870 m||os, |t conta|ns an ost|matod b18
b||||on barro|s ot tochn|ca||y rocovorab|o rosorvos. 3ut that |s tar |argor
than what curront|y |s oconom|ca||y rocovorab|o. And, as |n Canada,
tho ovora|| potont|a| |s st||| that much groator-as much as 1.8 tr||||on
barro|s.
1ho Or|noco's b|tumon |s vory d|tt|cu|t to produco. l|ko tho o|| sands
|n Canada, tho oxtra hoavy o|| (E|O) ot tho Or|noco 3o|t |s so hoavy
and gunky that |t cannot oas||y t|ow. l|m|tod product|on bogan |n tho
1070s, but was groat|y constra|nod by costs and tochno|ogy.
1o oxtract s|gn|t|cant amounts ot rosourco and thon rot|no |t |nto
t|ow|ng o|| wou|d roqu|ro a groat doa| ot |nvostmont and advancod
tochno|ogy. ln tho 1000s vonozuo|a had no|thor. 1ho Or|noco was too
b|g and comp|ox tor tho stato o|| company, l0v3A, to go |t a|ono. 1ho
Or|noco bocamo tho most h|gh-prot||o part ot tho potro|oum opon|ng,
or |o oportoro, undor wh|ch |n tho 1000s vonozuo|a |nv|tod
|ntornat|ona| compan|os back as partnors or sorv|co prov|dors.
A ha|t dozon |ntornat|ona| compan|os partnorod thoro w|th l0v3A,
|nvost|ng upwards ot $20 b||||on. 1hoy a|so pushod tho tochno|ogy.
W|th|n a docado, tho jo|nt vonturos had gono trom noth|ng to moro than
000,000 barro|s a day, w|th tho prom|so ot much moro to como.
3ut w|th Chvoz's 3o||var|an lovo|ut|on, |t was c|oar|y on|y a mattor
ot t|mo botoro tho Or|noco was takon ovor. And what bottor day than
Vay 0ay to announco, as Chvoz d|d, that tho Or|noco had to bo
nat|ona||zod so wo can bu||d vonozuo|an soc|a||sm.' |o doc|arod,
Wo havo bur|od tho 'potro|oum opon|ng.' ' And tor good moasuro, ho
thundorod, 0own w|th tho U.3. omp|ro.'


3omo ot tho Wostorn compan|os roma|nod, but |n moro subord|nato
ro|os. low oporators-v|otnamoso and luss|ans, among othors-
camo |n. 1ho vonozuo|an govornmont ho|d out tho objoct|vo ot tr|p||ng
tho Or|noco's output to 2 m||||on barro|s por day by 2018. Othors
quost|onod |t ovon curront product|on |ovo|s cou|d bo ma|nta|nod,
g|von tho t|nanc|a| and tochn|ca| cha||ongos. Attor a||, o|| output
o|sowhoro |n vonozuo|a was a|roady |n doc||no bocauso ot |ack ot
|nvostmont and |oss ot managor|a| ta|ont.
3t|||, Vay 1, 2007, was a day ot tr|umph tor Chvoz. lt was a ||tt|o
moro uncorta|n tor tho workors, who had to ||ston to h|s spooch tor an
hour and a ha|t undor tho hot sun and woro unsuro about tho|r now
ownor. Our bossos mado us como,' sa|d ono workor. Wo d|dn't want
to got t|rod.' And, to mako suro that ovoryono showod up, attondanco
was takon on tho busos that torr|od thom to tho spooch.
And so thoro, undor that hot sun at tho 1oso lndustr|a| Comp|ox, was
both tho spoctac|o ot anothor v|ctory tor tho 3o||var|an lovo|ut|on and
|ts |oador, and at tho samo t|mo, a vory v|s|b|o domonstrat|on, am|d
ono ot tho wor|d's r|chost concontrat|ons ot rosourcos, ot tho moan|ng
ot abovoground r|sk-|n th|s caso c|ad |n rovo|ut|onary rod.
24
NO1EER NA1uRE'5 PRE55uRE COOKER
0osp|to tho d|vors|ty ot tho rango ot unconvont|ona| o||s, a common
thomo t|os thom togothor. lt |s a|| about t|nd|ng a way to un|ock
rosourcos whoso ox|stonco may havo |ong boon rocogn|zod but tor
wh|ch rocovory on a commorc|a| sca|o had soomod |mposs|b|o.
1hoso broakthroughs aro yot to happon w|th what |s ca||od o|| sha|o.
O|| sha|o conta|ns h|gh concontrat|ons ot tho |mmaturo procursor to
potro|oum, korogon. 1ho korogon has not yot gono through a|| tho
m||||ons ot yoars |n Vothor laturo's prossuro cookor that wou|d turn |t
|nto what wou|d bo rogardod as o||. 1ho ost|matos tor tho o|| sha|o
rosourco aro onormous: 8 tr||||on barro|s, ot wh|ch 0 tr||||on aro |n tho
Un|tod 3tatos, much ot |t concontratod |n tho locky Vounta|ns. 0ur|ng
tho gaso||no tam|no ot Wor|d War l, Notlooo| Ooogropblc prod|ctod
that no man who owns a motor-car w||| ta|| to rojo|co' bocauso th|s o||
wou|d prov|do tho supp||os ot gaso||no wh|ch can moot any domand
that ovon h|s ch||dron's ch||dron tor gonorat|ons to como may mako ot
thom. 1ho horso|oss voh|c|o's throatonod dothronomont has boon
dot|n|to|y avortod.' 3ut thon oar|y hopos tor o|| sha|o woro comp|oto|y
bur|od by |ts h|gh costs, |ack ot appropr|ato tochno|ogy, and an
abundanco ot convont|ona| o||.
At tho ond ot tho o|| cr|s|s docado ot tho 1070s, am|d tho pan|c and
shock ot tho lran|an lovo|ut|on, a v|gorous campa|gn was |aunchod |n
Wash|ngton, 0.C., to croato a now |ndustry that wou|d prov|do b m||||on
barro|s por day ot synthot|c tuo|s and, |n add|t|on, g|vo tho nat|on a
psycho|og|ca| ||tt ot 'do|ng somoth|ng' |nstoad ot just do|ng w|thout.'
1ho Cartor adm|n|strat|on |nst|tutod an $88 b||||on program that wou|d
cost many tons ot b||||ons ot do||ars to dovo|op thoso syntuo|s' as tho
way to onsuro onorgy |ndopondonco. O|| sha|o was at tho top ot tho
||st. lotro|oum compan|os announcod major projocts. 3ut w|th|n a
coup|o ot yoars, tho projocts woro abrupt|y torm|natod. 1ho o|| sha|o
campa|gn was dono |n by tho r|s|ng surp|us ot potro|oum |n tho wor|d
markot, tho ta|||ng pr|co, and tho way |n wh|ch tho costs tor dovo|op|ng
o|| sha|o woro skyrockot|ng-ovon w|thout any commorc|a| product|on
hav|ng bogun.
2b
Yot today a tow hardy compan|os, |argo and sma||, aro at work on o||
sha|o aga|n. 1hoy aro st||| try|ng to t|nd now and moro oconom|c
approachos tor spood|ng up naturo's t|mo mach|no and turn|ng
korogon |nto a commorc|a| tuo| w|thout hav|ng that sovora|-m||||on-yoar
wa|t. Ono ||no ot rosoarch para||o|s tho |n s|tu procoss tor o|| sands and
sooks to hoat tho korogon undorground.
1horo aro st||| othor typos ot unconvont|ona| o||s that may grow |n
sca|o and |mportanco ovor tho noxt tow yoars, notab|y o|| mado by
procoss|ng coa| or natura| gas. 1ho tormor |s dono, notab|y, |n 3outh
Atr|ca, and tho |attor, |n Oatar. 3oth roqu|ro hoavy ong|noor|ng. 3ut
h|gh costs ho|d back both procossos trom turthor s|gn|t|cant
oxpans|on, at |oast so tar.
1|CE1 O|L
1ho nowost broakthrough |s opon|ng tho prospoct ot a b|g now sourco
ot o||, somoth|ng that was not ovon oxpoctod a tow yoars ago. 1h|s
now rosourco |s otton contus|ng|y ca||od sha|o o||,' wh|ch can bo tota||y
m|xod up w|th o|| sha|o,' wh|ch |t |s not. 1hus, both tor c|ar|ty's sako
and bocauso |t |s tound |n othor k|nds ot rocks as wo||, |t |s bocom|ng
bottor known as t|ght o||. loop|o havo rocogn|zod tor a |ong t|mo that
add|t|ona| o|| was |ockod |ns|do sha|o and othor typos ot rock. 3ut
thoro was no way to got th|s o|| out-at |oast not |n commorc|a|
vo|umos.
1ho koy was tound on tho tr|ngos ot tho |ndustry, |n a hugo o||
tormat|on ca||od tho 3akkon, wh|ch spraw|s bonoath tho W||||ston
3as|n across lorth and 3outh 0akota and Vontana and |nto
3askatchowan and Van|toba |n Canada. 1ho 3akkon was ono ot
thoso p|acos whoro sma||or oporators dr|||od wo||s that do||vorod just a
tow barro|s a day. 3y tho |ato 1000s, most poop|o had g|von up on tho
3akkon, wr|t|ng |t ott as an oconom|ca||y unattract|vo rosourco.'
20
3ut thon tho |mpact ot tho tochno|ogy tor ||borat|ng sha|o gas-
hor|zonta| dr||||ng and hydrau||c tractur|ng-bo camo ov|dont. As sha|o
gas bogan to grow, wo askod ourso|vos 'Why not app|y |t to o||?' ' sa|d
1ohn |oss, CEO ot |oss, ono ot tho |oad|ng p|ayors |n tho 3akkon.
1ho now tochno|og|os workod. Compan|os rushod to stako out
acroago, and a boom |n t|ght o|| bogan to swoop across tho 3akkon.
lroduct|on |n tho 3akkon |ncroasod dramat|ca||y, trom |oss than
10,000 barro|s por day |n 200b to moro than 400,000 |n 2010. ln
anothor sovora| yoars |t cou|d bo 800,000 barro|s por day or ovon
moro.
27
1ho tochn|quo |s sproad|ng. |ormat|ons s|m||ar to tho 3akkon, w|th
such namos as tho Eag|o |ord |n 1oxas, and 3ono 3pr|ngs |n low
Vox|co, and 1hroo |orks |n lorth 0akota, aro bocom|ng hot spots tor
oxp|orat|on.
A|though st||| |n tho oar|y days ot t|ght o||, |n|t|a| ost|matos suggost
that thoro m|ght bo as much as 20 b||||on barro|s ot rocovorab|o t|ght o||
just |n tho Un|tod 3tatos. 1hat |s ||ko add|ng ono and a ha|t brand-now
A|aska lorth 3|opos, w|thout hav|ng to go to work |n tho Arct|c north
and w|thout hav|ng to bu||d a hugo now p|po||no. 3uch rosorvos cou|d
potont|a||y bo roach|ng two m||||on barro|s por day ot add|t|ona|
product|on |n tho Un|tod 3tatos by 2020 that was not ovon ant|c|patod
ovon ha|t a docado ago. A|though thoro |s hard|y any ca|cu|at|on ot tho
t|ght o|| rosourcos |n tho rost ot tho wor|d, tho numbors aro ||ko|y to bo
substant|a|.


What a|| tho unconvont|ona| rosourcos havo |n common |s that thoy aro
not tho trad|t|ona||y producod onshoro t|ow|ng o|| that has boon tho
|ndustry stap|o s|nco Co|ono| 0rako dr|||od h|s wo|| |n 1|tusv|||o |n18b0.
And thoy aro a|| oxpand|ng tho dot|n|t|on ot o|| to ho|p moot grow|ng
g|oba| domand. 3y 2080 thoso nontrad|t|ona| ||qu|ds cou|d add up to a
th|rd ot tota| ||qu|ds capac|ty. 3y thon, howovor, most ot thoso
unconvont|ona| o||s w||| havo a now namo. 1hoy w||| a|| bo ca||od
convont|ona|.
28
UlCOlvEl1lOlAl3: 1|E lEW GEOGlAl|Y O| Oll Al0 GA3
7ocboo|ogy ls oo|ocklog wbot woro provloos|y ooovol|ob|o ooorgy
rosoorcos.
3ourco: l|3 CElA
18
1EE 5ECuR|1Y OF ENERCY
Enorgy socur|ty may soom ||ko an abstract concorn-corta|n|y
|mportant, yot vaguo, a ||tt|o hard to p|n down. 3ut d|srupt|on and
turmo||-and tho ov|dont r|sks-domonstrato both |ts tang|b|||ty and
how tundamonta| |t |s to modorn ||to. W|thout o|| thoro |s v|rtua||y no
mob|||ty, and w|thout o|octr|c|ty-and onorgy to gonorato that o|octr|c|ty
-thoro wou|d bo no lntornot ago.
3ut tho dopondonco on onorgy systoms, and tho|r grow|ng
comp|ox|ty and roach, a|| undor||no tho nood to undorstand tho r|sks
and roqu|romonts ot onorgy socur|ty |n tho twonty-t|rst contury.
lncroas|ng|y, onorgy trado travorsos nat|ona| bordors. Voroovor,
onorgy socur|ty |s not just about countor|ng tho w|do var|oty ot throats,
|t |s a|so about tho ro|at|ons among nat|ons, how thoy |ntoract w|th
oach othor, and how onorgy |mpacts tho|r ovora|| nat|ona| socur|ty.
1ho |ntordopondonco ot onorgy has boon a tact ot |ntornat|ona| ||to
tor contur|os. 3og|nn|ng |n tho s|xtoonth contury, tho boom |n tho nood
tor wood-usod tor sh|pbu||d|ng and construct|on but, most |mportant,
tor domost|c hoat|ng-|od to tho |ntograt|on ot lorway and 3wodon,
and thon lorth Amor|ca to somo dogroo, |nto tho Europoan oconomy.
1
3ut tho po|nt at wh|ch onorgy socur|ty bocamo a doc|s|vo tactor |n
|ntornat|ona| ro|at|ons was a contury ago, |n tho yoars just procod|ng
tho ||rst Wor|d War. ln 1011 W|nston Church|||, thon ||rst lord ot tho
Adm|ra|ty, mado tho h|stor|c doc|s|on, |n h|s words, to baso 3r|ta|n's
nava| supromacy upon o||-that |s, to convort tho batt|osh|ps ot tho
loya| lavy trom coa| to o||.' O|| wou|d mako tho sh|ps ot tho loya|
lavy tastor and moro t|ox|b|o than thoso ot Gormany's grow|ng navy,
g|v|ng 3r|ta|n a cr|t|ca| advantago |n tho Ang|o-Gorman nava| raco. As
Church||| summod |t up, sw|tch|ng to o|| moant moro gun-powor and
moro spood tor |oss s|zo or cost.'
2
3ut tho movo to o|| croatod a now cha||ongo: a daunt|ng prob|om ot
supp|y. Wh||o tho U.3. lavy was boh|nd tho loya| lavy |n cons|dor|ng
tho movo trom coa| to o|| tor |ts batt|osh|ps, |t at |oast cou|d ca|| on
|argo domost|c supp||os. 3r|ta|n had no such rosourcos. Convors|on
moant that tho loya| lavy wou|d ro|y not on coa| trom Wa|os, sato|y
w|th|n 3r|ta|n's own bordors, but rathor on |nsocuro o|| supp||os that
woro s|x thousand m||os away by soa-|n lors|a, now lran.
Cr|t|cs arguod at tho t|mo that |t wou|d bo dangorous and too|hardy
tor tho loya| lavy to bo dopondont upon tho r|sky and |nsocuro nat|on
ot lors|a-what ono ott|c|a| ca||od an o|d, |ong-m|smanagod ostato,
roady to bo knockod down.' 1hat was hard|y a country on wh|ch to ro|y
tor a nat|on's most v|ta| stratog|c rosourco.
Church||| rospondod w|th what wou|d bocomo a tundamonta|
touchstono ot onorgy socur|ty: d|vors|t|cat|on ot supp|y. On no ono
qua||ty, on no ono procoss, on no ono country, on no ono routo, and on
no ono t|o|d must wo bo dopondont,' ho to|d lar||amont |n 1u|y 1018.
3atoty and corta|nty |n o|| ||o |n var|oty and var|oty a|ono.' 1hat procopt
has provod |tso|t aga|n and aga|n.
8
1EE RE1uRN OF ENERCY 5ECuR|1Y
3|nco tho start ot tho twonty-t|rst contury, a por|od|ca||y t|ght o|| markot
and vo|at||o pr|cos havo tuo|od now concorn about onorgy socur|ty.
Othor tactors a|so add to tho concorn: tho |nstab|||ty |n somo o||-
oxport|ng nat|ons, j|had|st torror|sm, tho rob|rth ot rosourco
nat|ona||sm, toars ot a scramb|o tor supp||os, tho costs ot |mportod
onorgy, and goopo||t|ca| r|va|r|os. 1ho turmo|| that swopt ovor much ot
lorth Atr|ca and tho V|dd|o East |n 2011 d|sruptod supp||os and
addod a toar prom|um to tho o|| pr|co. Undor|y|ng ovoryth|ng o|so |s tho
tundamonta| nood ot countr|os-and tho wor|d-tor ro||ab|o onorgy
w|th wh|ch to powor oconom|c growth.
Enorgy socur|ty concorns aro not ||m|tod to o||. latura| gas was
tormor|y a nat|ona| or rog|ona| tuo|. 3ut tho dovo|opmont ot |ong-
d|stanco p|po||nos and tho growth ot ||quot|od natura| gas (llG) havo
turnod natura| gas |nto much moro ot a g|oba| bus|noss. E|octr|c powor
b|ackouts |n lorth Amor|ca-such as tho ono that shut down tho
northoast ot tho Un|tod 3tatos |n 2008-and |n Europo and luss|a,
gonorato worr|os about tho ro||ab|||ty ot o|octr|c|ty supp|y systoms.
|urr|canos Katr|na and l|ta, wh|ch struck tho Gu|t ot Vox|co's
onorgy comp|ox |n a ono-two punch |n 200b, croatod somoth|ng that
tho wor|d had not soon, at |oast |n modorn t|mos: an |ntogratod onorgy
shock. Evoryth|ng soomod connoctod, and ovoryth|ng was down at tho
samo t|mo: o|| and natura| gas product|on and undorsoa p|po||nos |n
tho Gu|t ot Vox|co, and-onshoro-roco|v|ng torm|na|s, rot|nor|os,
natura| gas procoss|ng p|ants, |ong-d|stanco p|po||nos, and o|octr|c|ty.
1ho storms showod how tundamonta| was tho |ntogr|ty ot tho o|octr|c|ty
systom on wh|ch tho oporat|on ot ovoryth|ng o|so dopondod, bo |t tho
rot|nor|os and commun|cat|ons systoms, or tho p|po||nos that tako
supp||os to tho rost ot tho country-or tho gas stat|ons, wh|ch |ackod
tho o|octr|c powor to oporato tho|r pumps. 1ho hugo oarthquako and
tsunam| that struck 1apan |n 2011 k|||od moro than 1b,000 poop|o,
dovastatod a major part ot tho country, and sot ott a nuc|oar acc|dont. lt
a|so took down tho rog|on's powor systom, knock|ng out sorv|cos,
|mmob|||z|ng commun|cat|on and transportat|on, d|srupt|ng tho
oconomy and g|oba| supp|y cha|ns, and para|yz|ng ottorts to rospond
to tho tragody.
ln Ch|na, lnd|a, and othor dovo|op|ng countr|os, chron|c shortagos ot
o|octr|c powor domonstrato tho costs ot unro||ab|||ty. 1ho lntornot and
ro||anco on comp|ox |ntormat|on-tochno|ogy systoms havo croatod a
who|o now sot ot vu|norab|||t|os tor onorgy and o|octr|c powor
|ntrastructuro around tho wor|d by croat|ng ontry paths tor thoso who
w|sh to d|srupt thoso systoms.
1EE D|NEN5|ON5
1ho usua| dot|n|t|on ot onorgy socur|ty |s protty stra|ghttorward: tho
ava||ab|||ty ot sutt|c|ont supp||os at attordab|o pr|cos. Yot thoro aro
sovora| d|mons|ons. ||rst |s phys|ca| socur|ty-protoct|ng tho assots,
|ntrastructuro, supp|y cha|ns, and trado routos, and mak|ng prov|s|on
tor qu|ck rop|acomonts and subst|tut|on, whon nood bo. 3ocond,
accoss to onorgy |s cr|t|ca|. 1h|s moans tho ab|||ty to dovo|op and
acqu|ro onorgy supp||os-phys|ca||y, contractua||y, and commorc|a||y.
1h|rd, onorgy socur|ty |s a|so a systom-composod ot tho nat|ona|
po||c|os and |ntornat|ona| |nst|tut|ons that aro dos|gnod to rospond |n a
coord|natod way to d|srupt|ons, d|s|ocat|ons, and omorgonc|os, as
wo|| as ho|p|ng to ma|nta|n tho stoady t|ow ot supp||os. And, t|na||y and
cruc|a||y, |t |ongor-torm |n naturo, |s |nvostmont. Enorgy socur|ty
roqu|ros po||c|os and a bus|noss c||mato that promoto |nvostmont and
dovo|opmont to onsuro that adoquato supp||os and |ntrastructuro w|||
bo ava||ab|o, |n a t|mo|y way, |n tho tuturo.
O||-|mport|ng countr|os th|nk |n torms ot socur|ty ot supp|y. Enorgy-
oxport|ng countr|os turn tho quost|on around. 1hoy ta|k ot socur|ty ot
domand' tor tho|r o|| and gas oxports, on wh|ch thoy dopond to
gonorato oconom|c growth and a vory |argo sharo ot govornmont
rovonuos-and to ma|nta|n soc|a| stab|||ty. 1hoy want to know that tho
markots w||| bo thoro, so that thoy can p|an tho|r budgots and just|ty
tuturo |ovo|s ot |nvostmont.
1EE L|N|15 OF ENERCY |NDEPENDENCE"
ln tho Un|tod 3tatos, tho |ssuo ot onorgy socur|ty otton gots tramod |n
torms ot onorgy |ndopondonco. 1hat phraso has boon a po||t|ca|
mantra s|nco t|rst art|cu|atod by lros|dont l|chard l|xon |n h|s
lovombor 1078 lrojoct lndopondonco' onorgy po||cy spooch. 1ust
throo wooks oar||or, an unth|nkab|o-and yot a|so torosooab|o-ovont
had occurrod. 1ho Arab o|| oxportors, w|o|d|ng tho o|| woapon,' had
ombargood o|| supp||os to Wostorn countr|os |n rosponso to tho Un|tod
3tatos' hurr|od rosupp|y ot woapons to a bo|oaguorod lsrao|, roo||ng
trom a surpr|so attack on Yom K|ppur |n Octobor 1078. O|| pr|cos woro
on a trajoctory to quadrup|o. ln h|s spooch, l|xon do||borato|y modo|od
h|s lrojoct lndopondonco p|an on tho goa| that h|s o|d r|va| 1ohn |.
Konnody had sot tor tho Apo||o projoct |n 1001, ot |and|ng a man on
tho moon and roturn|ng h|m sato|y to tho oarth' w|th|n ton yoars. 3ut
l|xon sought to outdo Konnody, p|odg|ng |n h|s own spooch that tho
Un|tod 3tatos wou|d moot our own onorgy noods w|thout dopond|ng
on any toro|gn onorgy sourco'-and do |t not |n ton yoars, but |n sovon.
1h|s bo|d prom|so start|od h|s own adv|sors, tor thoy d|d not soo how
|t cou|d bo ach|ovod. l cut tho rotoronco to '|ndopondonco' throo t|mos
trom tho dratts,' roca||od ono ot h|s spoochwr|tors, but |t kopt bo|ng
put back |n. ||na||y, l ca||od ovor, and was to|d that |t camo trom tho O|d
Van h|mso|t.'
1ho phraso not on|y stayod |n tho spooch but has roma|nod part ot
tho po||t|ca| vocabu|ary ovor s|nco. Evory pros|dont attor l|xon has
ovokod onorgy |ndopondonco as a pr|mo objoct|vo. lt rosonatos
powortu||y w|th tho Amor|can pub||c and comos |mbuod w|th a
nosta|g|a tor a moro managoab|o t|mo whon pr|cos woro |ow and tho
Un|tod 3tatos roa||y cou|d go |t a|ono. Attor a||, tho Un|tod 3tatos had
onco boon tho wor|d's numbor ono o|| oxportor.
4
As ovonts havo turnod out, gott|ng a man on tho moon provod oas|or
than mak|ng a nat|on onorgy |ndopondont-or at |oast o|| |ndopondont.
(ln torms ot ovora|| onorgy-|nc|ud|ng natura| gas, coa|, nuc|oar, and
ronowab|os-tho Un|tod 3tatos was 78 porcont so|t-sutt|c|ont |n 2011.)
ln tho a|most tour docados s|nco l|xon's spooch, tho Un|tod 3tatos
has gono trom |mport|ng a th|rd ot |ts o|| to |mport|ng, on a not bas|s, to
about 00 porcont at tho poak. ln 2011 |mports had doc||nod to about
b0 porcont.
ls onorgy |ndopondonco a roa||st|c goa| tor a country w|th a $1b
tr||||on oconomy that |s doop|y onmoshod |n tho g|oba| oconomy?
3omo arguo that tho torm onorgy |ndopondonco' |s m|sconstruod, that
|t shou|d not bo takon as moan|ng v|rtua||y |mport-troo, but rathor as
connot|ng not vu|norab|o.' Gonora||y, howovor, |t |s undorstood to
moan so|t-sutt|c|oncy. Yot |ts promot|on, no mattor how compo|||ng, can
|oad to oxpoctat|ons about qu|ck t|xos and oasy adjustmonts that aro
at odds w|th tho roa||t|os ot tho U.3. onorgy pos|t|on and tho comp|ox|ty
and sca|o ot |ts onorgy systom. 1ho rosu|t can bo d|sappo|ntmont and
cyn|c|sm that, togothor, dr|vo cyc|os ot |ncons|stoncy |n onorgy po||cy
and |oavo tho Un|tod 3tatos no |oss vu|norab|o. Ovoromphas|z|ng
somoth|ng that |s an asp|rat|on, rathor than a goa| that can bo roa||zod
|n a roasonab|o t|mo tramo, can corrodo tho |ntornat|ona| ro|at|ons that
aro cr|t|ca| to onorgy socur|ty |n an |ntordopondont wor|d. And |t runs
tho r|sk ot d|vort|ng attont|on trom tho moro comp|ox agonda ot onorgy
socur|ty. 3ut porhaps tho |mporat|vos ot po||t|ca| commun|cat|on
roqu|ro tho mantra ot onorgy |ndopondonco. As ono sonator put |t,
Enorgy |ndopondonco roa||y moans onorgy socur|ty.'
b
51RA1EC|C 5|CN|F|CANCE
1ho 1078 o|| cr|s|s may havo prov|dod tho proot that tho ora ot onorgy
so|t-sutt|c|oncy tor tho Un|tod 3tatos was a|roady ovor. Yot |t soomod
that most Amor|cans d|d not know, at |oast unt|| tho cr|s|s, that tho
Un|tod 3tatos |mportod o||-or thoy s|mp|y d|d not bo||ovo |t. 1hus, thoy
conc|udod, tho pr|co surgo had to bo tho rosu|t ot pr|co man|pu|at|on by
o|| compan|os. lor d|d thoy know that tho gas ||nos |n wh|ch thoy
wa|tod (and |n wh|ch thoy woro to wa|t aga|n |n 1070, attor tho lran|an
lovo|ut|on) woro ma|n|y tho rosu|t ot govornmont pr|co sott|ng and
a||ocat|ons that provontod supp||os trom gott|ng to tho c|t|os whoro thoy
woro noodod, and |nstoad sont thom to tho countrys|do, whoro thoy
woro not noodod. 1hoso gas ||nos sot ott a cha|n roact|on ot angor,
accusat|ons, and rumors ot a|| k|nds (tankors br|mm|ng w|th o|| woro
c|rc||ng ottshoro, just boyond tho hor|zon'), mu|t|p|o congross|ona|
hoar|ngs, many |nvost|gat|ons, acr|mon|ous batt|os ovor pr|co contro|s,
and a tumu|tuous ocoan ot ||t|gat|on.
1ho shock was hard|y ||m|tod to tho Un|tod 3tatos. 1ho ombargo-
and tho mass|vo d|srupt|on that |t ongondorod-croatod surpr|so,
pan|c, chaos, shortagos, and oconom|c d|sarray around tho wor|d. lt
gonoratod a mad scramb|o tor o|| among compan|os, tradors, and
countr|os. Govornmont m|n|stors c||mbod on p|anos and porsona||y
scourod tho wor|d tor potro|oum supp||os. 1ho shock was turthor
aggravatod by what |t soomod to portond-a mass|vo sh|tt |n tho
g|oba| po||t|ca| and oconom|c ba|anco ot powor away trom tho
|mport|ng countr|os and tho lorth' scornod to tho oxportors and tho
3outh,' to what was thon known as tho 1h|rd Wor|d.
Among tho Wostorn govornmonts thomso|vos, tho ombargo croatod
onormous stra|n and antagon|sm as thoy strugg|od to rospond, b|amod
ono anothor, and sought to outmanouvor oach othor |n socur|ng
supp||os. 3omo sought spoc|a| ro|at|onsh|ps w|th tho oxport|ng
countr|os that wou|d g|vo thom what thoy thought wou|d bo pr|v||ogod
accoss to supp||os. lndood, th|s was w|do|y rogardod as tho worst
cr|s|s, and tho most tract|ous, to att||ct tho Wostorn a|||anco s|nco |ts
toundat|on attor Wor|d War ll.
1ho ac|d sp|r|t ot tho t|mos was capturod dur|ng tho hurr|od|y
convonod Wash|ngton Enorgy Contoronco ot 1074 whon tho |ronch
toro|gn m|n|stor, angry that tho othor Europoan countr|os woro
cooporat|ng w|th tho Un|tod 3tatos, grootod h|s to||ow Europoan
m|n|stors w|th Boojoor, |os trotros'-|o||o, tra|tors.'
0
1OWARD AN |N1ERNA1|ONAL REC|NE
Yot out ot tho rancorous Wash|ngton onorgy contoronco omorgod tho
lntornat|ona| Enorgy 1roaty ot 1074. lt out||nod a now onorgy socur|ty
systom that was moant to doa| w|th d|srupt|ons, copo w|th cr|sos, and
avort tuturo bru|s|ng compot|t|ons that cou|d dostroy an a|||anco. lt
prov|dod tor coord|nat|on among |ndustr|a||zod countr|os |n tho ovont
ot supp|y |ntorrupt|ons, and oncouragod para||o||sm and co||aborat|on
among tho|r onorgy po||c|os. At tho samo t|mo, |t was moant to sorvo
as a dotorront aga|nst any tuturo uso ot an o|| woapon' by oxportors.
1hat systom-rot|nod, updatod, and broadonod |n tho yoars s|nco-
roma|ns tho toundat|on tor onorgy socur|ty today and prov|dos tho
ba||ast ot cont|donco dur|ng t|mos ot uncorta|nty and dangor. At |ts
most bas|c, th|s systom |s moant to koop mombor nat|ons supp||od
w|th onorgy and tho g|oba| oconomy tunct|on|ng, and thus provont doop
rocoss|ons-or worso.
1ho troaty ostab||shod tho lntornat|ona| Enorgy Agoncy (lEA) as tho
ma|n mochan|sm tor moot|ng thoso objoct|vos. 1ho lEA was a|so
moant to prov|do a common tront tor tho |ndustr|a| countr|os and thus
countorba|anco OlEC, tho Organ|zat|on ot lotro|oum Export|ng
Countr|os. OlEC had boon toundod |n 1000 attor tho major o||
compan|os cut tho pr|co ot o||, tho major sourco ot |ncomo tor tho
countr|os. ln tho t|rst docado attor |ts tound|ng, OlEC had |aborod |n
obscur|ty. lndood, |t ovon ta||od to ga|n d|p|omat|c rocogn|t|on trom tho
3w|ss and ondod up hav|ng to movo |ts hoadquartors trom Gonova to
v|onna. 3ut at tho bog|nn|ng ot tho 1070s, w|th tho t|ghton|ng o||
markot and r|s|ng nat|ona||sm, tho major o||-oxport|ng countr|os took
contro| ot tho wor|d markot, and OlEC was tho|r mochan|sm to do so.
3o dom|nant d|d OlEC appoar to bo |n tho m|d-1070s that somo
spoko about an OlEC lmpor|um.' 1ho lEA was |ntondod to prov|do a
moans tor tho consum|ng countr|os to countoract that now |mpor|um.
low hoadquartorod on tho lott 3ank |n lar|s and |ook|ng up trom
|ts w|ndows toward tho E|tto| 1owor, tho lEA curront|y numbors 28
|ndustr|a| countr|os as mombors. lt prov|dos cont|nuod mon|tor|ng and
ana|ys|s ot onorgy markots, po||c|os, tochno|og|os, and rosoarch. As
such |t oporatos as a k|nd ot onorgy consc|onco' tor nat|ona|
govornmonts.
ENERCENCY 51OCK5
Ono ot tho lEA's coro rospons|b|||t|os |s to coord|nato tho omorgoncy
shar|ng ot supp||os |n tho ovont ot a |oss ot supp||os. Undor tho
lntornat|ona| Enorgy 1roaty, oach mombor |s moant to ho|d stratog|c o||
stockp||os, o|thor govornmont-ownod pub||c stocks, such as tho
3tratog|c lotro|oum losorvo |n tho Un|tod 3tatos, or |n govornmont-
contro||od stocks that pr|vato compan|os aro roqu|rod to ho|d. 1hoso
stocks can bo ro|oasod on a coord|natod bas|s |n tho ovont ot a
d|srupt|on and can bo comp|omontod, |n a sovoro d|srupt|on, w|th
moasuros to ho|p tomporar||y br|ng down domand. Ot courso, |t |s up
to nat|ona| govornmonts to doc|do whothor to |mp|omont any ot tho
moasuros.
Curront|y, lEA nat|ons havo about 1.b b||||on barro|s ot pub||c stocks,
ot wh|ch about 700 m||||on barro|s aro |n tho U.3. 3tratog|c lotro|oum
losorvo. Woro lran|an oxports to d|sappoar trom tho markot, tho 1.b
b||||on cou|d componsato tor tho shortta|| tor moro than two yoars.
1ho U.3. 3tratog|c lotro|oum losorvo (3ll), a|ong w|th tho othor
lEA stocks, can bo thought ot as a g|ant |nsuranco po||cy. Yot, otton
onough, whon pr|cos r|so at tho gaso||no pumps, so do tomptat|ons
and ca||s to do somoth|ng'-wh|ch moans ro|oaso o|| trom tho 3ll |n
ordor to br|ng pr|cos down. 1hat wou|d havo tho ottoct ot turn|ng tho
rosorvo |nto a do tacto too| tor pr|co contro|s. 1ompt|ng, tor suro, but
not tho w|sost po||cy.
lo|oas|ng o|| undor thoso c|rcumstancos wou|d provont pr|co
s|gna|s trom roach|ng consumors w|th tho mossago that thoro |s a
prob|om |n tho markotp|aco so that thoy can modu|ato tho|r
consumpt|on. 1hat cou|d mako a bad s|tuat|on got worso. lt wou|d a|so
dra|n o|| trom tho rosorvos that m|ght bo noodod |n a moro sor|ous
s|tuat|on |n tho tuturo. |asty uso ot tho 3ll cou|d wo|| d|ssuado
tr|ond|y produc|ng countr|os trom stopp|ng up tho|r own output bocauso
potro|oum trom tho 3ll |s go|ng to t|ow |nto tho markot. lutt|ng 3ll
o|| |nto tho markot m|ght tomporar||y sond pr|cos down, but thon thoy
m|ght bounco r|ght back, ra|s|ng tho quost|on ot whothor to dra|n yot
moro o|| trom tho rosorvos. ||na||y, tho who|o h|story ot pr|co contro|s
doos not prov|do much cont|donco about how dott govornmont can bo
at us|ng stratog|c stocks as a too| ot markot managomont.
OlEC Al0 1|E lEA: 1|E 3AlAlCllG AC1
OPEC roprosoots koy ol|-oxportlog coootrlos, tbo lEA wos oooooo to
roprosoot lmportlog coootrlos.
3ourcos: OlEC, lEA

0oc|s|ons about tho uso ot stratog|c rosorvos w||| a|ways roqu|ro
judgmont, an ova|uat|on ot a w|do var|oty ot tactors, |nc|ud|ng tho |ovo|
ot commorc|a| |nvontor|os, and consu|tat|on among consumors and
w|th koy produc|ng nat|ons. Amb|gu|ty about |ts uso can ho|p to tompor
a sky's tho ||m|t' psycho|ogy. 3ut tho ossont|a| po|nt was mado by
lawronco 3ummors, whon ho was troasury socrotary |n tho C||nton
adm|n|strat|on, dur|ng a Wh|to |ouso dobato about us|ng tho rosorvos:
1ho 3ll was croatod to rospond to supp|y d|srupt|ons,' and not as a
moans s|mp|y to rospond to h|gh pr|cos or a t|ght markot.' 1hoso
stockp||os aro an ant|doto to pan|c, a sourco ot cont|donco, and a
dotorront to act|ons that m|ght othorw|so |ntorrupt supp||os.
7


3|nco tho systom's |ncopt|on 80 yoars ago, lEA mombors havo on|y
throo t|mos tr|ggorod an actua| omorgoncy drawdown ot stratog|c
stockp||os. 1ho t|rst t|mo was dur|ng tho Gu|t cr|s|s ot 1000-01. ln
1anuary 1001, just botoro host|||t|os commoncod, tho lEA coord|natod
a ro|oaso trom stratog|c stockp||os around tho wor|d. 1ho othor
coord|natod ro|oaso occurrod |n tho summor ot 200b, to doa| w|th a
d|ttoront k|nd ot d|srupt|on-that ot |urr|canos Katr|na and l|ta. Ono
can bo suro that tho toundors ot tho lEA novor contomp|atod that tho
omorgoncy shar|ng systom wou|d bo usod tor a d|srupt|on |n tho
Un|tod 3tatos. 1ho th|rd t|mo |t was usod was 2011, |n rosponso to tho
pors|st|ng |oss ot supp|y trom tho l|byan c|v|| war and concorn about
tho |mpact ot h|gh pr|cos on oconom|c rocovory.
Ovor t|mo, tho lEA has ovo|vod, and today ono ot |ts m|ss|ons |s to
ho|p promoto d|a|oguos w|th non-lEA consum|ng countr|os and w|th
onorgy-oxport|ng countr|os, OlEC and non-OlEC a||ko. 1h|s rot|octs
a |argor sh|tt |n ro|at|ons among o||-|mport|ng and o||-oxport|ng
countr|os, away trom tho controntat|on ot tho 1070s to what has
bocomo known as consumor-producor d|a|oguo.
8
lt tho lntornat|ona|
Enorgy 1roaty was tho toundat|on tor tho dovo|opmont ot a g|oba|
onorgy socur|ty systom, thon tho dovo|opmont ot tho producor-
consumor d|a|oguo roprosontod tho noxt stago |n |ts dovo|opmont.
1ho t|rst pub||c stop toward a producor-consumor d|a|oguo was a
som|nar at tho |oto| K|obor |n lar|s |n tho t|rst two days ot 1u|y 1001.
1ho Gu|t War had ondod just a tow months oar||or. As tho Octobor War
had sot tho tramowork tor controntat|on, so now tho Gu|t War had rosot
tho tramowork and oponod tho door to d|a|oguo. |or |n coord|nat|on
w|th consumors, OlEC countr|os had ratchotod up product|on to
componsato tor tho |oss ot output trom lraq and Kuwa|t. (Ot courso,
sovora| ot thom, |od by 3aud| Arab|a, woro a|so mombors ot tho
coa||t|on, and protoct|ng 3aud| Arab|a's o|| t|o|ds aga|nst lraq was ono
ot tho major objoct|vos ot tho coa||t|on.) 1h|s domonstratod what was
now porco|vod as sharod |ntorosts |n onorgy socur|ty and stab|||ty |n o||
markots. Attor tho moot|ng tho |ronch m|n|stor ot |ndustry roportod that
tho som|nar had a||owod tho do|ogatos to broak corta|n taboos and
ovon to proposo jo|nt projocts. 1ho ora ot controntat|on, wo hopo, |s
ovor, d|a|oguo and commun|cat|on must tako |ts p|aco.' lot ovoryono
was roady to broak a|| tho taboos. 1o ma|nta|n a corta|n d|stanco, tho
U.3. do|ogat|on |ns|stod on not s|tt|ng at tho ma|n tab|o but rathor at a
sort ot ||tt|o ch||dron's tab|o' ott to tho s|do.
Ettorts at a d|a|oguo ga|nod momontum, a|though, |n|t|a||y,
somowhat turt|vo|y. lt took a yoar to arrango, but |n 1004 tho hoad ot
tho lEA wont to v|onna to moot w|th tho hoad ot OlEC. 3t|||, |t was a
socrot got-togothor and |t was conductod out ot tho ott|co, ovor a
pr|vato out-ot-s|ght |unch at a v|onnoso rostaurant. 1hat was tho
bog|nn|ng ot a cont|nu|ng oxchango, |n a var|oty ot torums, on
ovoryth|ng trom onorgy socur|ty, |nvostmont rog|mos, and vo|at|||ty |n o||
pr|cos, to tho ag|ng ot tho worktorco, carbon capturo and storago, and
-ot somo |mportanco-|mprov|ng tho transparoncy and qua||ty ot
onorgy data. 1ho oxport|ng countr|os had como to ho|d s|gn|t|cant
stakos |n tho growth and hoa|th ot tho g|oba| oconomy, wh|ch, attor a||,
|s tho markot tor tho|r o|| and whoro much ot tho|r sovoro|gn woa|th
tunds aro |nvostod. |or tho consum|ng countr|os, ||ngor|ng taboos
d|ss|patod w|th t|mo. 3y 2000 tho G8 |ndustr|a| countr|os woro ca|||ng
upon both producors and consumors to onhanco transparoncy and
strongthon tho|r d|a|oguo' and movo toward a moro structurod
d|a|oguo' among produc|ng, trans|t and consum|ng countr|os.'
0
1ho mochan|sm tor th|s d|a|oguo bocamo tho lntornat|ona| Enorgy
|orum. Ono ot |ts m|ss|ons |s to spoarhoad 1O0l-tho 1o|nt O|| 0ata
ln|t|at|vo. 1ho objoct|vo |s to prov|do a moro comp|oto and transparont
v|ow ot supp|y and domand and |nvontor|os so that wor|d markots can
oporato on tho bas|s ot bottor |ntormat|on. 1ho countr|os part|c|pat|ng
|n tho torum roprosont 00 porcont ot g|oba| o|| and natura| gas
product|on and domand. 3oth tho lEA and OlEC aro mombors.
1ho producor-consumor d|a|oguo prov|dos a tramowork tor
commun|cat|on, |t rosponds to tho |ntorosts that both s|dos havo ow|ng
to tho|r |ntordopondonco |n torms ot a v|ta| commod|ty. 3ut |t corta|n|y
has |ts ||m|ts. 1ho roa| tost |s not how |t works dur|ng a t|mo ot stab|||ty
but dur|ng a t|mo ot stross. 0ur|ng tho pr|co sp|ko ot 2008, |t prov|dod
a mochan|sm tor try|ng to rostoro stab|||ty to tho markot. W|thout |t, tho
sp|ko m|ght havo gono ovon h|ghor, w|th groator damago to tho g|oba|
oconomy. 1ho ronowod o|| markot turmo|| ot 2011 and tho sharp
d|v|s|on among OlEC oxportors-part|cu|ar|y 3aud| Arab|a vorsus
lran and vonozuo|a-showod thoso ||m|ts. 3aud| m|n|stor A|| la|m|
capturod that whon ho doscr|bod tho 1uno 2011 OlEC moot|ng as
ono ot tho worst moot|ngs wo ovor had.' 1h|s was a domonstrat|on
that any d|a|oguo roa||y doponds on tho ro|at|onsh|ps not among b|ocs
but among spoc|t|c nat|ons and how thoy soo tho|r |ntorosts and tho
dogroo to wh|ch thoy can act upon thoso |ntorosts.
OPERA1|NC 5Y51EN5
Expor|onco |n tho docados s|nco tho croat|on ot tho lEA has
h|gh||ghtod broad pr|nc|p|os that undorp|n tho omorgoncy systom and
|ntorm a|| ot tho d|mons|ons ot onorgy socur|ty.
1ho start|ng po|nt |s what W|nston Church||| urgod a contury ago-
d|vors|t|cat|on ot supp|y. Vu|t|p|y|ng ono's sourcos ot o||, and ono's
sourcos ot onorgy, roducos tho |mpact ot a d|srupt|on by prov|d|ng
a|tornat|vos. 1h|s shou|d sorvo tho |ntorosts not on|y ot consumors but
a|so ot thoso producors tor whom stab|o markots aro a |ong-torm
concorn.
los|||onco shou|d bo |ngra|nod |n tho onorgy systom, onsur|ng a
socur|ty marg|n that prov|dos a buttor aga|nst shocks and tac|||tatos
t|ox|b|||ty and rocovory attor d|srupt|ons. los|||onco can |nc|udo
sutt|c|ont sparo product|on capac|ty |n o||-oxport|ng countr|os and, ot
courso, stratog|c rosorvos ||ko tho 3ll. lt oxtonds to adoquato
storago capac|ty a|ong tho supp|y cha|n and backup stockp|||ng ot
oqu|pmont and cr|t|ca| parts tor o|octr|c powor product|on and
d|str|but|on, such as transtormors tor substat|ons. |urr|canos Katr|na
and l|ta and tho 2011 1apanoso oarthquako and tsunam| h|gh||ght tho
nood to dovo|op p|ans tor rocovory trom d|srupt|ons that dovastato
|argo rog|ons.
Ovora||, tho roa||ty ot |ntograt|on noods to bo rocogn|zod. On|y ono
o|| markot ox|sts. 1h|s markot |s a comp|ox, wor|dw|do systom that
movos and consumos a|most 00 m||||on barro|s ot o|| ovory day. lot
thoro bo a d|srupt|on |n ono part ot tho wor|d, and tho ottocts w|||
rovorborato throughout tho markot. 3ocur|ty ros|dos |n tho stab|||ty ot
th|s markot. 3ocoss|on trom tho g|oba| markot |s not an opt|on, oxcopt
at vory groat cost.
Expor|onco has cons|stont|y domonstratod tho |mportanco ot h|gh-
qua||ty |ntormat|on and data tor wo||-tunct|on|ng markots and tuturo
|nvostmont. 1ho Enorgy lntormat|on Adm|n|strat|on, an |ndopondont
arm ot tho U.3. 0opartmont ot Enorgy, and tho lntornat|ona| Enorgy
Agoncy, a|ong w|th tho now lntornat|ona| Enorgy |orum, contr|buto to
moot|ng that nood. Accoss to ro||ab|o and t|mo|y |ntormat|on bocomos
part|cu|ar|y urgont |n a cr|s|s, whon a m|xturo ot actua| d|srupt|ons,
rumors, mod|a |magory, and outr|ght toar stokos pan|c among
consumors. Accusat|ons, acr|mony, outrago, tho prossuros ot tho nows
cyc|o, tho dust|ng ott ot tam|||ar scr|pts, and a tovorod hunt tor
consp|rac|os-a|| thoso can obscuro tho roa||t|os ot supp|y and
domand, transtorm|ng a d|tt|cu|t s|tuat|on |nto somoth|ng much worso.
lart|cu|ar|y at such t|mos, govornmonts and tho pr|vato soctor nood to
co||aborato to countor tho tondoncy toward pan|c and guosswork w|th
tho ant|doto ot h|gh-qua||ty, h|gh|y t|mo|y |ntormat|on.
Varkots-|argo, t|ox|b|o, and wo||-tunct|on|ng onorgy markots-
contr|buto to socur|ty by absorb|ng shocks and a||ow|ng supp|y and
domand to rospond moro qu|ck|y and w|th much groator |ngonu|ty than
|s poss|b|o w|th|n a contro||od systom. Varkots can otton moro
ott|c|ont|y and ottoct|vo|y-and moro qu|ck|y-roso|vo shortta||s and
d|srupt|ons than moro contra||zod d|roct|on.
Whon troub|os do ar|so and tho ca||s to do somoth|ng' grow |oud,
govornmonts do wo|| to bo caut|ous, to tho dogroo thoy can, |n
rospond|ng to tho short-torm po||t|ca| prossuros and tho tomptat|on to
m|cromanago markots. |owovor wo|| moan|ng, |ntorvont|on and
contro|s can backt|ro, s|ow|ng and ovon provont|ng tho mov|ng around
ot supp||os to m|t|gato d|srupt|ons and spood adjustmont.
1ho gas ||nos |n tho 1070s woro, as a|roady notod, so|t-|nt||ctod by
r|g|d govornmont po||c|os-pr|co contro|s and a hoavy-handod todora|
a||ocat|on systom that sor|ous|y m|sa||ocatod gaso||no. ln othor words,
po||cy provontod markots trom work|ng.
ln 200b tho hugo d|srupt|on to supp|y rosu|t|ng trom |urr|canos
Katr|na and l|ta soomod dost|nod to croato shortagos, wh|ch-
compoundod by rumors ot pr|co goug|ng and stat|ons' runn|ng out ot
supp||os-cou|d havo sw|tt|y gonoratod gas ||nos. 3ut that |s not what
happonod. ln contrast to tho 1070s, stops woro takon to ho|p markots
sh|tt supp||os around moro qu|ck|y and roduco tho |mpact ot tho cr|s|s.
lnstoad ot add|ng now rogu|atory rostr|ct|ons-two cr|t|ca| onos woro
oasod. lon-U.3.-t|aggod tankors woro porm|ttod to p|ck up supp||os
trappod on tho Gu|t Coast by tho nonoporat|on ot p|po||nos and carry
thom around ||or|da to tho East Coast. 1ho bout|quo gaso||no'
rogu|at|on, roqu|r|ng d|ttoront b|onds ot gaso||nos tor d|ttoront c|t|os,
was tomporar||y ||ttod to a||ow tho sh|tt|ng ot supp||os trom c|t|os that
woro ro|at|vo|y wo|| supp||od to c|t|os whoro thoro woro potont|a|
shortagos. Ovora||, tho ca||s tor contro|s woro ros|stod. 1ho markots
movod back |nto ba|anco much soonor, and pr|cos camo down much
tastor, than had boon gonora||y oxpoctod.
Enorgy socur|ty st||| noods to bo oxpandod |n rosponso to changos
|n tho |ntrastructuro ot |ntormat|on tochno|ogy, tho transtormat|on ot tho
wor|d oconomy |tso|t, and tho nood to protoct tho ont|ro supp|y cha|n.
CYBERA11ACK: A BAD NEW WORLD"
1ho soa-|anos aro not tho on|y k|nd ot routos that aro vu|norab|o. 1ho
throats to onorgy socur|ty |oom |argo |n a d|ttoront k|nd ot goography-
cyborspaco. ln 2010 tho U.3. d|roctor ot nat|ona| |nto|||gonco |dont|t|od
cyborsocur|ty as ono ot tho top throats to tho Un|tod 3tatos. 1ho
|ntormat|on |ntrastructuro,' warnod h|s Annua| 1hroat Assossmont, |s
sovoro|y throatonod.' 1ho assossmont addod: Wo cannot bo corta|n
that our cyborspaco |ntrastructuro w||| roma|n ava||ab|o and ro||ab|o
dur|ng a t|mo ot cr|s|s.' 3|nco thon, ono ot tho authors ot tho roport has
sa|d tho s|tuat|on has bocomo worso.' Evon thoso ont|t|os that aro
cons|dorod to bo tho most h|gh|y protoctod, such as t|nanc|a|
|nst|tut|ons and soph|st|catod l1 compan|os, havo boon subjoct to
succosstu| attacks. Attor 3ony suttorod a major cyborattack, |ts CEO
summar|zod tho s|tuat|on th|s way: lt's not a bravo now wor|d, |t's a
bad now wor|d.'
|or obv|ous roasons, tho o|octr|c powor systom |s rankod among
tho most cr|t|ca| ot a|| |ntrastructuros. Ono roport doscr|bod tho
vastnoss ot tho lorth Amor|can powor |ntrastructuro th|s way:
0|str|butod across thousands ot squaro m||os, throo countr|os, and
ovor comp|ox torra|n (trom tho romoto p|a|ns and locky Vounta|ns to
major urban aroas), tho bu|k powor systom |s compr|sod ot ovor
200,000 m||os ot h|gh-vo|tago transm|ss|on ||nos, thousands ot
gonorat|on p|ants, and m||||ons ot d|g|ta| contro|s.' lt |s a|so ono ot tho
most comp||catod to socuro. Attor a||, |t has boon bu||t up ovor
docados. ln tho 1000s and 1070s, computors woro dop|oyod to
manago tho gonorat|on and d|str|but|on ot o|octr|c|ty and to |ntograto
tho gr|d. ln tho yoars s|nco, tho systom has bocomo moro
soph|st|catod and |ntogratod. 1h|s makos tho systom tar moro
ott|c|ont, but |t a|so makos |t moro vu|norab|o.
10
1ho potont|a| maraudors may bo rocroat|ona| hackors, who, dosp|to
tho|r bon|gn appo||at|on, can do groat damago, as can a d|sattoctod
omp|oyoo. 1hoy can bo cyborcr|m|na|s, sook|ng to stoa| monoy or
|nto||octua| proporty, or ga|n commorc|a| advantago, or croato
s|tuat|ons trom wh|ch thoy can prot|t. 1hoy can bo govornmonts
ongagod |n osp|onago or pos|t|on|ng tor, or actua||y conduct|ng,
cyborwartaro. Or thoy can bo torror|sts or othor non-stato actors us|ng
d|g|ta| too|s to wroak havoc and d|srupt tho|r avowod onom|os. |or a||
ot thoso, tho o|octr|c gr|d |s a vory obv|ous targot, tor |ts d|srupt|on can
|mmob|||zo a |argo sogmont ot a country and do groat harm.
1ho too|s ava||ab|o to tho cyborattackor aro oxtons|vo. 1hoy can
mob|||zo notworks ot computors to mount a bot attack' a|mod at
don|a| ot sorv|co, shutt|ng down systoms. 1hoy can |ntroduco ma|waro
-ma||c|ous sottwaro-that w||| causo systoms to ma|tunct|on. Or thoy
can sook, trom romoto |ocat|ons, to tako contro| ot and d|srupt
systoms.
Ono po|nt ot ontry |s through tho ub|qu|tous 3CA0A systoms, tho
suporv|sory contro| and data acqu|s|t|on computor systoms that
mon|tor and contro| ovory k|nd ot |ndustr|a| procoss. Or|g|na||y, thoy
woro s|to spoc|t|c, but now thoy aro connoctod |nto |argor |ntormat|on
notworks. Va||c|ous |ntrudors may ga|n accoss through a thumb dr|vo
and a dosktop computor. A mu|t|tudo ot now ontry po|nts aro prov|dod
by tho pro||torat|on ot w|ro|oss dov|cos and poss|b|y by tho smart
motors that aro part ot tho smart gr|d and that prov|do two-way
commun|cat|ons botwoon homos and tho o|octr|ca| d|str|but|on
systom.
11
A tost at a nat|ona| |aboratory |n 2007 showod what happonod whon
a hackor |nt||tratod an o|octr|c systom. A 3CA0A systom was usod to
tako contro| ot a d|oso| gonorator and causo |t to ma|tunct|on, |t shook
and shuddorod and bangod unt|| |t ovontua||y b|ow |tso|t up |n a c|oud ot
smoko. 1ho 3tuxnot v|rus that s||ppod |nto tho lran|an contr|tugos |n
2010 causod thom to sp|n out ot contro| unt|| thoy so|t-dostructod.
lt |s not just tho powor systom that |s at r|sk. Obv|ous|y, othor
systoms-|nvo|v|ng onorgy product|on, p|po||nos, and wator-sharo
s|m||ar vu|norab|||t|os, as do a|| tho major systoms across an oconomy.
ln rosponso to th|s throat, nat|ons aro strugg||ng to dos|gn tho
po||c|os to moot th|s throat. 1ho U.3. 0opartmont ot 0otonso has
croatod a Cybor Command. lt |s a|so dovo|op|ng a now doctr|no |n
wh|ch a major attack on cr|t|ca| |ntrastructuro, |nc|ud|ng onorgy, cou|d
const|tuto an act ot war' that wou|d just|ty m|||tary rota||at|on. 1ho
Counc|| ot Europo has ostab||shod a convont|on on cyborsocur|ty to
gu|do nat|ona| po||c|os. 3ut thoso nood to bo matchod by ottorts by
compan|os and bo|storod w|th cons|dorab|o |nvostmont and tocus.
low socur|ty arch|tocturos havo to bo |ntroducod |nto systoms that
woro dos|gnod w|thout such socur|ty |n m|nd. And thoy nood to bo
coord|natod w|th othor countr|os. Attor a||, |t takos on|y 18bth ot a
m||||socond tor an attack to h|t a sorvor trom anywhoro |n tho wor|d.
Can act|vo dotonso provont a cyborattack that sor|ous|y damagos
o|octr|c|ty or somo othor major onorgy systom, w|th a|| tho dangorous
consoquoncos that can t|ow trom |t? W||| tho r|sks bo propor|y
ant|c|patod and actod upon? Or w||| tho ana|ys|s havo to wa|t unt|| a
nat|ona| comm|ss|on goos back attor a cybor loar| |arbor' and
assossos what wont wrong and what was m|ssod-and what cou|d
havo boon dono. ln tho n|notoonth contury, stoamboats rogu|ar|y b|ow
up,' ono study notod, but Congross wa|tod 40 yoars unt|| a |ong sor|os
ot horr|t|c acc|donts |od to satoty rogu|at|ons.' At a rocont moot|ng ot
120 oxports on cyborsocur|ty, tho quost|on was askod: |ow |ong
botoro a dostruct|vo cyborattack on tho country? 1ho consonsus
answor was brac|ng: w|th|n throo yoars.
12
BR|NC|NC CE|NA AND |ND|A |N5|DE"
Ono ot tho tundamonta| roasons tor ostab||sh|ng tho lEA |n tho 1070s
was to provont that mad scramb|o tor barro|s that had sont pr|cos
sp|ra||ng upward and throatonod to r|p apart tho Wostorn a|||anco. lt
workod, ostab||sh|ng a systom tor moro durab|o and construct|vo
cooporat|on. 1hat samo k|nd ot approach |s noodod now w|th Ch|na
and lnd|a to ho|p onsuro that commorc|a| compot|t|on doos not turn |nto
nat|ona| r|va|r|os, thus provont|ng tuturo scramb|os that |nt|amo or ovon
rupturo ro|at|ons among nat|ons |n t|mos ot stross or outr|ght dangor.
3oth Ch|na and lnd|a havo movod trom tho so|t-sutt|c|oncy and
|so|at|on ot a tow docados ago to |ntograt|on |nto tho g|oba| oconomy.
1ho onorgy consumpt|on ot both |s r|s|ng rap|d|y, |n 2000 Ch|na
bocamo tho wor|d's |argost onorgy consumor. lo|thor Ch|na nor lnd|a
|s a mombor ot tho lEA, and no|thor |ooks ||ko|y to bocomo ono
anyt|mo soon, both bocauso ot momborsh|p ru|os and tho|r own
|ntorosts.
Yot ovon |t thoy do not jo|n, thoy can co||aborato c|oso|y. lt thoy aro to
ongago on onorgy socur|ty, thoy havo to como to tho conc|us|on that
tho|r |ntorosts can bo sorvod and protoctod |n g|oba| markots-that tho
systom |s not r|ggod aga|nst thom and that thoy w||| not bo
d|sadvantagod comparod w|th othor countr|os |n t|mos ot stross. And
thoy wou|d havo to doc|do that part|c|pat|on, o|thor torma||y or
|ntorma||y, w|th tho |ntornat|ona| onorgy socur|ty systom w||| assuro that
tho|r |ntorosts w||| bo bottor sorvod |n tho ovont ot turbu|onco than go|ng
|t a|ono. Ch|na, lnd|a, and luss|a a|| now havo momorandums ot
undorstand|ng w|th tho lEA. G|von tho|r grow|ng sca|o and tho|r
|mportanco, tho|r part|c|pat|on |s ossont|a| tor tho systom to work moro
ottoct|vo|y.
5ECuR|NC 1EE 5uPPLY CEA|N
Enorgy socur|ty noods to bo thought ot not just |n torms ot onorgy
supp|y |tso|t but a|so |n torms ot tho protoct|on ot tho ont|ro cha|n
through wh|ch supp||os movo trom |n|t|a| product|on down to tho t|na|
consumor. lt |s an awosomo task. |or tho |ntrastructuro and supp|y
cha|ns woro bu||t ovor many docados w|thout tho samo omphas|s on
socur|ty as wou|d bo tho caso today. 1ho systom |s vast-o|octr|c
powor p|ants, rot|nor|os, ottshoro p|attorms, torm|na|s, ports, p|po||nos,
h|gh-vo|tago transm|ss|on ||nos, d|str|but|on w|ros, gas storago t|o|ds,
storago tanks, substat|ons, otc. 1ho vu|norab|||t|os ot such oxtons|vo
|ntrastructuro tako many torms, trom outr|ght host||o assau|ts to tho
k|nd ot sma|| ovonts that can tr|ggor a mass|vo b|ackout.
C|OKE lOll13 |Ol WOll0 Oll
7bo socoro possogo o tookors tbroogb oorrow sblpplog cboooo|s ls
croclo| to tbo g|obo| ocooomy.
3ourcos: ElA, lCC-CC3

As tho onorgy trado bocomos moro g|oba| and crossos moro
bordors and grows |n sca|o on both |and and wator, tho socur|ty ot tho
supp|y cha|ns |s moro urgont. Ensur|ng tho|r satoty roqu|ros |ncroasod
co||aborat|on among both producors and consumors. Cr|t|ca| choko
po|nts a|ong tho soa routos croato part|cu|ar vu|norab|||t|os tor tho
transport ot o|| and llG, whothor trom acc|donts, torror|st attacks, or
m|||tary cont||ct.
1ho bost known ot thoso choko po|nts |s tho 3tra|t ot |ormuz, wh|ch
soparatos tho lors|an Gu|t (w|th moro than a quartor ot wor|d o||
product|on) trom tho lnd|an Ocoan. Anothor koy po|nt |s tho Va|acca
3tra|t-tho t|vo-hundrod-m||o-|ong, narrow, and constr|ctod passago
botwoon Va|ays|a and tho lndonos|an |s|and ot 3umatra that tunno|s |n
trom tho lnd|an Ocoan, curvos up around 3|ngaporo, and thon w|dons
out aga|n |nto tho opon wators ot tho 3outh Ch|na 3oa. At |ts most
narrow, |t |s on|y 40 m||os |n w|dth. About 14 m||||on barro|s por day
pass through th|s watorway, as doos two th|rds ot |ntornat|ona||y tradod
llG-and ha|t ot a|| ot wor|d trado. 3omo 80 porcont ot 1apan's and
3outh Koroa's o|| and about 40 porcont ot Ch|na's tota| supp|y travorso
tho stra|t. l|ratos proy upon thoso wators, and thoro havo boon roports
ot torror|st p|ans to so|zo an o|| tankor and wroak havoc w|th |t.
Anothor koy choko po|nt |s tho 3osporus 3tra|t-just 10 m||os |ong,
a ||tt|o ovor two m||os at |ts w|dost, and a ha|t m||o at |ts most narrow,
connoct|ng tho 3|ack 3oa to tho 3oa ot Varmara and on |nto tho
Vod|torranoan. Evory day moro than throo m||||on barro|s por day ot
luss|an and Contra| As|an o|| pass through |t, r|ght down through tho
m|dd|o ot lstanbu|. 1wo othor cr|t|ca| choko po|nts aro both |n tho
V|dd|o East: tho 3ab o|-Vandob 3tra|t, wh|ch prov|dos ontranco at tho
bottom ot tho lod 3oa botwoon Yomon and 3oma||a tor up to throo
m||||on barro|s por day, and tho hundrod-m||o-|ong 3uoz Cana| and
3umod l|po||no, wh|ch togothor connoct tho top ot tho lod 3oa to tho
Vod|torranoan and through wh|ch pass about two m||||on barro|s por
day ot o|| p|us major sh|pmonts ot llG. 1horo |s a|so tho lanama
Cana|, w|th 0.0 m||||on barro|s por day.
18
locont yoars havo rovoa|od a now r|sk-or roa||y tho roturn ot an o|d
ono. Voro opon ocoan wators-tho wor|d's ungovornod goograph|ca|
spacos-havo bocomo not|coab|y moro dangorous. 1ho aroa around
tho |orn ot Atr|ca-tho Gu|t ot Adon, wh|ch |oads to tho 3ab o|-
Vandob 3tra|t, and tho wostorn wators ot tho lnd|an Ocoan, south ot
tho Arab|an lon|nsu|a-has bocomo tho arona tor p|ratos oporat|ng
out ot 3oma||a and no|ghbor|ng countr|os. W|th that has como what
has boon doscr|bod as a rad|ca||zat|on ot mar|t|mo p|racy,' as
cooporat|on |ncroasos botwoon p|ratos and torror|st groups. l|rato
attacks on sh|pp|ng, |nc|ud|ng o|| and llG tankors, soom a|most a
da||y occurronco. Us|ng |argor mothor sh|ps, tho p|ratos oporato as tar
as a thousand naut|ca| m||os trom tho|r basos on shoro. Europoan,
U.3., luss|an, Ch|noso, and lnd|an nava| torcos aro a|| now act|vo |n
thoso wators sook|ng to ropo| and dotor p|rato attacks.
14
3ocauso thoso wators aro tho ma|n routo tor tho tankors carry|ng o||
and llG trom tho lors|an Gu|t to Europo and lorth Amor|ca, and
bocauso ot tho prox|m|ty to tho Gu|t |tso|t, th|s surgo |n p|racy adds a
turthor d|mons|on to tho socur|ty concorns tor tho rog|on that ho|ds wo||
ovor ha|t ot tho wor|d's provod o|| rosorvos. 1ho onorgy socur|ty ot tho
rog|on known as tho Gu|t |s tru|y a g|oba| quost|on.
14
5E|F1|NC 5AND5 |N 1EE PER5|AN CuLF
Evon as tho d|mons|ons ot onorgy socur|ty havo bocomo w|dor, tho
wor|d's concorns a|ways soom to c|rc|o back to o||, and that moans, as
|t has tor so many yoars, back to tho V|dd|o East and tho lors|an Gu|t.
1ho r|sks today contor on torror|sm, tho stab|||ty ot soc|ot|os, and lran's
nuc|oar program and |ts dr|vo to dom|nato tho Gu|t.
1ho Gu|t countr|os produco moro than a quartor ot tota| wor|d o||
output and ho|d a|most 00 porcont ot provod rosorvos, mak|ng tho
rog|on ot contra| |mportanco to tho wor|d o|| markot and tho g|oba|
oconomy. lorth Atr|ca producos anothor b porcont. 3ut ovor tho
docados, out ot tho Gu|t and tho |argor V|dd|o East havo como a
sor|os ot cr|sos that d|sruptod g|oba| o|| supp|y.
1ho t|rst was tho 10b0 3uoz cr|s|s. Egypt's oxpropr|at|on ot tho 3uoz
Cana| tr|ggorod an |nvas|on by 3r|ta|n and |ranco-a|ong w|th lsrao|,
wh|ch was throatonod by Egypt|an m|||tary prossuro. 1ho c|osuro ot tho
3uoz Cana| croatod an o|| shortago |n Europo. lt was ro||ovod by a
surgo |n output trom tho Un|tod 3tatos, wh|ch at that po|nt had surp|us
capac|ty. Ono consoquonco ot tho 3uoz cr|s|s was to spur a
tochno|og|ca| advanco |n tho dovo|opmont ot |argor tankors that cou|d
sa|| around Atr|ca |nstoad ot us|ng tho cana|.
ln 1007 Arab o|| oxportors roactod to lsrao|'s v|ctory |n tho 3|x 0ay
War w|th an o|| ombargo aga|nst tho Un|tod 3tatos, 3r|ta|n, and Wost
Gormany. |owovor, th|s ombargo ta||od, ow|ng to what was at tho t|mo
a |argo surp|us |n tho wor|d potro|oum markot. 3ovon yoars |ator, tho
1078 ombargo rospondod to tho U.3. rosupp|y ot lsrao| to||ow|ng tho
Yom K|ppur surpr|so attack. ln contrast to 1007, tho ombargo was
h|gh|y succosstu|, ow|ng to tho t|ght markot. lt tr|ggorod a tourto|d
|ncroaso |n tho pr|co ot o||. 1ho ombargo, comb|nod w|th tho pr|co
|ncroasos, shook tho structuro ot |ntornat|ona| ro|at|ons and sont shock
wavos through tho g|oba| oconomy, to||owod by sovora| yoars ot poor
oconom|c portormanco. 1ho 1078-70 lran|an lovo|ut|on, wh|ch
topp|od tho shah and ushorod |n tho thoocrat|c ls|am|c lopub||c, a|so
|gn|tod a wor|dw|do pan|c |n tho potro|oum markot and anothor o||
shock that contr|butod m|ght||y to tho d|tt|cu|t oconom|c yoars ot tho
oar|y 1080s.
3addam |usso|n's 1000 |nvas|on ot Kuwa|t sot ott tho Gu|t cr|s|s,
|oad|ng to tho |oss ot t|vo m||||on barro|s a day ot supp|y trom lraq and
Kuwa|t. Othor producors, notab|y 3aud| Arab|a, crankod up output and
|argo|y rop|acod tho m|ss|ng barro|s ovor tho noxt sovora| months, ovon
botoro Oporat|on 0osort 3torm ov|ctod 3addam's torcos trom Kuwa|t.
lt was |n ant|c|pat|on ot that m|||tary oporat|on that tho lntornat|ona|
Enorgy Agoncy organ|zod tho t|rst-ovor coord|natod ro|oaso ot
stratog|c stocks.
|or moro than a docado thoroattor, thoro woro no potro|oum
d|srupt|ons |n tho rog|on. 1hon tho 2008 |nvas|on ot lraq shut down |ts
o|| |ndustry. lroduct|on rosumod, though orrat|ca||y. 1ho roducod
output trom lraq was part ot tho aggrogato d|srupt|on that contr|butod
to tho pr|co sp|ko ot 2008.
A|| th|s transp|rod ovor tho courso ot a ha|t contury |n tho rog|on that
|s tho broadbaskot ot wor|d o|| product|on.
1ho un|quo onorgy pos|t|on ot tho Gu|t |s tho product ot a pocu||ar
goo|og|c h|story that has mado |t tho most pro||t|c hydrocarbon bas|n
on tho p|anot. Ovor hundrods ot m||||ons ot yoars ago, what |s now
much ot tho Arab|an lon|nsu|a and tho lors|an Gu|t bas|n was
submorgod bonoath a vast, sha||ow soa. 1ho rocurront oxpans|on and
shr|nk|ng ot th|s soa croatod oxco||ont cond|t|ons tor tho dopos|t ot
organ|c mator|a| |n succoss|vo |ayors ot sod|mont. 0ur|ng tho t|mos
whon tho soa rocodod, tho |and was not a dosort but a warm and
hum|d jung|o. 1omporaturos much hottor than thoy aro today
oncouragod |ush growth, wh|ch addod to tho organ|c sod|monts.
lrossuro and hoat turnod th|s organ|c mator|a| |nto hydrocarbons-o||
and gas. 1ho sh|tts |n tho oarth's crust and tho c|ash ot tocton|c p|atos,
on a goo|og|ca| t|mo sca|o, croatod hugo structuros tor trapp|ng thoso
hydrocarbon dopos|ts. And |t was |n thoso structuros that |n tho
twont|oth contury tho dr||| b|t tound tho oxtraord|nary accumu|at|ons ot
o|| and gas that dot|no tho modorn lors|an Gu|t.
1EE CEN1ER OF CRAV|1Y OF WORLD O|L"
ln 1048, |n tho m|dd|o ot Wor|d War ll, tho loosovo|t adm|n|strat|on
d|spatchod Evorotto loo 0oGo|yor to tho lors|an Gu|t to assoss tho
potro|oum potont|a| ot tho rog|on. 0oGo|yor was Amor|ca's proom|nont
goo|og|st, ho had mado tho d|scovory |n 1010 that oponod up Vox|co
as a groat o|| producor, and |n tho 1020s ho d|d moro than anyono
o|so to promoto tho |ntroduct|on ot so|sm|c tochno|ogy.
O|| had or|g|na||y boon d|scovorod |n lran |n 1008, thon |n lraq, |n
1027, thon |n 3ahra|n, |n 1082. 3t|||, somo woro skopt|ca| ot what
m|ght bo tound |n 3aud| Arab|a. ln 1020 tho son|or managomont ot
ono potro|oum company doc|dod that 3aud| Arab|a was dovo|d ot a||
prospocts' ot o|| and that b|g rosorvos wou|d most ||ko|y bo tound |n
A|ban|a. ln tho 1080s, attor sovora| yoars ot d|sappo|ntmont and dry
ho|os, ovon tho compan|os oxp|or|ng |n 3aud| Arab|a dobatod
whothor tho vonturo shou|d bo abandonod' and wr|tton ott as a tota|
|oss.' 3ut thon camo tho transtormat|vo d|scovor|os-Ang|o-lors|an
(|ator 3l) and Gu|t O|| h|t potro|oum |n Kuwa|t, at a wo|| ca||od 3urgan
lumbor Ono, |n |obruary 1088. 1ho noxt month, Chovron and 1oxaco
d|d tho samo |n 3aud| Arab|a, w|th 0ammam lumbor 3ovon. A|though
many ot tho wo||s woro cappod and oporat|ons suspondod dur|ng
Wor|d War ll, somo poop|o, |nc|ud|ng 0oGo|yor, suspoctod that thoso
d|scovor|os m|ght rowr|to tho goopo||t|cs ot wor|d o||. lt |s uncorta|n,'
ho wroto h|s w|to as ho ombarkod on tho tr|p, and a ||tt|o b|t
hazardous.' Yot |t soomod protty |mportant,' ho addod, tor somo
Amor|can to mako th|s tr|p and s|zo up tho s|tuat|on.'
1ho survoy cont|rmod 0oGo|yor's conv|ct|on about tho sca|o ot tho
rosourco. 1ho contor ot grav|ty ot wor|d o|| product|on,' ho roportod at
tho ond ot h|s m|ss|on, |s sh|tt|ng trom tho Gu|t-Carr|boan aroa to tho
V|dd|o East-to tho lors|an Gu|t aroa.' Anothor mombor ot
0oGo|yor's toam summod |t up moro s|mp|y: 1ho o|| |n th|s rog|on |s
tho groatost s|ng|o pr|zo |n a|| h|story.'
1
ONE OuAR1ER OF WORLD RE5ERVE5
1ho docados that to||owod provod thoso prod|ct|ons on a mass|vo
sca|o. On tho wostorn s|do ot tho Gu|t, towor|ng ovor a|| tho othor
oxportors, |s 3aud| Arab|a, w|th about a t|tth ot tho wor|d's provon o||
rosorvos. lts output avoragod 8.2 m||||on barro|s por day |n 2010-
a|most 10 porcont ot tota| wor|d product|on. lt has tho capac|ty to
produco to 12.b m||||on barro|s por day. lt a|so has tho groat advantago
ot hav|ng tho |owost product|on costs |n tho wor|d. A|though |n rocont
yoars, 3aud| Arab|a's costs tor oxp|orat|on and product|on havo r|son,
thoy aro st||| wo|| bo|ow thoso ot most othor rog|ons |n tho wor|d.
As a mattor ot ongo|ng po||cy, 3aud| Arab|a ma|nta|ns a cush|on ot
1.b to 2 mbd ot sparo capac|ty that can bo brought qu|ck|y |nto
product|on. 1hat oxtra capac|ty |s moant to bo a stab|||zor-or what
3aud| potro|oum m|n|stor A|| A|-la|m| ca||s an |nsuranco po||cy'-to
countoract untorosoon supp|y d|srupt|ons' |n tho g|oba| o|| markot,
such as wars, str|kos, and natura| d|sastors.' lt |s tho producor's
ana|ogy to a 3tratog|c lotro|oum losorvo.
2
A|most tho country's ont|ro |ndustry |s oporatod by tho stato-ownod
3aud| Aramco, by tar tho wor|d's |argost o|| company. 3aud| Aramco,
wh|ch took ovor oporat|ons trom tho consort|um ot U.3. compan|os
that had dovo|opod tho o|| |ndustry pr|or to nat|ona||zat|on, has
ostab||shod |tso|t at tho torotront |n torms ot |ts tochn|ca| capab|||ty and
|n |ts capac|ty to oxocuto |argo-sca|o, comp|ox projocts.
3aud| Aramco st||| has a substant|a| portto||o ot untappod t|o|ds and
rosorvo|rs, w|th ovor 100 t|o|ds that conta|n noar|y 870 rosorvo|rs. lt
producos trom on|y 10 ot tho t|o|ds, a|bo|t tho |argost and most
product|vo among tho d|scovorod t|o|ds, tho |argost ot wh|ch |s
Ghawar. 1ho dovo|opmont ot throo now moga-projocts-3haybah,
Khura|s, and Van|ta-|s add|ng ovor 2.b m||||on barro|s a day ot
capac|ty, wh|ch just by |tso|t wou|d rank as a major OlEC oxportor.
1ho app||cat|on ot now tochno|og|os cont|nuos to un|ock rosourcos and
opon up now hor|zons. 1ho part ot 3aud| Arab|a that |s hoav||y
oxp|orod |s ro|at|vo|y sma||. 1ho company has comm|ttod c|oso to $100
b||||on tor |nvostmont |n tho o|| soctor tor tho t|vo-yoar por|od, 2011-1b,
|nc|ud|ng now oxp|orat|on |n tho northoast ot tho country and tho lod
3oa, a|mod at |ncroas|ng |ts o|| and gas rosorvos.
1|E GUl|
5lxty porcoot o coovootlooo| ol| rosorvos oro |ocotoo lo tbo Oo|.

1ho othor major Arab producors aro strung out a|ong tho wostorn
shoro ot tho lors|an Gu|t. 3ut Kuwa|t and Abu 0hab|, wh|ch |s tho
|argost mombor ot tho Un|tod Arab Em|ratos, oach produco about 2.8
m||||on barro|s por day, Oatar pumps 0.8 mbd. O|| and gas havo g|von
thoso countr|os tho whorow|tha| to p|ay a major ro|o |n tho wor|d
oconomy wo|| boyond hydrocarbons. 3|gn|t|cant amounts ot tho|r
oxport oarn|ngs go |nto tho|r sovoro|gn woa|th tunds, wh|ch havo
bocomo among tho |argost poo|s ot cap|ta| |n tho wor|d. lossor
amounts ot o|| aro producod by 0uba| and 3ahra|n and, on tho
southorn ond ot tho Arab|an lon|nsu|a, Oman and Yomon. A|gor|a and
l|bya aro tho ma|n producors |n lorth Atr|ca.
1EE E|NCE5" OF 1EE WORLD ECONONY
A| Oaoda has targotod what |t has ca||od tho h|ngos' ot tho wor|d's
oconomy-|ts cr|t|ca| |ntrastructuro. |owovor, whon A| Oaoda t|rst
omorgod |n tho 1000s, onorgy systoms, spoc|t|ca||y, woro not targots.
ln h|s 1000 statomont, 0oc|arat|on ot War Aga|nst tho Amor|cans
Occupy|ng tho land ot tho 1wo |o|y l|acos,' Osama b|n ladon
arguod aga|nst attack|ng o|| |ntrastructuro |n tho V|dd|o East, wh|ch, ho
sa|d, ombod|od groat ls|am|c woa|th' that wou|d bo noodod tor tho
soon-to-bo-ostab||shod ls|am|c stato.' 1ho attacks that d|d tako p|aco
woro a|mod at toro|gn |ntorosts.
1hon a now j|had|st work appoarod |n 2004 that ca||od tor a chango
|n stratogy. 1|t|od 1ho laws ot 1argot|ng lotro|oum-lo|atod lntorosts
and a lov|ow ot tho laws lorta|n|ng to tho Econom|c 1|had,' |t
proc|a|mod tho o|| |ndustry a |og|t|mato targot so |ong as corta|n ru|os'
woro to||owod. long-torm o|| product|on capab|||ty shou|d not bo
damagod. 1hat noodod to bo prosorvod tor tho ls|am|c ca||phato. 3ut |t
advocatod conduct|ng oporat|ons that wou|d dr|vo up tho pr|co ot o||,
thus hurt|ng Wostorn countr|os.
3ovora| months |ator 3|n ladon, ombrac|ng th|s now doctr|no, urgod
attacks on o|| targots as part ot an oconom|c j|had aga|nst tho Un|tod
3tatos. |o c|tod tho war |n Atghan|stan, wh|ch had b|od luss|a tor 10
yoars unt|| |t wont bankrupt and was torcod to w|thdraw trom
Atghan|stan |n dotoat' and ca||od tor tho samo k|nd ot po||cy to mako
tho U3 b|ood protuso|y to tho po|nt ot bankruptcy.' |o |ator doc|arod
that tho Wost sought to dom|nato tho V|dd|o East |n ordor to stoa| o||
and urgod h|s adhoronts to g|vo ovoryth|ng you can to stop tho
groatost thott ot o|| |n h|story.' |o ca||od tor torror attacks that wou|d
dr|vo o|| to $100 a barro| w|th tho a|m ot bankrupt|ng tho Un|tod 3tatos.
ln 200b Ayman a|-Zawah|r|, 3|n ladon's doputy, doc|arod that tho
mujahodoon shou|d tocus tho|r attacks on tho sto|on o|| ot tho
Vus||ms,' |n ordor to savo th|s rosourco' tor tho t|mo whon an A|
Oaoda ca||phato wou|d ru|o tho Arab|an lon|nsu|a.
A ra|d |n 3optombor 200b on a sato houso noar tho |argost 3aud|
o|| t|o|d d|scovorod tho pract|ca| too|s tor th|s now doctr|no: charts and
maps tor tho o|| |ntrastructuro not on|y ot 3aud| Arab|a but ot tho othor
Gu|t Arab o|| producors as wo||. 1ho 3aud|s woro takon aback by how
dota||od tho |ntormat|on was.
8
A CR|1|CAL NODE
On a |r|day |n |obruary 2000, short|y attor attornoon prayors, throo
voh|c|os-a 1oyota land Cru|sor 3Uv and two p|ckup trucks-mado
tho|r way toward a ||tt|o-usod sorv|co gato at tho vast Abqa|q
procoss|ng p|ant, 00 m||os trom 3aud| Arab|a's |argost o|| t|o|d.
Abqa|q |s ono ot tho most cr|t|ca| nodos |n tho g|oba| supp|y systom.
Up to 7 m||||on barro|s ot o||-8 porcont ot tota| wor|d supp|y-pass
through th|s spraw||ng |ndustr|a| tac|||ty ovory day.
Onco at tho gato, tho gunmon jumpod trom tho land Cru|sor and
startod shoot|ng, k||||ng tho guards, wh||o tho two p|ckups rammod
through tho tonco and |nto tho Abqa|q tac|||ty. Ono ot tho p|ckup dr|vors
apparont|y took a wrong turn and ondod up |n tho doad ond ot a
park|ng |ot. ||s ong|no, |oak|ng o||, sta||od. At that po|nt, w|th nowhoro
to go, tho dr|vor dotonatod h|s bomb, comm|tt|ng su|c|do and
dostroy|ng h|s voh|c|o. Voanwh||o, tho socond p|ckup dr|vor, try|ng to
outrun pursu|ng socur|ty guards, was barro||ng down tho road so tast
that, by tho t|mo ho dotonatod h|s bomb, k||||ng h|mso|t, ho had a|roady
dr|von past h|s targot, and tho rosu|t|ng oxp|os|on d|d no damago to
tho tac|||t|os.
3ut tho shootors oscapod |n tho land Cru|sor and racod back to
l|yadh, whoro thoy ho|od up |n a sma|| compound |n tho oastorn part ot
tho c|ty. lo||co kopt thom undor survo|||anco tor a tow days and thon
movod |n. ln tho onsu|ng shoot-out, tho j|had|sts woro k|||od. Ono ot
thom, |t was d|scovorod, was among tho most wantod torror|sts |n
3aud| Arab|a. lns|do tho compound, tho author|t|os tound a trovo ot
torror|st too|s.
1ho Abqa|q tac|||ty |s so b|g and sproad out that ovon |t tho su|c|do
dr|vors had boon moro adopt, tho damago wou|d havo boon |oca||zod.
Voroovor, tho 3aud|s ma|nta|n sovora| |ovo|s ot socur|ty at Abqa|q and
othor sons|t|vo |nsta||at|ons. lovortho|oss, tho attompt domonstratod
tho |ntont ot tho j|had|sts. ln tho attormath ot tho Abqa|q attack, tho
3aud| govornmont movod to turthor onhanco socur|ty, |nc|ud|ng tho
croat|on ot a now 8b,000-man torco spoc|t|ca||y chargod w|th
protoct|ng tho k|ngdom's o|| |ntrastructuro. ln tho yoars s|nco, tho
j|had|sts turthor cod|t|od tho|r doctr|no ot oconom|c wartaro. 1h|s was
most obv|ous |n tho constant attacks on tho o|| |ntrastructuro |n lraq. ln
2008 an Arab|an att|||ato ot A| Oaoda ro|toratod tho ca|| tor attacks on
tho o|| |ntrastructuro. ln 1u|y 2010 a su|c|do bombor |n a sma|| sk|tt,
apparont|y tak|ng ott trom an |so|atod part ot Oman's coast, rammod
|nto a |argo 1apanoso o|| tankor. 1hough ||tt|o damago was dono, |t
was tho t|rst such attack |ns|do tho stra|t |tso|t.
|or tho|r part, tho Arab o||-oxport|ng countr|os a|ong tho Gu|t havo, |n
gonora|, substant|a||y dooponod socur|ty, hardonod targots, and much
honod tho|r |nto|||gonco oporat|ons. 1ho torror|sts havo bogun to tocus
on d|srupt|ng our onorgy |ntrastructuro,' lotro|oum V|n|stor A|| A|-
la|m| sa|d attor tho attompt at Abqa|q. 1ho throat trom torror|sts to
tho wor|d's onorgy |ntrastructuro |s not ||m|tod to any ono country or
rog|on. Wo must a|| bo v|g||ant.'
4
ln Vay 2011, Osama b|n ladon was k|||od by U.3. lavy 3oa|s |n a
v|||a |n lak|stan. |o had ||vod thoro, h|ddon w|th no lntornot connoct|on,
tor sovora| yoars, just 8b m||os trom ls|amabad, lak|stan's cap|ta|. ||s
commun|cat|ons w|th A| Oaoda woro by cour|ors. Among tho mator|a|s
so|zod |n tho ra|d woro p|ans tor attack|ng o|| tankors.
1EE 5OC|AL FOuNDA1|ON5
ln 0ocombor ot 2010, Vohammod 3ouaz|z|, a young tru|t vondor |n tho
1un|s|an town ot 3|d| 3ouz|d, roachod tho broak|ng po|nt. |or yoars,
tho po||co had boon harass|ng h|m and stoa||ng h|s tru|t, a|ong w|th that
ot tho othor vondors |n tho tru|t markot on tho ma|n stroot. Whon ho
tr|od to stop a po||cowoman trom stoa||ng two baskots ot app|os, two
othor po||comon ho|d h|m down wh||o tho po||cowoman s|appod h|m.
|o wont to tho c|ty ha|| to comp|a|n but was to|d to go away. |o d|d
|oavo but roturnod short|y attor and, stand|ng |n tront ot tho mun|c|pa|
bu||d|ng, sot h|mso|t ab|azo. |o d|od a tow wooks |ator |n tho |oca|
hosp|ta|.
b
3ut tootago ot protosts ovor h|s tato and tho way ho had boon
troatod was qu|ck|y postod on |acobook. 1ho govornmont d|d not
know how to b|ock tho tootago. 3ouaz|z|'s so|t-|mmo|at|on sot ott a
b|azo that burnod across tho V|dd|o East, shak|ng tho po||t|ca| ordor
and br|ng|ng down part ot tho goostratog|c structuro ot tho rog|on.
3ouaz|z|'s p||ght was tho match that |gn|tod tho k|nd||ng whoso
accumu|at|on had boon bu||d|ng up tor yoars: A hugo bu|go |n tho
numbor ot young poop|o tor whom oducat|ona| opt|ons woro ||m|tod
and tor whom thoro woro no jobs, no prospocts, no oconom|c
opportun|ty, porvas|vo corrupt|on, |ack ot po||t|ca| part|c|pat|on,
ovorwho|m|ng and |nott|c|ont buroaucrac|os, and |ow qua||ty ot
govornmont sorv|cos, a troodom dot|c|t' and a womon's
ompowormont dot|c|t', arb|trary po||t|ca| powor, socrot po||co, and
pormanont statos ot omorgonc|os', oconom|c stagnat|on and
onormous obstac|os to ontropronour-sh|p and |n|t|at|vo.
0
A|| thoso woro tho tactors that sot |n mot|on what has boon ca||od tho
Arab 3pr|ng' among young poop|o who had a|so roachod tho
broak|ng po|nt. lt qu|ck|y ga|nod momontum. Vass|vo stroot
domonstrat|ons topp|od tho |ong-ru||ng govornmont |n 1un|s|a.
1ho protost movomont sproad to Egypt, whoro, day attor day,
hundrods ot thousands ot poop|o packod |nto 1ahr|r 3quaro |n Ca|ro to
domand tho ros|gnat|on ot lros|dont |osn| Vubarak, who had ru|od
Egypt tor 80 yoars. A|| ot th|s p|ayod out on to|ov|s|on and tho lntornot.
1ho Arab wor|d was transt|xod, tor Egypt p|ays a un|quo ro|o |n tho
rog|on. lt |s a quartor ot tho tota| Arab popu|at|on, and |ts |nt|uonco
roachos throughout tho aroa. As ono 3aud| sa|d, Wo woro a|| taught
by Egypt|ans.' lt had a|so s|gnod a troaty w|th lsrao|, and a k|nd ot co|d
poaco ox|stod botwoon thoso two tormor bo|||goronts. Egypt's s|zo-
and tho sca|o ot |ts armod torcos-mako |t tho toundat|on ot tho
goostratog|c ba|anco ot tho rog|on. ||na||y, on |obruary 11, 2011,
Vubarak gavo up powor. 1ho naturo ot Egypt's tuturo govornmont
wou|d havo groat s|gn|t|canco tor tho ont|ro V|dd|o East.
1ho ovonts |n lorth Atr|ca tr|ggorod protosts and domonstrat|ons
across much ot tho V|dd|o East. 3yr|a was rackod by constant
protosts aga|nst tho Assad govornmont, wh|ch woro mot w|th bu||ots.
1hroo countr|os ot part|cu|ar s|gn|t|canco to tho Gu|t woro lran, 3ahra|n,
and Yomon. lran usod whatovor torco was nocossary to put down
domonstrat|ons. ln 3ahra|n, tho |ongt|mo tonso ro|at|onsh|p botwoon
tho 3unn| o||to and tho major|ty 3h||to popu|at|on mako |t a proxy tor
contont|on botwoon 3aud| Arab|a and lran. lt |s a vory sma|| country |n
torms ot popu|at|on but |t |s on|y a coup|o ot dozon m||os by causoway
trom 3aud| Arab|a and tho wor|d's |argost o|| t|o|d. lt |s a|so tho homo
ot tho U.3. ||tth ||oot, tho m|ss|on ot wh|ch |s to ma|nta|n troodom ot
tho soas |n tho Gu|t. Whon protosts turnod |nto protractod v|o|onco, tho
Gu|t Cooporat|on Counc||, |od by 3aud| Arab|a, sont troops |nto
3ahra|n to ho|p rostoro ordor.
Yomon was part|cu|ar|y vu|norab|o bocauso ot |ts strong tr|ba|
tons|ons and rog|ona| sp||ts, tho 88-yoar ru|o ot tho autocrat|c A||
Abdu||ah 3a|oh, |ts |ow por cap|ta |ncomos, and what |s thought to bo
tho strongost A| Oaoda att|||ato. Add|ng to tho s|gn|t|canco ot what
happons to Yomon |s |ts pos|t|on on tho narrow 3ab o|-Vandab choko
po|nt, tho ontranco |nto tho lod 3oa, and |ts ruggod 1,100-m||o bordor
w|th 3aud| Arab|a. 1ho spoctor ot chaos and v|o|onco |n Yomon |oads
somo 3aud|s to ta|k about tho throat ot hav|ng our Atghan|stan' on |ts
tront|or.
A|togothor, unto|d|ng ovonts throughout tho rog|on had domonstratod
that soc|a| |nstab|||ty had bocomo a cr|t|ca| tactor tor onorgy socur|ty. ln
l|bya protosts turnod qu|ck|y |nto a c|v|| war that d|v|dod tho country
botwoon robo|s |n tho oast and Ghaddatt| torcos |n tho wost. As
Ghaddatt|'s torcos advancod on 3onghaz| and what soomod ||ko|y to
bo a b|oodbath, tho Arab loaguo ca||od tor a no-t|y zono, and U.3. and
Europoan torcos, oporat|ng undor U.l. and lA1O author|zat|on,
|ntorvonod on tho s|do ot tho robo|s.
3y Varch ot 2011, v|rtua||y a|| ot l|bya's o|| product|on was
d|sruptod, romov|ng about 1.b porcont ot supp||os trom tho markot. 3ut
that, comb|nod w|th r|s|ng domand, startod to narrow onco aga|n sparo
capac|ty. As unrost and turmo|| cont|nuod |n tho V|dd|o East, anx|oty
roso about tho potont|a| tor turthor d|srupt|ons to supp|y. O|| pr|cos
surgod onco aga|n both on tho actua| d|srupt|on and on toar ot what
wou|d happon noxt,' tak|ng tho 3ront pr|co at |oast tor a t|mo, toward
$180 a barro|. 1ho r|s|ng o|| pr|cos woro now soon as tho b|ggost r|sk
to g|oba| oconom|c rocovory. And, as |ong as thoro was uncorta|nty
about tho V|dd|o East, o|| pr|cos wou|d rot|oct tho r|sk prom|um. 1hus,
tho soc|a| toundat|ons and tho now uncorta|n goostratog|c ba|anco ot
tho rog|on wou|d provo to bo cruc|a| |n tho tormat|on ot wor|d o|| pr|cos,
wh|ch |n turn wou|d havo much w|dor |mpact.
Yot thoro |s no s|ng|o answor to how tho uncorta|nty w||| bo roso|vod.
1ho d|ttoroncos among tho countr|os |n tho rog|on aro vory groat.
Egypt, ||ko lran, has about 80 m||||on poop|o, and por cap|ta |ncomo |n
Egypt |s about $b,800 a yoar. 3y contrast, many ot tho koy o||
producors havo sma|| popu|at|ons, dopond on a |argo numbor ot
oxpatr|atos to mako tho|r oconom|os work, and aro, |n ottoct, crad|o-
to-gravo wo|taro statos w|th h|gh por cap|ta |ncomos.
What a|| tho countr|os sharo, whatovor tho|r d|ttoroncos, |s an
onormous youth bu|go. About a th|rd ot tho popu|at|on |n tho rog|on |s
botwoon tho agos ot ton and twonty-tour. ||stor|ans havo obsorvod,
go|ng back to tho Europoan rovo|ut|ons ot 1848, tho ||nk botwoon such
bu|gos and turmo|| and uphoava|. ln add|t|on, what thoso countr|os |ack
|s jobs, ospoc|a||y tor trustratod and oducatod young poop|o.
Unomp|oymont may rango as h|gh as 80 porcont, and many ot thoso
who aro not unomp|oyod aro undoromp|oyod. ln add|t|on to
d|sappo|ntod oxpoctat|ons and oconom|c d|tt|cu|t|os, tho mass |ack ot
omp|oymont toods smo|dor|ng rosontmont aga|nst tho govorn|ng
systom tor a|| tho roasons a|roady notod.
7
What mado tho cr|t|ca| d|ttoronco was tho ga|van|z|ng powor ot now
commun|cat|ons tochno|og|os, wh|ch orodod tho contro| ot |ntormat|on
that |s so ossont|a| to author|tar|an rog|mos. 1ho dovo|opmont ot Arab
sato|||to notworks, bog|nn|ng |n tho 1000s, was a|roady br|ng|ng both
v|ows ot tho outs|do wor|d and domost|c nows that was not consorod
by tho m|n|str|os ot |ntormat|on. |or many, thoso notworks bocamo tho
most |mportant sourco tor nows. 3ut thon co|| phonos and tho lntornot
-|n part|cu|ar o-ma||, |acobook, and 1w|ttor-prov|dod a way to
sharo |ntormat|on, mob|||zo tor act|on, and outw|t tho trad|t|ona|
|nstrumonts ot contro|. lack ot po||t|ca| part|c|pat|on was ottsot by
part|c|pat|on through thoso now channo|s, as soc|a| notworks camo to
cha||ongo tho trad|t|ona| prorogat|vos ot nat|ona| sovoro|gnty.
8
lt has boon rocogn|zod tor yoars that croat|ng opportun|ty and jobs |s
a cha||ongo |n much ot tho V|dd|o East, ow|ng both to rap|d popu|at|on
growth and tho naturo ot tho oconom|os. 1h|s nood has now gono trom
chron|c to acuto. 3ut |ndustr|os ||ko o|| and gas and potrochom|ca|s
aro cap|ta| |ntons|vo, that |s, thoy croato good jobs but not a |ot ot jobs.
1h|s |s whoro countr|os taco tho r|sk ot tho rosourco curso and tho
structura| prob|oms ot tho potro-stato. 1hat app||os ovon to tho woa|thy
potro-stato that can prov|do crad|o-to-gravo wo|taro. 1hoso |ndustr|os
aro so b|g and so dom|nant that an ontropronour|a| oconomy gots
squoozod out. 3ubs|d|os can oaso tho tons|ons, but thoy aro not a
subst|tuto tor job croat|on.
1EE N|DDLE EA51 YOu1E BuLCE
Porcootogo o tbo popo|otloo 20 yoors o|o or yooogor lo 2011
3ourco: U.3. Consus 3uroau

3ut jobs, on a |argo sca|o, cannot bo croatod ovorn|ght. 1hat takos
both h|ghor oconom|c growth ratos and t|mo, a|ong w|th oponnoss,
st|mu|at|on ot ontropronoursh|p, roducod rogu|at|on and contro|, and
dampon|ng down ot corrupt|on. Ch|na and tho othor countr|os ot East
As|a havo croatod jobs by |ntons|vo|y |ntograt|ng w|th tho g|oba|
oconomy. 1a|wan and 3outh Koroa woro at tho samo stago ot
dovo|opmont as Egypt |n tho 1000s. low 1a|wan and 3outh Koroa
oxport moro to tho wor|d oconomy |n two days than Egypt doos |n a
yoar. 3ut opon|ng to tho wor|d oconomy br|ngs w|th |t tho torcos and
va|uos ot g|oba||zat|on, wh|ch |n tho V|dd|o East aro soon as
throaton|ng and aro ros|stod, somot|mos t|orco|y, and otton w|th
ro||g|ous oxc|us|ons. 1h|s stagnat|on |oavos tho young-ospoc|a||y
young mon-w|th no jobs and otton no spousos, no homos ot tho|r
own, a||onatod, and nowhoro to go.
0
1ho potont|a| ot po||t|ca|
part|c|pat|on br|ngs tho poss|b|||ty ot mov|ng boyond stagnat|on. 3ut
tho oxpoctat|ons tor oconom|c |mprovomont aro way ahoad ot how tast
oconom|os can actua||y chango and gonorato opportun|ty. 3o tho
hopos and opt|m|sm ot tho Arab Awakon|ng w||| havo to contond w|th
tho d|s|||us|onmont that comos w|th tho uncorta|n paco ot oconom|c
|mprovomont.
|RAO'5 PO1EN1|AL
|or docados, lraq's potont|a| to rank among tho vory top producors
has boon rocogn|zod-a|ong w|th tho tact that |t was produc|ng wo||
bo|ow |ts potont|a|. 3y 2000, s|x yoars attor tho U.3.-|od |nvas|on, and
a attor yoars ot v|o|onco and sabotago, output was a|most back to tho
2001 |ovo| ot 2.b m||||on barro|s por day. 1ho postwar govornmont
roa||zod that |t noodod onormous |nvostmont and tochno|ogy transtor
trom outs|do tho country, and start|ng |n 2000 |t ho|d b|dd|ng rounds tor
a numbor ot t|o|ds. As wou|d havo boon oxpoctod, tho w|nnors
|nc|udod o|| compan|os trom a|| ovor tho wor|d. 3urpr|s|ng|y, howovor,
U.3. compan|os woro notab|y undorrop rosontod. lraq was ask|ng
among tho st|ttost torms ot any o||-oxport|ng country, and a numbor ot
tho U.3. compan|os cou|d not mako tho oconom|cs work.
10
3omo ot tho projoct|ons bru|tod about tor lraq| output aro
oxcood|ng|y opt|m|st|c. 1o mako tho |oap trom 2.b m||||on or 8 m||||on
barro|s por day to 12 m||||on barro|s a day, as ono lraq| m|n|stor had
suggostod, sooms a|most |mposs|b|o. Vuch moro roasonab|o |s that
by 2020 lraq cou|d bo around 0.b m||||on barro|s por day.
Yot ovon that |owor targot tacos cons|dorab|o obstac|os and
uncorta|nt|os: 0ovo|opmont on such a sca|o roqu|ros po||t|ca| stab|||ty
and phys|ca| socur|ty tor tho o|| t|o|ds and p|po||nos and |oad|ng
torm|na|s. 1horo noods to bo a po||t|ca| consonsus about tho nood tor
|ntornat|ona| |nvostmont and tho t|sca| torms so that tho who|o ottort |s
not undono by subsoquont changos |n tho ru|os ot tho gamo. 1hoso
r|sks aro turthor compoundod by tho shoor |og|st|ca| comp|ox|ty ot
do||vor|ng poop|o, sorv|cos, sk|||s, and oqu|pmont-and tho bu||d|ng ot
p|po||nos and oxport tac|||t|os-|n a country that was tochno|og|ca||y
shut ott trom tho g|oba| |ndustry tor docados. 1ho compan|os that aro
|nvost|ng rocogn|zo thoso r|sks. 3ut thoy a|so soo tho potont|a| and
havo conc|udod that |t wou|d bo too r|sky to t|nd thomso|vos
s|dotrackod trom what may bo ono ot tho b|ggost o|| opportun|t|os ot
tho twonty-t|rst contury.
11
Ono turthor obstac|o cou|d wo|| stand |n tho way ot tho stoady
dovo|opmont ot lraq's rosourcos: lran. And that may bo tho most
|mportant ot a||. lran rogards any substant|a| oxpans|on |n lraq| output
as a throat bocauso that cou|d |oad to |owor o|| pr|cos. |rom a
goopo||t|ca| po|nt ot v|ow, lran doos not want lraq to supp|ant |t as tho
socond-|argost producor |n tho Gu|t and |n OlEC. 1ohran mado th|s
c|oar |n 2010 whon lraq doc|dod, basod upon tho b|ds and now
oxp|orat|on, to ra|so |ts ost|matod o|| rosorvos trom 11b b||||on barro|s
to 148 b||||on. lran wa|tod hard|y a wook to |oaptrog back ovor lraq,
||tt|ng |ts own rosorvo ost|matos trom 188 b||||on to 1b0 b||||on
barro|s.
12
1ho |ongor-run quost|on |s to what oxtont 3aghdad w||| como undor
tho |ast|ng sway ot 1ohran. A|though lraq |s at |oast 7b porcont Arab,
and lran |s pr|mar||y lors|an and Azor|, ro||g|on and ro||g|ous author|ty
t|o 3h|a lran togothor w|th tho major|ty 3h|a popu|at|on ot lraq. 3|nco
2008 lran's doop |nvo|vomont |n lraq, and |ts support ot var|ous groups,
has not boon a socrot. Voroovor, goography |s |noscapab|o. As ono
lran|an ott|c|a| to|d a U.3. d|p|omat, Evontua||y, you w||| havo to |oavo
lraq. 3ut wo'ro not go|ng away.'
5EEK|NC EECENONY
|or docados, undor tho ru|o ot tho shah, lran had compotod w|th 3aud|
Arab|a to bo tho dom|nant o|| producor |n tho Gu|t. ln tho 1070s lran
tr|od to do moro-to tako on tho ro|o ot rog|ona| po||coman' ot tho Gu|t
and t||| tho socur|ty vacuum croatod by tho w|thdrawa| ot tho 3r|t|sh
m|||tary umbro||a trom tho rog|on |n 1071. 1ho amb|t|ons woro
suspondod by tho lran|an lovo|ut|on ot 1078-70 and thon by tho o|ght-
yoar lran-lraq War.
lran's o|| product|on had poakod undor tho shah at s|x m||||on barro|s
por day, |t p|ummotod to as |ow as 1.8 m||||on barro|s por day dur|ng
tho lran-lraq War, and |n rocont yoars |t has t|uctuatod around tour
m||||on barro|s por day. 3ut g|von tho country's potro|oum rosorvos, tho
lran|an |ndustry a|so producos wo|| bo|ow |ts potont|a|. lt has boon
hamstrung by a host ot tactors: po||t|ca| batt|os among tho tact|ons
ru||ng tho country, |ack ot |nvostmont, tho tough and pa|ntu| way |n
wh|ch lran nogot|atos w|th |ntornat|ona| compan|os, and, |n moro
rocont yoars, |ntornat|ona| sanct|ons that havo sharp|y roducod |ts
accoss to tochno|ogy and t|nanco. A|| th|s has hamporod tho
dovo|opmont ot tho |ndustry. Voroovor, |t has to |mport about 2b
porcont ot |ts gaso||no to mako up tor a shortago ot rot|n|ng capac|ty at
homo.
Wh||o lran has tho socond |argost convont|ona| natura| gas rosorvos
|n tho wor|d and |s a tound|ng mombor ot tho now|y tormod
Organ|zat|on ot Gas Export|ng Countr|os, |t oxports nog||g|b|o
quant|t|os ot gas, and on|y to |mmod|ato no|ghbors. ln tact, |t actua||y
has to |mport somo gas to mako up tor |ts domost|c shortta||.
1EE CREA1 5A1AN"
ln tho t|rst months ot tho lran|an lovo|ut|on |n 1070, |t was not c|oar
whothor tho now rog|mo wou|d bo rotorm|st or tundamonta||st. 3ut tho
path was c|oar|y sot whon m|||tants stormod tho U.3. Embassy |n
lovombor 1070 and took 00 U.3. d|p|omats hostago, ho|d|ng thom
unt|| 1anuary 1081. 1ho country's now |oador was tho storn c|or|c
Ayoto||ah luho||ah Khomo|n|, who had roturnod to lran attor 1b yoars ot
ox||o. Khomo|n| and h|s to||owors usod tho so|zuro ot tho hostagos-
and tho |mmod|ato c|oavago |t croatod w|th tho Un|tod 3tatos-to
conso||dato powor and o||m|nato ottoct|vo oppos|t|on to tho now
thoocrat|c tundamonta||st rog|mo. At ono po|nt, |n a |ottor to c|orgy,'
Khomo|n| wroto, Whon thoo|ogy moant no |ntortoronco |n po||t|cs,
stup|d|ty bocamo a v|rtuo.' ln tho now lran, u|t|mato po||t|ca| powor |ay
|n tho hands ot mu||ahs and, spoc|t|ca||y, tho 3upromo loador,
Ayato||ah Khomo|n|.
18
Khomo|n|'s hatrod tor tho shah, who had ox||od h|m |n 1008, was
matchod by h|s hatrod tor lsrao|, and tor tho Un|tod 3tatos. Amor|ca as
tho |mp|acab|o onomy-tho Groat 3atan'-bocamo ono ot tho
organ|z|ng pr|nc|p|os ot tho ls|am|c lopub||c and |ndood a backbono
ot |ts |og|t|macy, cr|t|ca| to ho|d|ng togothor tho apparatus ot contro|.
1ho U.3. support tor tho 10b8 coup that topp|od tho nat|ona||st pr|mo
m|n|stor Vohammad Vossadogh and brought back tho shah was a
powortu| h|stor|ca| momory that tho tundamonta||sts cou|d man|pu|ato,
and that story bocamo part ot tho catoch|sm ot lran|an po||t|cs.
ln tho oar|y 1000s, w|th tho war w|th lraq ovor, lran rosumod |ts
rovo|ut|onary campa|gn. lt stoppod up |ts ottorts to subvort othor
rog|mos a|ong tho lors|an Gu|t, tostorod torror|sm, targotod U.3.
|ntorosts, and ombarkod on a m|||tary bu||dup. 1ho hand ot |ts
c|andost|no Oods torcos, tho |ntornat|ona| arm ot tho lovo|ut|onary
Guards, cou|d bo soon |n torror|sm around tho wor|d. 3y 1008 lran had
oarnod tho sobr|quot ot tho most dangorous sponsor ot stato
torror|sm.'
14
NORNAL|ZA1|ON?
Khomo|n| d|od |n 1080. |o was succoodod as 3upromo loador by
ono ot h|s aco|ytos, A|| Khamono|, who had boon pros|dont tor o|ght
yoars and who ombracod tho hard ||no ot h|s prodocossor.
Yot at var|ous momonts, g||mmors ot norma||zat|on appoarod. 1ho
markotor|ontod pros|dont |ashom| latsanjan| thought that a roduct|on
|n tons|ons w|th tho Un|tod 3tatos was |n lran|an |ntorosts and that
commorc|a| ro|at|ons was tho way to bog|n. 1hat soomod to accord
w|th tho C||nton adm|n|strat|on's now po||cy ot us|ng oconom|c
ongagomont to |mprovo ro|at|ons w|th advorsar|os. 1ohran sought to
commun|cato |ts s|gna| through o||. lran do||borato|y awardod tho t|rst
contract to a toro|gn company s|nco tho rovo|ut|on not to a |ronch o||
company, but to an Amor|can ono-Conoco.
Undor U.3. sanct|ons po||cy, no lran|an o|| cou|d bo |mportod |nto tho
Un|tod 3tatos, but |t was |oga| tor an Amor|can o|| company to do
bus|noss |n lran. |or throo yoars Conoco had boon nogot|at|ng w|th
lran tor r|ghts to dovo|op two ottshoro o|| and gas t|o|ds. 1ho two s|dos
t|na||y s|gnod tho doa| on Varch b, 100b, |n tho d|n|ng room ot a
govornmont guosthouso that had tormor|y bo|ongod to a 1apanoso
auto company. ln tact|ona||zod lran|an po||t|cs, a doa| w|th an Amor|can
company was a cons|dorab|o v|ctory tor latsanjan|. 1ho contract cou|d
not havo boon s|gnod w|thout tho approva| ot tho 3upromo loador,
Ayato||ah A|| Khamono|. 3ut that approva| must havo boon vory
ro|uctant|y g|von. |or Khamono| doop|y hatod what ho ca||od tho Groat
Arroganco'-tho Un|tod 3tatos-wh|ch ho doc|arod wantod to |mposo
|ts g|oba| d|ctatorsh|p' on lran. ln h|s wor|dv|ow, as ho onco sa|d, that
onm|ty w|th tho Un|tod 3tatos' was ossont|a| to tho surv|va| ot tho
rog|mo.
1b
1ho |ntorna| strugg|o w|th|n tho lran|an |oadorsh|p may wo|| bo why
Conoco d|d not know, a|most to tho |ast momont, whothor |t wou|d w|n
tho contract. 1ho compot|tor, tho |ronch company 1ota|, was to|d that
lran had choson an Amor|can company to sond a b|g mossago.'
10
Conoco oxocut|vos had br|otod 3tato 0opartmont ott|c|a|s a coup|o
ot dozon t|mos ovor tho courso ot |ts nogot|at|ons w|th lran, but thoso
br|ot|ngs turnod out to bo |nsutt|c|ont. Vombors ot Congross attackod
tho doa| w|th tury. 3ocrotary ot 3tato Warron Chr|stophor, who yoars
oar||or had |od tho arduous nogot|at|ons tor tho ro|oaso ot tho
Amor|can hostagos, now donouncod tho o|| doa| as |ncons|stont w|th
tho conta|nmont po||cy.' |o addod that |n tho V|doast, Whorovor you
|ook you t|nd tho ov|| hand ot lran.' 1ho doa| d|d not ovon surv|vo two
wooks. On Varch 1b, 100b, lros|dont C||nton s|gnod an oxocut|vo
ordor torb|dd|ng any o|| projocts w|th lran. 1ho doa| was soon |n
Wash|ngton not as an opon|ng, an opportun|ty tor oconom|c
ongagomont, but rathor |n tho contoxt ot lran's support tor torror|sm,
oxomp||t|od v|v|d|y |n tho attack on a 1ow|sh contor |n 3uonos A|ros
sovora| months oar||or that had k|||od 8b and woundod hundrods ot
othors. Voroovor, at that t|mo, tho Un|tod 3tatos was try|ng to
porsuado othor countr|os to rostr|ct trado w|th lran.
17
W|th Conoco abrupt|y torcod to w|thdraw, tho doa| wont |nstoad to
1ota|. 3ubsoquont|y, at an OlEC moot|ng |n v|onna, Gho|am loza
Aghazadoh, lran's thon o|| m|n|stor and a latsanjan| man, summonod
two Amor|can journa||sts to h|s su|to |n tho m|dd|o ot tho n|ght.
3poak|ng |n a s|ow, gravo||y tono am|d tho shadowy ||ght, ho ta|kod
about tho now ta||od doa| and askod, What |s |t that l don't undorstand
about Amor|ca? 1o|| mo what l don't undorstand about Amor|ca.' Why
had tho Un|tod 3tatos rojoctod tho opportun|ty to opon a door? 1ho
answor was that, whatovor tho s|gna|, tho door cou|d not bo oponod,
torror|sm mado oconom|c ongagomont |mposs|b|o. 3oon attor, a
1000 torror|st assau|t |n oastorn 3aud| Arab|a, wh|ch was apparont|y
ong|noorod by lran's own |ozbo||ah, k|||od 10 U.3. sorv|comon and
|njurod anothor 872. 1hat soomod to soa| tho door ovon moro t|ght|y
shut.
18
3ut thon |n 1007, unoxpoctod|y, somo poss|b|||ty ot norma||zat|on
omorgod w|th tho ovorwho|m|ng-and tota||y unant|c|patod-o|octora|
v|ctory ot Vohammad Khatam| as pros|dont. A c|or|c, Khatam| was a
rotorm|st who wantod to movo toward what has boon ca||od a propor
const|tut|ona| govornmont.' |o was a|so an acc|donta| pros|dont,
hav|ng prov|ous|y boon d|sm|ssod as m|n|stor ot cu|turo tor bo|ng too
|on|ont toward tho arts and tho t||m |ndustry, and thon ro|ogatod to an
|ns|gn|t|cant pos|t|on as hoad ot tho nat|ona| ||brary. ||s pros|dont|a|
v|ctory soomod to roprosont a rojoct|on ot tho harsh thoocracy by a
|argo major|ty ot tho pub||c. Attor h|s o|oct|on, ho roachod out to tho
Un|tod 3tatos w|th words about a 0|a|oguo ot C|v|||zat|ons.' Attor
somo do|ay, Wash|ngton pos|t|vo|y roc|procatod w|th oncourag|ng
words ot |ts own, |nc|ud|ng a ca|| by lros|dont C||nton tor an ond to tho
ostrangomont ot our two nat|ons.'
10
lt was d|tt|cu|t, howovor, to assoss how to doa| w|th a 1ohran |n
wh|ch powor was d|v|dod botwoon tho pros|dont and tho 3upromo
loador. A coa||t|on ot hard||no c|orgy, lovo|ut|onary Guards, socur|ty
sorv|cos, and jud|c|ary-a|| undor tho contro| ot tho 3upromo loador-
mountod a dotorm|nod campa|gn ot v|o|onco and |nt|m|dat|on to b|ock
Khatam|'s rotorms, noutra||zo h|s pros|doncy, ||m|t h|s t|ox|b|||ty on
toro|gn po||cy, and undorcut h|s chancos tor ach|ov|ng somo dogroo ot
norma||zat|on.
20
1hus |t was a|| tho moro surpr|s|ng whon, |n tho |mmod|ato attormath
ot 0/11, 1ohran stoppod torward to prov|do ||m|tod support tor tho U.3.
campa|gn |n Atghan|stan. 1ho lran|ans saw tho 1a||ban as an
|mmod|ato and dangorous onomy that mob|||zod 3unn| ro||g|ous torvor
aga|nst lran's own 3h|a ro||g|ous zoa|, and |t was an onomy that tho
Un|tod 3tatos was proparod to o||m|nato. lran prov|dod |nto|||gonco
about tho 1a||ban, urgod tho U.3. to movo tastor to attack tho 1a||ban,
cooporatod m|||tar||y |n somo ways, and co||aboratod |n ostab||sh|ng a
prov|s|ona| post-1a||ban govornmont. |or tho t|rst t|mo s|nco tho
rovo|ut|on, lran|an and Amor|can ott|c|a|s mot rogu|ar|y taco-to-taco. ln
tho th|rd wook ot 1anuary 2002, at a contoronco |n 1okyo on Atghan
oconom|c roconstruct|on, lran|ans approachod tho U.3. 1roasury
3ocrotary lau| O'lo||| and 1amos 0obb|ns, tho most son|or U.3.
d|p|omat at tho moot|ng, and suggostod w|dor nogot|at|on ovor othor
|ssuos.'
3ut sovora| days oar||or, tho Korloo A, a tro|ghtor carry|ng t|tty tons
ot lran|an arms to Gaza, had boon |ntorcoptod |n tho Vod|torranoan.
1ho mossago was convoyod that Khatam| and h|s c|rc|o d|d not know
about tho sh|pmont. 3ut tor Wash|ngton, tho Korloo A had a much
b|ggor |mpact than 1ohran's d|p|omat|c probos. 1ho sh|p and |ts cargo
turthor cont|rmod lran's comm|tmont to torror|sm. lt a|so camo at a
cr|t|ca| momont |n tho dot|n|t|on ot po||cy.
A wook attor that oxchango |n 1okyo, lros|dont Goorgo 3ush
do||vorod h|s 3tato ot tho Un|on Addross. lt was tho t|rst s|nco 0/11,
and |t was a ca|| to mob|||zat|on |n a now strugg|o, tho war on torror.
3ush's dot|n|ng phraso was tho ax|s ot ov||,' wh|ch was do||borato|y
moant to ocho tho 1080s' ax|s ot laz| Gormany, tasc|st lta|y, and
1apan. 1h|s now ax|s |nc|udod lraq and lorth Koroa. lran, tho
archonomy ot lraq, was tho th|rd. 1ho phraso ax|s ot ov||,' w|th |ts c|oar
|mp||cat|on ot rog|mo chango,' undorcut thoso |n 1ohran who wantod
somo dotonto w|th tho Un|tod 3tatos and |argo|y squo|chod tho unusua|
U.3.-lran|an co||aborat|on on Atghan|stan-but not qu|to. ln Gonova, at
anothor Atghan donors' moot|ng, a son|or lran|an gonora| trom tho
lovo|ut|onary Guards suggostod to tho Amor|cans that lran cou|d st|||
work w|th tho Un|tod 3tatos, |nc|ud|ng tra|n|ng 20,000 Atghan troops
undor U.3. |oadorsh|p. |o addod that lran was st||| pay|ng tho Atghan
troops your m|||tary |s now us|ng to hunt down tho 1a||ban.'
21
Voroovor, somo d|a|oguo was rosumod dur|ng tho oar|y phaso ot
tho lraq War, whon tho Un|tod 3tatos romovod 3addam |usso|n, lran's
ma|n rog|ona| onomy and tho b|ggost obstac|o to tho oxpans|on ot |ts
|nt|uonco.
RENEWED N|L|1ANCY
Whatovor door to d|a|oguo that m|ght havo ox|stod was t|rm|y c|osod
w|th tho 200b o|oct|on ot Vahmoud Ahmad|nojad as pros|dont. 1ho
tormor mayor ot 1ohran and a c|v|| ong|noor by tra|n|ng, w|th a
doctorato |n tratt|c managomont, ho had boon a lovo|ut|onary Guard
and roma|nod c|oso|y a||gnod w|th tho guards. 1hat ho was dotorm|nod
to roturn to an aggross|vo and m|||tant path was mado c|oar by h|s
cont|nu|ng tus|||ado ot rhotor|c. 1ho 0/11 attacks, ho to|d tho Un|tod
lat|ons, woro probab|y orchostratod' by o|omonts |n tho U.3.
govornmont to rovorso tho doc||n|ng Amor|can oconomy and |ts gr|p
on tho V|dd|o East.' 1ho m|ss|on ot lran was to rop|aco unworthy
ru|ors' and onsuro that tho who|o wor|d ombracos 3h|a ls|am. |o
throatonod that lran wou|d w|po lsrao| ott tho map'-or |n anothor
trans|at|on, bo orasod trom tho pago ot t|mo'-a s|ogan that a|so
adornod m|ss||os dur|ng m|||tary parados.
22
W|th lraq domo||shod as |ts rog|ona| r|va|, lran commun|catod |ts
amb|t|on to dom|nato tho Gu|t. ln 0ocombor 2000, at a moot|ng |n
0uba| ot a rog|ona| group, tho Arab 3tratogy |orum, A|| lar|jan|, tho
somot|mo lran|an nuc|oar nogot|ator and |ator spoakor ot tho
lar||amont, to|d h|s Arab aud|onco that Amor|ca's t|mo |n tho V|dd|o
East was t|n|shod, |t wou|d bo |oav|ng, and that lran wou|d assumo tho
|oadorsh|p ot tho rog|on. 3ut, ho p|odgod, lran wou|d bo gu|dod by tho
pr|nc|p|o ot good no|ghbor||noss.' 1ho stony-tacod Arab aud|onco
was c|oar|y not thr|||od by tho prospoct ot bo|ng undor tho stowardsh|p
ot tho|r lran|an no|ghbor.
28
1EE 51RA|1 OF EORNuZ
|or many yoars, both o||-consum|ng and -oxport|ng countr|os havo
boon concornod about tho socur|ty ot tho 3tra|t ot |ormuz, through
wh|ch sh|ps pass on tho|r way trom tho lors|an Gu|t on to tho h|gh
soas and on to wor|d markots. 1wonty-ono m||os across at |ts most
narrow, tho 3tra|t |s tho numbor ono choko po|nt tor g|oba| o|| supp||os.
About 20 tankors pass through |t da||y, carry|ng upward ot 17.b m||||on
barro|s ot o||. 1h|s |s oqu|va|ont to 20 porcont ot wor|d o|| domand-
and 40 porcont ot a|| tho o|| tradod |n wor|d commorco. On tho northorn
shoro ot tho stra|t |s lran. 1ho southorn shoro bo|ongs to Oman and tho
Un|tod Arab Em|ratos.
24
1ho stra|t |s a|so a targot tor lran|an throats. Enom|os know that wo
aro oas||y ab|o to b|ock tho 3tra|t ot |ormuz tor an un||m|tod por|od,'
ono lovo|ut|onary Guard gonora| has warnod. 3tratog|sts arguo,
howovor, that lran's ab|||ty to d|srupt tho stra|t |s moro ||m|tod than |ts
rhotor|c. 1ho phys|ca| charactor|st|cs and goography ot tho stra|t and
|ts onv|rons wou|d ||m|t tho ottoct|vonoss ot lran's arsona| ot cru|so
m|ss||os, m|nos, submar|nos, and sma||, h|gh-spood, oxp|os|vo-
packod boats. Any attacks wou|d bo mot w|th ovorwho|m|ng m|||tary
torco, |nc|ud|ng trom tho U.3. ||tth ||oot, wh|ch |s hoadquartorod |n
3ahra|n and whoso pr|mary m|ss|on |s to ma|nta|n troodom ot tho soas
|n tho rog|on. Voroovor, an assau|t on tho t|ow ot o|| today wou|d bo an
attack not just on tho Wost, as m|ght havo boon tho caso two docados
oar||or, but a|so on tho East, |nc|ud|ng Ch|na, wh|ch gots about ono
quartor ot |ts o|| trom tho Gu|t. |oro |s ono stratog|c po|nt whoro U.3.
and Ch|noso |ntorosts as consumors co|nc|do. An ottort to d|srupt or
c|oso tho stra|t wou|d bo soon as an assau|t on tho wor|d oconomy and
wou|d ||ko|y st|mu|ato a g|oba| coa||t|on, as happonod |n rosponso to
lraq's |nvas|on ot Kuwa|t |n 1000.
2b
ln add|t|on to a|| th|s, any ottort to stom tho t|ow ot o|| wou|d bo vory
cost|y tor lran |tso|t. lran doponds on tho stra|t to oxport |ts own o||,
wh|ch gonoratos about $80 b||||on |n oarn|ngs and about 00 porcont ot
|ts budgot. Un||ko othor Gu|t countr|os, lran doos not havo tho t|nanc|a|
rosorvos that wou|d onab|o |t to oas||y w|thstand any cossat|on ot
oxport oarn|ngs.
1o bo suro, attacks on sh|pp|ng and ottorts to d|srupt tho t|ow
through tho stra|t wou|d vory ||ko|y pan|c markots and causo pr|cos to
sp|ko, at |oast |n|t|a||y. And thoro aro many o|| assots that cou|d bo
targotod w|th|n tho Gu|t. 3ut any ottort to b|ock tho 3tra|t ot |ormuz
wou|d probab|y ta|| wo|| short ot tho k|nd ot catastropho somot|mos
toarod.
1EE CANE CEANCER
3ut what roa||y throatons to upsot tho ba|anco ot powor |n tho Gu|t-
and thus tho socur|ty ot wor|d o||-|s lran's pursu|t ot nuc|oar woapons.
lran's |n|t|a| nuc|oar program, |aunchod |n tho 10b0s on a m|nor sca|o
by tho shah undor Amor|ca's Atoms tor loaco, was a|mod pr|mar||y at
dovo|op|ng atom|c powor. lt was dr|von moro |ntons|vo|y |n tho 1070s
by tho shah's conv|ct|on that lran's o|| and gas rosourcos wou|d bo
oxhaustod w|th|n throo docados.
20
ln tho m|d-1080s, am|d tho lran-lraq War, tho Khomo|n| rog|mo
mado tho doc|s|on to sook nuc|oar woapons capab|||ty. lt obta|nod
know-how and tochno|ogy trom tho lak|stan| A. O. Khan notwork. ln
2002 a d|ss|dont lran|an group rovoa|od that lran was socrot|y
dovo|op|ng tho capab|||ty to produco onr|chod uran|um. Undor
prossuro trom tho Europoans, lran tomporar||y ha|tod |ts onr|chmont
program |n 2008.
Attor h|s o|oct|on, Ahmad|nojad rostartod onr|chmont. lran's
ropoatod assort|on that |ts nuc|oar program |s tor poacotu| purposos |s
mot w|th tota| d|sbo||ot by |ts Arab no|ghbors. Ahmad|nojad has a|so
acco|oratod tho dovo|opmont ot m|ss||os, somo ot wh|ch cou|d carry
nuc|oar pay|oads. 1ho nuc|oar program ontorod a now phaso |n 2000
w|th tho act|vat|on ot a |argo numbor ot contr|tugos to onr|ch uran|um.
Enr|chmont |s tho procoss by wh|ch tho rat|o ot tho U-28b |sotopo to
tho tar moro common U-288 |s |ncroasod. A 8 porcont to b porcont U-
28b concontrat|on |s roqu|rod to prov|do tho tuo| tor a c|v|||an nuc|oar
roactor. A 20 porcont |ovo| |s noodod tor mod|ca| purposos. An atom|c
bomb noods 00 porcont. lt |s much oas|or, onco hav|ng roachod tho 20
porcont |ovo|, to go trom 20 porcont to 00 porcont than |t |s to go tho
|n|t|a| d|stanco trom 8 porcont to 20. ln 2010 lran announcod that |t had
roachod tho 20 porcont |ovo|. 1h|s was not |ong attor tho d|scovory by
Wostorn |nto|||gonco ot a socrot onr|chmont tac|||ty noar tho ho|y c|ty ot
Oom.
lran c|a|ms that tho onr|chod uran|um |s oxc|us|vo|y tor |ts c|v|||an
nuc|oar program. lts t|rst |argo nuc|oar roactor at 3ushohr wont on||no
|n 2010, w|th moro p|ants supposod to to||ow. lran's nuc|oar powor
program w||| tako many yoars to dovo|op and w||| bo vory cost|y. Yot
lran |s r|ch |n natura| gas, and |t |s to gas that many othor countr|os aro
turn|ng as ono ot tho most dos|rab|o and |ow-cost tuo|s tor o|octr|c
powor. 1h|s m|smatch botwoon lran's r|ch hydrocarbon rosourcos and
|ts p|ans tor atom|c onorgy-and tho hasto to onr|ch uran|um-
ro|ntorcos tho Arab and Wostorn conv|ct|on that |t |s pursu|ng nuc|oar
woapons.
1EE BALANCE OF POWER
An lran w|th nuc|oar woapons wou|d chango tho ba|anco ot powor |n
tho Gu|t. lt wou|d bo |n a pos|t|on, to borrow a phraso that |rank||n
loosovo|t had usod pr|or to Wor|d War ll, to ovorawo' |ts no|ghbors. lt
cou|d assort |tso|t as tho dom|nant rog|ona| powor. lran cou|d d|roct|y
throaton to uso tho woapons |n tho rog|on-or actua||y uso thom-
a|though tho |attor wou|d ||ko|y tr|ggor a mass|vo and dovastat|ng
rosponso. 3ut such woapons wou|d a|so prov|do |t w|th a ||conso to
projoct |ts powor and |nt|uonco w|th what |t m|ght rogard as |mpun|ty
throughout tho rog|on-both d|roct|y and through |ts prox|os. On top ot
a|| ot that, lran, as a hogomon|c nuc|oar powor, wou|d ||ko|y try to moro
d|roct|y assort dom|nanco ovor tho t|ow and pr|co ot o||, d|sp|ac|ng tho
3aud|s. ln short, lran|an possoss|on ot such woapons wou|d, at tho
vory |oast, croato |nsocur|ty tor tho rog|on and tor wor|d o|| supp||os.
Vany govornmonts toar that o|omonts |n tho lran|an govornmont
wou|d, |t thoy havo not a|roady dono so, go |nto tho pro||torat|on
bus|noss and prov|do t|ss||o mator|a| to othor govornmonts, to |ts
prox|os ||ko |ozbo||ah |n lobanon, or to torror|st groups.
Whon a|| |s addod up, tho assossmont ot tho |mpact ot a nat|on's
acqu|r|ng nuc|oar woapons doponds not on|y on tho possoss|on ot tho
woapons thomso|vos but a|so on tho |ntont|ons ot thoso who ho|d thom.
And that |s why tho rhotor|c trom 1ohran wou|d tako on now
s|gn|t|canco woro lran to havo thoso woapons. Ahmad|nojad has sa|d
that tho u|t|mato m|ss|on ot tho ls|am|c lopub||c |s to proparo tho way
tor tho roturn ot tho ||ddon lmam, who d|sappoarod |n tho n|nth contury
but whoso roappoaranco w||| bo nocossar||y procodod by a por|od ot
v|o|ont chaos and t|ory war that w||| cu|m|nato |n tho ond ot t|mos'-
and that th|s momont |s |mm|nont. Whon tho Vahd| roturns,
Ahmad|nojad has addod, ho w||| dostroy tho unjust who aro not
connoctod to tho hoavons'-wh|ch moans tho Un|tod 3tatos, tho rost
ot tho Wost, and lsrao|-and |oad surv|vors to tho most portoct wor|d.'
A|| th|s can on|y |ncroaso tho doop anx|oty about h|s t|ngor bo|ng
anywhoro c|oso to tho nuc|oar button.
Add|ng to tho dangor |s tho |ack ot commun|cat|on w|th 1ohran,
wh|ch cou|d |ncroaso tho ||ko||hood ot an acc|donta|' nuc|oar
controntat|on. Evon dur|ng tho tonsost momonts ot tho Co|d War, tho
Un|tod 3tatos and tho 3ov|ot Un|on had commun|cat|on channo|s,
|nc|ud|ng, attor tho Cuban V|ss||o Cr|s|s |n 1002, tho hot||no' botwoon
tho Wh|to |ouso and tho Krom||n to assuro |mmod|ato contact dur|ng
a cr|s|s. lo such channo|s ox|st w|th lran. lndood, thoro |s vory ||tt|o
undorstand|ng ot how tho rog|mo tunct|ons, who makos doc|s|ons, and
how tho tact|ons compoto tor powor. A|| th|s adds to tho r|sk. 1ho |ack
ot undorstand|ng a|so oxtonds to tho Gu|t Arab statos. 1ho groat worry,
obsorvod a |oador ot ono ot tho Gu|t nat|ons, |s not how much wo
know about lran, but how much wo don't.'
27
1ho a|arm among tho othor Gu|t countr|os, as wo|| as |n lsrao|, about
lran's objoct|vos has boon r|s|ng |n d|roct proport|on to lran's progross
toward nuc|oar woapons capab|||ty. 1hoy toar that lran w||| bocomo
moro and moro aggross|vo |n sook|ng to assort |ts dom|n|on ovor tho
rog|on and |n try|ng to dostab|||zo othor rog|mos. As ono 3aud| put |t,
1hoy want to dom|nato tho rog|on, and thoy oxpross |t strong|y and
c|oar|y.' Vany ot tho Arabs bo||ovo that |ntorm|ttont nogot|at|ons' |s a
standard lran|an tact|c to croato a covor wh||o |t procoods w|th |ts
nuc|oar program-what ono ott|c|a| doscr|bod as tho|r usua| stratogy'
ot |oad|ng you on w|th ta|so prom|sos, dos|gnod to buy moro t|mo.'
3omo Gu|t Arabs aro conv|ncod that lran |s pursu|ng a stratogy ot
onc|rc|omont, trom |ts prosonco |n lraq and subvors|on among tho 3h|a
popu|at|ons |n 3ahra|n and oastorn 3aud| Arab|a and |n Yomon to
promot|ng |nsurgoncy on 3aud| Arab|a's southorn bordor to t|nanc|ng
and supp|y|ng woapons to |ozbo||ah |n lobanon and |amas |n Gaza.
1h|s onc|rc|omont wou|d prossuro tho Arab Gu|t statos and, at tho
samo t|mo, put assots |n pos|t|on that lran cou|d act|vato dur|ng somo
tuturo t|mo ot tons|on or cr|s|s.
|or yoars, tho lsrao||s havo spokon ot a nuc|oar lran as an
ox|stont|a| throat' to tho vory surv|va| ot tho|r nat|on and |ts poop|o.
low somo Arabs a|so doscr|bo lran as an ox|stont|a| throat.' As a
|oador ot ono ot tho om|ratos put |t, h|s country |s on|y 40 soconds
trom lran as moasurod by tho t||ght t|mo ot a ba|||st|c m|ss||o.'
28
|NCEN1|VE5 AND 5ANC1|ON5
1ho Un|tod 3tatos and Europo havo boon try|ng tor sovora| yoars to
t|nd a m|x ot po||c|os sutt|c|ont to porsuado lran to stop short ot tho rod
||no-nuc|oar woapons capab|||ty-and thus avo|d a s|tuat|on whoro
anothor country conc|udos that |t has no cho|co but proompt|vo m|||tary
act|on. 1ho ottors |nc|udo oxpandod trado, momborsh|p |n tho Wor|d
1rado Organ|zat|on, and-rocogn|z|ng tho broad pub||c ombraco |n
lran ot a nuc|oar program-support tor tho dovo|opmont ot poacotu|
atom|c onorgy |n lran undor an accoptab|o |ntornat|ona| rog|mo. At tho
samo t|mo, thoy havo mountod an |ncroas|ng array ot sanct|ons, both
undor tho Un|tod lat|ons and un||atora||y, that rostr|ct |nvostmont,
trado, and tho t|ow ot t|nanco. ln add|t|on to tho|r gonora| |mpact on tho
oconomy, thoso sanct|ons havo put prossuro on lran by rotard|ng tho
modorn|zat|on ot lran's convont|ona| m|||tary torcos and by groat|y
constra|n|ng |ntornat|ona| |nvostmont |n lran's o|| and gas |ndustry and
lran's accoss to |ntornat|ona| t|nanco and cap|ta| markots.
3abotago |s anothor way, short ot m|||tary act|on, ot s|ow|ng lran's
progross toward tho rod ||no. ln 2010 a soph|st|catod 3tuxnot
computor v|rus was |ntroducod |nto tho sottwaro programs runn|ng tho
contr|tugos, caus|ng thom to spood up, portorm orrat|ca||y, and so|t-
dostruck. lsrao|, tho Un|tod 3tatos, or poss|b|y a Europoan country |s
cons|dorod tho most ||ko|y author.
Attor |ntonso nogot|at|on, luss|a and Ch|na havo supportod tho
Un|tod lat|ons sanct|ons but not tho un||atora| sanct|ons. As Wostorn
o|| compan|os wound down and backod out ot lran |n tho taco ot tho
un||atora| sanct|ons, Ch|noso compan|os-not govornod by thoso
sanct|ons-havo s|gnod a var|oty ot |argo o|| and gas doa|s w|th lran
that wou|d, |t |mp|omontod, br|ng much ot tho tochno|ogy and
|nvostmont that tho lran|an |ndustry noods. Yot at tho samo t|mo, Ch|na
doos havo many othor |ntorosts, |nc|ud|ng avo|danco ot a cont||ct |n tho
Gu|t that wou|d d|srupt o|| and gas supp||os com|ng out ot tho rog|on.
Wh||o a numbor ot major contracts havo boon s|gnod, tho Ch|noso
compan|os havo boon mov|ng s|ow|y to act on thom.
An a|tornat|vo to cont||ct |s a po||cy ot conta|nmont, wh|ch wou|d uso
sanct|ons and othor rostr|ct|ons to ho|d lran |n chock unt|| such t|mo as
lran conc|udos that tho advantagos ot roa| nogot|at|ons outwo|gh tho
purportod bonot|t ot nuc|oar woapons-or unt|| tho po||t|ca| s|tuat|on |n
tho country changos. 1hat, attor a||, |s what conta|nmont moant whon
Goorgo Konnan propoundod |t |n 1047, at tho bog|nn|ng ot tho Co|d
War, whon ho out||nod a po||cy ot t|rm conta|nmont' dos|gnod to
contront tho 3ov|ot Un|on w|th |na|torab|o countortorco at ovory po|nt'
and |ncroas|ng tho stra|ns undor wh|ch 3ov|ot po||cy must oporato'-
unt|| a sott|omont was poss|b|o or unt|| tho soods ot |ts own docay'
brought down tho 3ov|ot Un|on.
20
1h|s k|nd ot conta|nmont wou|d a|so |nvo|vo tho oxtons|on ot
guarantoos, nuc|oar sh|o|ds, and oxtondod dotorronco to othor nat|ons
|n tho rog|on. 1ho prospoct ot a nuc|oar lran has a|roady |gn|tod a
convont|ona| arms bu||dup |n tho rog|on. 1ho roa||ty ot a nuc|oar lran
cou|d wo|| provoko a nuc|oar arms raco, wh|ch, by tho vory numbors ot
countr|os |nvo|vod, wou|d |ncroaso tho chancos ot such woapons
actua||y bo|ng usod. 1ho nuc|oar standott |n tho Co|d War, dosp|to tho
gravo r|sks, had a corta|n stab|||ty. lt was ossont|a||y botwoon two
part|os, oach ot whom undorstood tho moan|ng ot dotorronco and tho
socond-str|ko capab|||ty ot tho othor s|do. And no|thor wantod to r|sk
su|c|do. 1ho dotorronco ot tho Co|d War |s not nocossar||y a good
ana|ogy at a|| tor tho h|gh|y unstab|o-and not vory prod|ctab|o-
s|tuat|on that a nuc|oar lran wou|d croato.
80


What thon m|ght roduco tho r|sk and oncourago lran to stop
somowhoro short ot tho rod ||no ? lt cou|d bo a comb|nat|on ot
conta|nmont and oxtorna| prossuro, oconom|c d|tt|cu|t|os w|th|n lran,
and w|dosproad domost|c d|scontont that tomonts a po||t|ca| chango.
1ho potont|a| tor chango was v|v|d|y domonstratod by tho
ovorwho|m|ng v|ctor|os ot tho rotorm|st Khatam| |n 1007 and 2001,
and thon tho mass Groon' protosts attor tho b|ttor|y contostod and
much-d|sputod roo|oct|on ot Ahmad|nojad |n 2000. 3ut |n a|| thoso
|nstancos, tho too|s ot v|o|onco and ropross|on, w|o|dod by tho
ro||g|ous ostab||shmont and tho powortu| lovo|ut|onary Guards and
tho|r a|||os, domonstrato how strong |s tho ros|stanco and tho
dotorm|nat|on to dotond tho systom now |n p|aco. 1h|s |oavos tho
unnorv|ng r|sk that nuc|oar woapons wou|d bo |n tho hands ot thoso
who aro bont on ovorturn|ng tho rog|ona| and |ntornat|ona| ordor and
who bo||ovo |n tho nocoss|ty ot an apoca|ypso to ushor |n a portoct
wor|d.'
1ho wh|rr|ng ot tho contr|tugos may a|so bo tho t|ck|ng ot a c|ock.
1ho t|m|ng as to whon lran wou|d cross a rod ||no |n |ts nuc|oar
program |s uncorta|n, as |s tho rosponso ot thoso who too| most
throatonod by |t. 3omot|mos |t |s sa|d to bo two yoars away. 3ut
conta|nmont and othor moasuros may strotch out tho t|mo by a tow
moro yoars. 3t|||, as ono son|or ott|c|a| trom tho rog|on put |t,
Whatovor tho t|mo tramo, t|mo |s runn|ng out.'
|oro |s ono ot tho proom|nont r|sks tor rog|ona| socur|ty and tho
wor|d's onorgy socur|ty, and ono that |noscapab|y bocomos part ot tho
ca|cu|at|ons tor tho onorgy tuturo.
15
CA5 ON WA1ER
From tho momont thoy |ott 0oha, tho cap|ta| ot Oatar, tho cars took just
a ||tt|o ovor an hour spood|ng on a now tour-|ano h|ghway that crossod
tho dosort w|th t|ght curvos. 1h|s dosort motorcado carr|od mombors
ot tho Oatar| roya| tam||y, son|or ott|c|a|s trom tho govornmont and trom
lasGas and Oatargas, tho country's two gas-oxport|ng compan|os,
a|ong w|th a rango ot othor d|gn|tar|os, |nc|ud|ng bankors and
oxocut|vos trom tho |ntornat|ona| compan|os that aro Oatar's partnors
|n tho groatost concontratod natura| gas dovo|opmont tho wor|d has
ovor soon.
1ho cars s|owod as thoy passod through sovora| gatos whoro
|dont|t|cat|ons woro chockod aga|n and aga|n. A ||tt|o d|stanco ott,
r|s|ng, as though a m|rago |n tho dosort, was a hugo assortmont ot
p|pos and mach|nory, tho noarost part ha|t assomb|od w|th ta|| cranos,
and tho rost arrangod |n noat ||nos, strotch|ng down across tho sand.
3oyond a|| th|s, on tho othor s|do ot tho road, was tho soa.
Out thoro, bo|ow thoso wators ot tho lors|an Gu|t, was tho lorth
||o|d, ono ot tho wor|d's major onorgy assots. 3ut |t onds abrupt|y. |or
somo torty m||os ott th|s p|ac|d coast |s an |mag|nary domarcat|on ||no,
|nv|s|b|o oxcopt on maps, on tho othor s|do ot wh|ch |s lran and,
spoc|t|ca||y, |ts ottshoro 3outh lars ||o|d. ln po||t|ca| torms thoy aro
two soparato t|o|ds. ln goo|og|ca| torms, thoy aro ono and tho samo.
3ut st|||, lorth 0omo by |tso|t const|tutos tho |argost convont|ona|
natura| gas t|o|d |n tho wor|d. 1ho mod|an ||no botwoon tho two
countr|os was nogot|atod botoro tho gas t|o|d was d|scovorod, and
lran has novor boon happy that |t doos not havo a |argor sharo.
Onco out ot tho|r cars, tho group was ushorod |nto a hugo tont, t|||od
w|th cha|rs. Attor ovoryono was soatod, thoro was a st|r. 1ho om|r,
3ho|kh |amad b|n Kha||ta a|-1han|, swopt |n, a b|g, husky man |n a
d|shdasha. |o pausod to shako hands and k|ss poop|o. loxt to h|m
was Abdu||ah b|n |amad a|-Att|yah, doputy pr|mo m|n|stor and at tho
t|mo m|n|stor ot potro|oum. |or many yoars, a|-Att|yah's truo vocat|on
had boon natura| gas, and ho had dr|von th|s dovo|opmont. Evoryono
was thoro to co|obrato an |ndustr|a| toat: tho bu||d|ng ot a mass|vo now
llG tra|n-as tho tac|||t|os tor transtorm|ng natura| gas |nto a ||qu|d at
vory co|d tomporaturos aro ca||od-ahoad ot schodu|o and on budgot.
Anothor notch tor ono ot tho |argost product|on tac|||t|os ot any k|nd
anywhoro |n tho wor|d.


Oatar |s a most|y t|at, sandy, stony pon|nsu|a that juts out trom 3aud|
Arab|a a hundrod m||os |nto tho lors|an Gu|t. 1hrough tho n|notoonth
contury, Oatar had boon undor tho ovor|app|ng ru|os ot tho Ottoman
Emp|ro, tho no|ghbor|ng |s|and ot 3ahra|n, and Groat 3r|ta|n, wh|ch
sought to ma|nta|n |ts |nt|uonco |n tho lors|an Gu|t |n ordor to protoct
tho routos to lnd|a. Oatar |tso|t managod to oko out a ||vo||hood trom
t|sh|ng and poar| d|v|ng. Attor a m|||tary c|ash botwoon 3ahra|n and
Oatar tr|bosmon, a morchant tam||y trom 0oha, tho a|-1han|s, omorgod
as tho ru||ng c|an. W|th tho co||apso ot tho Ottoman Emp|ro at tho ond
ot tho ||rst Wor|d War, Oatar bocamo a 3r|t|sh protoctorato, |t d|d not
ga|n tu|| |ndopondonco unt|| 1071, whon tho 3r|t|sh w|thdrow tho|r
m|||tary prosonco trom oast ot 3uoz.
At that t|mo, Oatar was st||| a poor country. lo |ongor. ln rocont
yoars, |ts oconomy has boon grow|ng at a tur|ous paco-somo yoars
roach|ng doub|o d|g|ts. 1oday Oatar has tho h|ghost por cap|ta gross
domost|c product |n tho wor|d and has bocomo ono ot tho ma|n
commorc|a| hubs ot tho lors|an Gu|t. At tho samo t|mo, th|s sma||
pr|nc|pa||ty ot about 1.b m||||on poop|o (ot wh|ch at |oast throo quartors
|s composod ot toro|gnors w|th tomporary ros|donco status) a|so r|va|s
luss|a to bo tho 3aud| Arab|a ot wor|d natura| gas. |or Oatar has
omorgod as tho contra| p|ayor |n what |s bocom|ng, attor o||, tho
wor|d's socond g|oba| onorgy bus|noss-natura| gas, spoc|t|ca||y
||quot|od natura| gas, or llG. 1h|s cornor ot dosort at tho vory odgo ot
tho Arab|an lon|nsu|a, just two docados ago most|y dunos, was now
wo|| on |ts way to bo|ng ono ot tho stratog|c juncturos |n tho wor|d
oconomy.
lOl|1 |lEl0 Al0 3OU1| lAl3: OA1AlAl0 llAl'3
O||3|OlE GA3 |lEl0
7bo wor|o`s blggost gos lo|o, sboroo wltb lroo, bos ooob|oo Ootor to
bocomo tbo |orgost LNO oxportor.
3ourco: l|3 CElA

Oatar |s a|so a koy o|omont |n tho |argor mosa|c ot tho wor|d natura|
gas markot. lot so many yoars ago, thoro woro throo d|st|nct gas
markots. Ono was As|a, ma|n|y tod by llG. 1ho socond was Europo,
w|th a m|x ot domost|c gas, |ong-d|stanco p|po||no gas, notab|y trom
luss|a, p|us somo llG. And lorth Amor|ca, w|th v|rtua||y a|| gas
do||vorod by p|po||no. Each had |ts own d|st|nct|vo pr|c|ng systom. 3ut
thon tho dovo|opmont ot llG, roprosontod most notab|y by Oatar,
appoarod to bo toar|ng down tho wa||s. 1ho markots |ookod ||ko thoy
woro com|ng togothor and wou|d ovontua||y bo |ntogratod |nto a s|ng|o
g|oba| natura| gas markot |n wh|ch pr|cos woro convorg|ng. 1hat
soomod |rrovors|b|o-unt|| a major |nnovat|on |n tho Un|tod 3tatos
mado |t rovors|b|o.


Attor tho |naugura| coromon|os, tho om|r boardod a m|n|bus to tour tho
now tac|||ty. 1ho bus crossod tho sand and thon turnod |nto tho s|to. lt
was ||ko dr|v|ng |nto a donso torost, but ono that was not damp and
whoso co|ors woro not var|ot|os ot groon but rathor s||vor and stoo|
g||nt|ng undor tho dry dosort sun. |or th|s torost had nono ot tho
vagar|os ot naturo but rathor was an |ntr|cato|y p|annod mazo ot
|ntorconnoctod p|pos and towors and turb|nos and, occas|ona||y, what
|ookod ||ko hugo wh|to 1hormos bott|os. 1hat |mago was appropr|ato
onough s|nco tho ||quotact|on tra|n was |n ottoct a g|ant-s|zod
rotr|gorator, |nto wh|ch was pumpod tho natura| gas trom tho lorth
||o|d, attor |t had boon scrubbod and c|oanod ot |mpur|t|os. 1horo,
through a tac|||ty that strotchod moro than a ha|t m||o, tho gas wou|d
stop by stop bo comprossod and rotr|goratod. lt wou|d como out tho
othor ond as a ||qu|d that cou|d bo pumpod |nto sh|ps and transportod
around tho wor|d. And |t was a vory oxpons|vo torost. Add|ng up a|| tho
tra|ns togothor, somo $00 b||||on ot ong|noor|ng and hardwaro has
boon comprossod |nto th|s sma|| aroa |n a romarkab|y short numbor ot
yoars.
1h|s tra|n-70,000 tons ot concroto, 440 k||omotors ot o|octr|c
cab|o, 18,000 motr|c tons ot p|p|ng-was ono stago |n tho groat
comp|ox at las latan, wh|ch |n |ts ont|roty |s tho s|ng|o |argost nodo |n
tho oxpand|ng g|oba| llG bus|noss that |nvo|vos moro and moro
countr|os. 1ho grow|ng ||st ot llG supp||ors rangos trom Va|ays|a,
lndonos|a, and 3runo| |n As|a, to Austra||a, to luss|a (trom tho |s|and
ot 3akha||n), to Oatar, Oman, Abu 0hab|, and Yomon |n tho V|dd|o
East, to A|gor|a, l|bya, and Egypt |n lorth Atr|ca, and l|gor|a and
Equator|a| Gu|noa |n Wost Atr|ca, to A|aska, to 1r|n|dad and loru |n
tho Wostorn |om|sphoro. Othor countr|os may jo|n |n tho quouo,
|nc|ud|ng lsrao|, attor a major now gas d|scovory ottshoro that cou|d
turn tho Eastorn Vod|torranoan |nto a now tront|or tor gas
dovo|opmont.
1h|s g|oba| oxpans|on ot llG |s a vory b|g bus|noss. lrojocts today
can oas||y run $b b||||on or $10 b||||on-or ovon moro-and tako t|vo to
ton yoars to comp|oto. 1ho Gorgon prospoct |n Austra||a |s budgotod
at $4b b||||on. A|togothor, tho pr|co tag tor llG dovo|opmont
wor|dw|do cou|d add up to as much as ha|t a tr||||on do||ars ovor tho
noxt t|ttoon yoars.
Yot tho vory poss|b|||ty ot th|s hugo g|oba| llG bus|noss dor|vos
trom a s|ng|o phys|ca| phonomonon-that whon natura| gas |s
comprossod and brought down to that tomporaturo ot -200|, |t turns
|nto a ||qu|d, and, as such, takos up on|y 1/000th ot tho spaco |t
occup|os |n |ts gasoous stato. 1hat moans |t can bo pumpod |nto a
spoc|t|ca||y dos|gnod tankor, sh|ppod |ong d|stancos ovor wator, and
thon storod or ro-gas|t|od and tod |nto p|po||nos and sont to
consumors.
3ut vory tow ot tho part|c|pants |n th|s bus|noss today wou|d know
that tho |ndustry owos |ts ox|stonco to somoono whoso tasc|nat|on w|th
llG |ong prodatod tho|rs.
CABO1'a CRYOCEN|C5
1ust attor Wor|d War l, 1homas Cabot, a graduato ot both |arvard and
tho Vassachusotts lnst|tuto ot 1ochno|ogy, had hoadod down to Wost
v|rg|n|a to sort out a natura| gas p|po||no bus|noss ownod by h|s tathor,
Godtroy, who, to 1homas's d|stross, had |ost a|| |ntorost |n |t. loturn|ng
to 3oston, 1homas tound that ho had othor pross|ng tam||y bus|noss to
attond to-koop|ng h|s tathor trom go|ng to ja||. lt turnod out that
Godtroy had had no uso tor tho todora| |ncomo tax, wh|ch Woodrow
W||son had s|gnod |nto |aw |n 1018, and tor tho noxt sovora| yoars
Godtroy had s|mp|y not bothorod to pay |t. lncomo |s on|y a mattor ot
op|n|on,' ho wou|d say to govornmont agonts. ln roturn, tho lntorna|
lovonuo 3orv|co had oxpropr|atod Godtroy's bank accounts.
Wh||o wrost||ng w|th th|s prob|om, 1homas had somo t|mo on h|s
hands, and ho startod wr|t|ng a sc|ont|t|c papor that ro|atod to ono ot
h|s tathor's othor ta||od vonturos. 1h|s concornod cryogon|cs-tho
study ot vory |ow tomporaturos, at wh|ch var|ous gasos turn |nto ||qu|ds.
0ur|ng tho ||rst Wor|d War, Godtroy Cabot had bu||t a p|ant |n Wost
v|rg|n|a to ||quoty natura| gas and patontod a dos|gn. Vy tathor had
droamt ot ||quoty|ng compononts ot natura| gas,' 1homas Cabot |ator
sa|d. As a bus|noss, howovor, |t had provod to bo a tota| bust.
1
Cryogon|cs was basod on tho work ot V|chao| |araday, who |n tho
1820s had usod co|d tomporaturos to turn gasos |nto ||qu|ds. ln tho
1870s tho Gorman sc|ont|st Car| von l|ndo had dono turthor work on
rotr|gorat|on. ||s rosoarch attractod |ntorost trom brow|ng compan|os,
wh|ch, a|ong w|th tho|r customors, doc|dod|y ||kod tho |doa ot co|d
boor. l|ndo was soon supp|y|ng tho browors w|th rotr|gorators. |o |ator
patontod procossos tor ||quoty|ng oxygon, n|trogon, and othor gasos at
vory |ow tomporaturos and mak|ng thom ava||ab|o on a commorc|a|
sca|o. ||s work prov|dod tho bas|s tor pract|ca| app||cat|ons ot
cryogon|cs.
lt was back to h|s tathor's droam ot ||quoty|ng natura| gas that Cabot
turnod, wh||o a|so tond|ng ott tho ll3. Cabot spoc|t|ca||y wantod to
oxp|oro how oxtromo rotr|gorat|on cou|d bo usod dur|ng tho summor
soason, whon domand was |ow, to compross natura| gas |nto a ||qu|d,
onab||ng |t to bo ho|d |n storago and thon roturnod to |ts gasoous stato
|n w|ntor, whon domand was h|gh.
Cabot's tathor, who raro|y domonstratod pos|t|vo rosponsos to
anyth|ng h|s son d|d, showod h|s charactor|st|c |ack ot |ntorost |n h|s
son's papor. 3ook|ng to |ntorost somoono, Cabot passod |t to tho
ch|ot ong|noor ot a natura| gas p|po||no company who was |ntr|guod to
tho groatost poss|b|o oxtont' by tho |doa ot compross|ng natura| gas |n
ordor to storo |t. 3ut |t was not unt|| 1080 that tho t|rst p||ot p|ant was
bu||t.
0ur|ng Wor|d War ll, |n ordor to moot tho onorgy noods ot tactor|os
work|ng two or throo sh|tts a day to supp|y tho war ottort, tho East Oh|o
Gas Company bu||t an llG storago tac|||ty |n C|ovo|and. ln Octobor
1044 ono ot tho tanks ta||od. 3torod llG soopod |nto tho sowor
systom and |gn|tod, k||||ng 120 poop|o and croat|ng a m||o-|ong t|roba||.
3ubsoquont|y, tho causos ot tho acc|dont woro |dont|t|od: poor
vont||at|on, |nsutt|c|ont conta|nmont moasuros, and tho |mpropor uso ot
a part|cu|ar stoo| a||oy that turnod br|tt|o at vory |ow tomporaturos. 1ho
dos|gn and satoty |ossons wou|d bo soarod |nto tho m|nds ot tuturo
dovo|opors.
2
Attor Wor|d War ll, such |ntorost as roma|nod |n llG sh|ttod trom
us|ng rotr|gorat|on to storo gas tor consumors to qu|to a d|ttoront
purposo, |nstoad, us|ng |t as a way to transport gas ovor wator ovor
|ong d|stancos.
K|LLER FOC
ln 0ocombor 10b2 a k|||or tog gr|ppod london, mak|ng |t d|tt|cu|t tor
poop|o ovon to t|nd tho|r homos, |ot a|ono broatho, k||||ng thousands
and mak|ng many moro |||. 1ho tog rosu|tod trom tho |ntoract|on ot
woathor cond|t|ons and coa| smoko. lap|d|y roduc|ng tho burn|ng ot
coa| and rop|ac|ng |t w|th c|oanor tuo|s bocamo a cr|t|ca| pr|or|ty. 1ho
govornmont-ownod 3r|t|sh Gas Counc|| toamod up w|th an Amor|can
company to |mport natura| gas trom lou|s|ana |nto 3r|ta|n |n tho torm
ot llG. 1ho t|rst sh|pmont to 3r|ta|n, aboard tho Votbooo Ploooor,
arr|vod |n 10b7. 1h|s may havo provod tho concopt, but |mport|ng llG
was a vory sma|| bus|noss. Yot domand, st|mu|atod by a promot|ona|
campa|gn tor ||gh 3pood Gas,' was oxcood|ng a|| oxpoctat|ons. lt
th|s now llG bus|noss |n tho UK was go|ng to got anywhoro, |t
noodod a much |argor sourco ot gas.
loya| 0utch 3ho|| bought contro|||ng |ntorost |n tho nascont llG
company and startod dovo|op|ng a |argo natura| gas dopos|t |n A|gor|a
tar out |n tho 3ahara 0osort. ln 1004, two yoars attor A|gor|a ga|nod |ts
|ndopondonco trom |ranco, |ts t|rst sh|pmont ot ||quot|od natura| gas
was |oadod on a tankor |n Arzow tor a month-|ong , 1,000-m||o tr|p to
Canvoy ls|and |n tho |owor 1hamos. A tow months |ator, anothor
sh|pmont |ott tor la |avro |n |ranco.
8
1h|s was tho roa| bog|nn|ng ot tho |ntornat|ona| llG trado. lt
domonstratod what wou|d bocomo tho charactor|st|c pract|co |n tho
bus|noss. lt |s oxpons|vo to turn gas |nto ||qu|d, transport tho ||qu|d, and
thon turn tho ||qu|d back |nto gas. 1hoso |argo costs roqu|ro
prod|ctab|||ty about pr|cos and markots. 1hus tho bus|noss modo| tor
llG projocts has trad|t|ona||y |nvo|vod |ong-torm (otton twonty-yoar)
contracts among a|| tho |ntorostod part|os-countr|os, |ntornat|ona| o||
compan|os, ut|||ty customors, and somot|mos trad|ng housos. 1hoy
sharo ovor|app|ng ownorsh|p ot tankors and ||quotact|on and
rogas|t|cat|on tac|||t|os. 1h|s modo|, qu|to d|st|nct trom tho |ntornat|ona|
o|| bus|noss, wou|d |ast a ha|t contury.
ln tho m|d-1000s, Europo corta|n|y |ookod po|sod to bocomo a
grow|ng llG consumor. 3ut what m|ght havo boon an llG boom was
abrupt|y stym|od-by compot|t|vo gas that was choapor and moro
accoss|b|o. ln 10b0 a hugo gas t|o|d-at tho t|mo tho |argost |n tho
wor|d-had boon d|scovorod undor tho t|at tarm|ands |n Gron|ngon |n
tho northorn part ot tho lothor|ands. 1hon |n 100b natura| gas dopos|ts
woro a|so tound |n tho 3r|t|sh soctor ot tho lorth 3oa. W|th that, 3r|ta|n
mado a who|osa|o sh|tt to natura| gas tor app||ancos and hoat|ng.
3ubsoquont|y, tho 3ov|ot Un|on and thon lorway bogan to do||vor
grow|ng vo|umos ot natura| gas, v|a p|po||no, to Wostorn Europo. llG
now had to compoto |n Europo.
As|a was a d|ttoront story. 1apan, |n tho m|dst ot |ts amaz|ng
postwar oconom|c boom, saw natura| gas as a way to roduco tho
st|t||ng a|r po||ut|on producod by |ts coa|-t|rod o|octr|c-gonorat|on
p|ants. lack|ng any s|gn|t|cant gas or o|| rosourcos ot |ts own, 1apan
turnod to llG. 1ho t|rst llG arr|vod |n 1apan |n 1000. 1ho sourco was
tho Un|tod 3tatos-tho Cook ln|ot |n southorn A|aska, |n a projoct
dovo|opod by lh||||ps lotro|oum. Attor tho 1078 o|| cr|s|s, 1apan was
dotorm|nod to roduco |ts dopondonco on V|dd|o East o|| and d|vors|ty
|ts onorgy supp||os. llG, a|ong w|th nuc|oar powor, was a koy part ot
tho proscr|pt|on. 3y tho ond ot tho 1070s, 1apan was |mport|ng |argo
vo|umos ot llG.
4
As thoy ontorod tho|r oconom|c m|rac|o phasos, both 3outh Koroa
and 1a|wan-two othor hydrocarbon-poor countr|os-a|so bocamo
major llG |mportors. A|| tho projocts to||owod tho or|g|na| modo|,
basod on ovor|app|ng |ong-torm contracts. 3ocauso tho |mportod gas
was rop|ac|ng not on|y coa| but a|so o|| |n o|octr|c gonorat|on, tho llG
pr|co was |ndoxod to o|| pr|cos, moan|ng that tho pr|co ot llG to||owod
o||'s.
1EE FuEL NON-u5E AC1"
1ho natura| gas |ndustry |n tho Un|tod 3tatos was vory d|ttoront. latura|
gas, producod ||ko o||, had bocomo an |mportant onorgy rosourco but
a |argo|y |oca| ono. 0ur|ng Wor|d War ll, whon gaso||no was rat|onod
and tuo| shortagos |n tho t|ght|ng thoators woro a constant throat tor tho
A|||os, lros|dont |rank||n loosovo|t urgont|y wroto to h|s socrotary ot
tho |ntor|or: l w|sh you cou|d got somo ot your poop|o to |ook |nto tho
poss|b|||ty ot us|ng natura| gas. l am to|d that thoro aro a numbor ot
t|o|ds |n tho Wost and 3outhwost whoro pract|ca||y no o|| has boon
d|scovorod but whoro an onormous amount ot natura| gas |s |y|ng |d|o
|n tho ground bocauso |t |s too tar to p|po to |argo commun|t|os.'
b
3ut th|s had to wa|t unt|| attor Wor|d War ll. lt roqu|rod tho
dovo|opmont ot |ong-d|stanco p|po||nos, strotch|ng ha|tway across tho
country, |n an |ndustry tor wh|ch |ong d|stanco' had horototoro moant
1b0 m||os. l|po||nos connoctod tho 3outhwost to tho lorthoast, and
low Vox|co and Wost 1oxas to 3outhorn Ca||torn|a. 1hus natura| gas
bocamo a tru|y cont|nonta| bus|noss, |n wh|ch tho ma|n popu|at|on and
|ndustr|a| contors woro connoctod to gas t|o|ds that woro tar across tho
country. As tho nat|on's oconomy grow and suburbs ro||od out around
major c|t|os, natura| gas consumpt|on |ncroasod at a rap|d paco.
3y tho bog|nn|ng ot tho 1070s, natura| gas prov|dod tu||y 2b porcont
ot Amor|ca's tota| onorgy. lt was producod o|thor jo|nt|y w|th o|| or trom
puro gas wo||s. 3ut thon a natura| gas shortago gr|ppod tho country. ln
tho co|d w|ntor ot 1070-77, parts ot tho V|dwost ran so short that
schoo|s and tactor|os had to shut down. Compan|os woro a|roady
scramb||ng to t|nd now supp||os. llG |ookod to bo a vory good-and
t|mo|y-answor. 3ovora| ut|||t|os, |nc|ud|ng tho Cabot Corporat|on (tho
company 1homas Cabot had croatod |n sort|ng out h|s tathor's taxos)
contractod w|th A|gor|a tor supp||os. 1ho 1oxas-basod p|po||no
company E| laso ordorod onough llG tankors to const|tuto a v|rtua|
t|oat|ng p|po||no. loco|v|ng torm|na|s tor ro-gas|ty|ng tho ||qu|d gas
woro bu||t on tho Gu|t Coast and tho East Coast. 1ho most v|s|b|o,
dos|gnod to ho|p moot low Eng|and's gas dot|c|t, was Cabot's |n
Evorott, Vassachusotts, r|ght across 3oston |arbor trom tho U33
Coostltotloo (O|d lrons|dos'), tho tamod tr|gato |aunchod |n 1707.
Anothor b|g projoct was p|annod tor tho Wost Coast, at lo|nt
Concopt|on, Ca||torn|a's o|bow |nto tho lac|t|c, north ot 3anta
3arbara.
3ut |t turnod out tho natura| gas shortago was not an act ot naturo but
manmado, tho consoquoncos ot |nt|ox|b|o rogu|at|on. 1ho todora|
govornmont, wh|ch rogu|atod natura| gas pr|cos, had sot thom at such
an arb|trar||y |ow |ovo| as to st|t|o supp|y. 1ho obv|ous so|ut|on was to
|ot tho markot dotorm|no pr|cos. 3ut what was stra|ghttorward
oconom|cs was hard|y tho samo whon |t camo to po||t|cs. 1ho s|ng|o
b|ggost domost|c po||t|ca| batt|o dur|ng tho pros|doncy ot 1|mmy Cartor
was ovor natura| gas pr|co dorogu|at|on. l undorstand now what |o||
|s,' Enorgy 3ocrotary 1amos 3ch|os|ngor sa|d |n 1078 am|d tho batt|o
ovor natura| gas pr|c|ng botwoon |ouso and 3onato nogot|ators. |o||
|s ond|oss and otorna| soss|ons ot tho natura| gas contoronco.'
0
||na||y, tho latura| Gas lo||cy Act ot 1078 startod to docontro|
pr|cos. 1ho act was a wondortu| oxamp|o ot what happons whon
oconom|cs and po||t|cs |ntoract |n tho samo tost tubo. lt prov|dod
d|st|nct pr|c|ng schodu|os tor somo 22 d|ttoront catogor|os ot a
commod|ty that, |n mo|ocu|ar torms, was moro or |oss a|| tho samo-
ono carbon atom and tour hydrogon atoms. 3t|||, tho ond po|nt was
protty c|oar: dorogu|at|on.
As part ot tho comprom|so, Congross onactod tho |uo| Uso Act. 3ut
tho |aw m|ght as wo|| havo boon ca||od tho |uo| lon-Uso Act' as |t
bannod tho burn|ng ot natura| gas |n powor p|ants to gonorato
o|octr|c|ty. latura| gas was doomod tho pr|nco ot hydrocarbons' and
was to bo kopt tor h|ghor usos-hoat|ng and coo||ng, cook|ng, and
|ndustr|a| procossos. lt was too va|uab|o' to bo usod to mako
o|octr|c|ty.
1o tho surpr|so ot somo, markots actua||y workod. 0orogu|at|on ot
pr|cos |od to a surgo |n supp||os. Voroovor, as supp||os |ncroasod,
pr|cos d|d not shoot through tho root but sott|od at |owor |ovo|s. lndood,
so much add|t|ona| natura| gas camo onto tho markot that |t croatod an
oxtondod ovorsupp|y that was known as tho gas bubb|o. Attor a t|mo, |t
soomod that th|s was ono bubb|o that wou|d novor burst.
1ho ovorsupp|y ot |ow-cost domost|c gas d|d |n tho prospocts tor
llG, tor llG was s|mp|y too oxpons|vo to compoto. 1ho oxpoctod
boom |n tho U.3. llG bus|noss turnod |nto a bust. lrojocts woro
canco|od, compan|os dotau|tod on contracts tor llG tankors.
Compan|os that had comm|ttod to llG tootorod on bankruptcy. Cabot
Corporat|on was |os|ng $b m||||on on ovory cargo ot llG .
7
Yot by tho 1000s, tho markot was chang|ng aga|n. 1ho toars ot
shortago had |ong s|nco tadod away, and tho proh|b|t|on on us|ng
natura| gas |n o|octr|c gonorat|on was ||ttod. lnstoad ot bo|ng bannod,
natura| gas bocamo tho tuo| ot cho|co tor o|octr|c powor. low
tochno|og|os mado natura| gas turb|nos much moro ott|c|ont and thus
|oworod costs. Gas was soon as a c|oanor, moro onv|ronmonta||y
attract|vo tuo| than coa|, and tho dovo|opmont ot now nuc|oar powor |n
tho Un|tod 3tatos had a|roady como to a stop. ln contrast, powor p|ants
t|rod by gas cou|d bo bu||t moro qu|ck|y and at a much |owor cost than
tho compot|tors'.
3y tho m|d-1000s tho U.3. oconomy was boom|ng, and, as a rosu|t,
o|octr|c|ty domand was grow|ng. 1o moot th|s domand, powor
gonorators woro tronot|ca||y bu||d|ng natura| gas-t|rod powor p|ants.
3ut whoro was tho gas supp|y to como trom? ln rosponso to r|s|ng
pr|cos, dr||||ng d|d |ncroaso, but |n contrast to tho trad|t|ona| pattorn,
now dr||||ng brought torth on|y a pa|try |ncroaso. lt was prov|ng hardor to
stop up gas output trom ox|st|ng bas|ns, wh|ch woro sa|d to bo maturo.
Accoss to now aroas was d|tt|cu|t, ow|ng to |ncroas|ng rogu|atory
do|ays. Voroovor, many prospoct|vo aroas, both onshoro and ottshoro,
woro c|osod ott to dr||||ng a|togothor tor onv|ronmonta| roasons.
ln tho taco ot r|s|ng domand and t|at supp|y, tho markot t|ghtonod.
Consumors saw tho|r b|||s |ncroaso dramat|ca||y. Evon hardor h|t woro
onorgy-|ntons|vo |ndustr|os, ||ko potrochom|ca|s. 1hoy cou|d no |ongor
compoto aga|nst products trom tho V|dd|o East that woro mado trom
tar |oss oxpons|vo gas. Chom|ca| p|ants woro shut down |n tho Un|tod
3tatos. lt supp||os d|d not |ncroaso, and costs d|d not como down,
compan|os wou|d havo to c|oso ovon moro ot tho|r U.3. p|ants and |ay
ott st||| moro workors.
1ho answor onco aga|n soomod to bo llG. lnnovat|on had mado |t
ava||ab|o by attack|ng costs at dramat|ca||y |ncroas|ng sca|o. Cabot,
wh|ch on|y a tow yoars oar||or had boon dosporato|y try|ng to oxtr|cato
|tso|t trom unv|ab|o llG contracts, now startod to |ook tor now llG
supp||os.
Ono poss|b|o sourco was 1r|n|dad, whoro s|gn|t|cant natura| gas
rosorvos had boon d|scovorod ottshoro. 3ut cou|d gas trom 1r|n|dad
bo compot|t|vo|y |andod |n tho Un|tod 3tatos? 1ho convont|ona|
w|sdom was that tho cost ot llG was go|ng to cont|nuo to r|so,'
roca||od Gordon 3hoaror, who workod tor Cabot at tho t|mo. 3ut thon
wo roa||zod that tho cost structuro ot llG d|dn't mako sonso.' Cabot
succoodod |n br|ng|ng down thoso costs substant|a||y by s|mp||ty|ng
dos|gns and promot|ng much moro compot|t|vo b|dd|ng.
8
1r|n|dad domonstratod that llG nood not bo tho h|gh-pr|cod
a|tornat|vo but rathor cou|d compoto w|th convont|ona| p|po||no gas. 3y
1000 th|s choapor llG was start|ng to t|ow |n grow|ng vo|umos |nto
tho torm|na| at Evorott, noar O|d lrons|dos, across tho bay trom 3oston.
1EE CROWN JEWEL5"
3ut thon thoro was Oatar.
1ho lorth ||o|d was d|scovorod by 3ho|| |n 1071 |n tho wators ott
Oatar. At t|rst no ono know how vast |t was, |ndood, |t took docados tor
tho tu|| d|mons|ons to bo rocogn|zod. 1oday |ts rosorvos aro ost|matod
at 000 tr||||on cub|c toot. 1h|s makos tho 3tato ot Oatar tho th|rd-|argost
rosourco ownor ot convont|ona| natura| gas |n tho wor|d. Ahoad ot |t
aro on|y luss|a and lran, whoso 3outh lars ||o|d |s roa||y tho samo
structuro as tho lorth ||o|d.
ln tho 1070s and 1080s, thoro was no obv|ous markot tor tho lorth
||o|d gas, no domand tor |t, and no way to got |t to markot. Evontua||y,
3ho|| ro||nqu|shod tho lorth ||o|d and movod on to tho moro
|mmod|ato|y attract|vo lorthwost 3ho|t projoct |n Austra||a.
ln 1071, tho samo yoar that 3ho|| d|scovorod Oatar's lorth ||o|d,
Vob|| O|| d|scovorod Arun, a hugo ottshoro natura| gas t|o|d |n tho
northorn part ot 3umatra, tho |argost ot tho 17,000 |s|ands that
compr|so tho nat|on ot lndonos|a. As b||||ons ot do||ars t|owod |nto tho
projoct, Arun turnod |nto tho |argost llG dovo|opmont ot tho 1070s
and 1080s. 1ho onshoro ||quotact|on p|ants woro |n tho prov|nco ot
Acoh, and tho supp||os wont to 1apan. 1ho projoct was abso|uto|y
cruc|a| to tho tortunos ot Vob|| and |ts prot|tab|||ty. lt was tho crown
jowo|s, no quost|on,' roca||od ono Vob|| oxocut|vo.
0
3ut a prob|om omorgod-Arun's output appoarod sot to doc||no.
1hus, w|th |ncroas|ng urgoncy, Vob|| soarchod tor anothor supp|y ot
natura| gas, unroachab|o by p|po||no and thus strandod trom markots,
whoro |ts llG sk|||s cou|d bo app||od. lorth ||o|d stood out, 3ho|| was
now gono, and a d|scouragod 3l had just pu||od out ot an llG projoct
thoro that ox|stod on|y on papor. Vob|| proposod a structuro that wou|d
a||ow |t to tako a sharo |n two Oatar| compan|os, Oatargas and
lasGas. 1h|s k|nd ot structuro mado sonso to tho Oatar|s, ospoc|a||y
as lasGas d|d not yot ox|st as a company. 1hoy d|d tho|r doa|.
1ho now partnorsh|p noodod to t|nd customors, but |t was vory hard
go|ng. Wo woron't ab|o to do much,' roca||od ono ot tho Oatar|
markotors.
Evory docado or so, howovor, 1apan sought to add anothor major
sourco ot llG not on|y to moot domand but a|so as part ot |ts
d|vors|t|cat|on stratogy. Chubu E|octr|c, wh|ch sorvos tho torr|tory noxt
to 1okyo and whoso b|ggost customor |s 1oyota, contractod tor tho
t|rst gas trom tho lorth ||o|d. A Koroan ut|||ty, Kogas, s|gnod on noxt.
W|th thoso doa|s, Oatar had gotton |n tho door |n As|a, tho b|ggost
llG markot |n tho wor|d. 3ut Oatar was a |atocomor, and |t ran a roa|
r|sk that |t wou|d bo ro|ogatod to a socondary pos|t|on as a
supp|omonta| supp||or. And Oatar had too much gas tor that. 3ut whoro
o|so cou|d thoy go? ||na||y, attor a coup|o ot yoars ot study and
dobato, a son|or Oatar| sott|od tho mattor: Wo shou|d bo hoad|ng
wost,' ho sa|d. 1hat moant to Europo-and boyond.
10
0ur|ng th|s samo por|od, Oatar was go|ng through po||t|ca| chango
that wou|d ro|ntorco |ts commorc|a| dr|vo. ln 100b Crown lr|nco
|amad b|n Kha||ta a|-1han| sont a mossago to h|s tathor, tho om|r,
3ho|kh Kha||ta b|n |amad, thon vacat|on|ng |n 3w|tzor|and. lt was
actua||y a protty s|mp|o mossago: 0on't bothor com|ng back. 1ho
crown pr|nco had just doposod h|s tathor, who had boon |n powor
s|nco ovorthrow|ng h|s cous|n |n 1072 and was not soon as a vory
compotont ru|or. lovortho|oss, 3ho|kh Kha||ta had |ns|stod on bo|ng |n
chargo ot ovoryth|ng. lndood, |t was sa|d that ho porsona||y s|gnod a||
chocks ovor $b0,000. |o was a|so thought to havo boon b|ood|ng tho
country ot rovonuos, and |ndood, attor tho b|ood|oss coup |n 100b, tho
now om|r, 3ho|kh |amad, suod h|s tathor tor roturn ot tho stato's
monoy. 1hat caso was sott|od out ot court, and tho agod tathor tound a
now ||to tor h|mso|t basod |n london.
11
low |n powor, 3ho|kh |amad |n|t|atod a tar-roach|ng program ot
modorn|zat|on and rotorm, rang|ng trom porm|tt|ng womon cand|datos
|n mun|c|pa| o|oct|ons to tho opon|ng |n Oatar ot tho V|doast branchos
ot low York's Wo||| Corno|| Vod|ca| 3choo|, Goorgotown Un|vors|ty's
3choo| ot |oro|gn 3orv|co, and 1oxas A8V Un|vors|ty. Oatar bocamo
homo to tho torward hoadquartors tor tho U.3. Contra| Command,
wh|ch has rospons|b|||ty tor tho V|dd|o East. lt a|so bocamo homo to,
and |ndood t|nancod, tho A| 1azoora sato|||to nows notwork.
1ho om|r was dotorm|nod to turn h|s sma|| lors|an Gu|t pr|nc|pa||ty
|nto a g|oba| onorgy g|ant, basod on llG, w|th tho rovonuo stroam that
wou|d go w|th |t. Acco|orat|ng llG was tho way to do that. 3ut a hugo
amount ot monoy wou|d havo to bo |nvostod. 1hat moant that llG
costs-cons|dorod abso|uto|y |rroduc|b|o-had to bo roducod. Evon
so, tho cap|ta| costs wou|d bo onormous. 1ho moro l |oarnod about
Oatar,' roca||od luc|o loto, tormor CEO ot Vob||, tho moro l roa||zod
tho sca|o was boyond tho capac|ty ot an |nd|v|dua| company.'
12
1ho morgor ot Vob|| w|th Exxon |n 1000 mado tho groat oxpans|on
much moro doab|o. 1ho comb|nat|on brought cr|t|ca| Vob|| assots-
tho gas rosourco, llG oxport|so, and ro|at|onsh|ps-togothor w|th
Exxon's t|nanc|a| strongth and |ts sk||| |n projoct oxocut|on. 1ho
comb|nod company now had tho s|zo and whorow|tha| to th|nk b|g |n
torms ot sca|o and r|sks. Actua||y, vory b|g. And sca|o was tho way to
br|ng costs down-much b|ggor sh|ps, much b|ggor ||quotact|on tra|ns,
and much b|ggor turb|nos. lrojocts woro managod w|th groat
d|sc|p||no, captur|ng tho |oarn|ng and br|ng|ng down tho costs ot
subsoquont projocts. Ono way to do that was by mak|ng tac|||t|os as
standard as poss|b|o, do|ng tho dos|gn vory carotu||y, and thon st|ck|ng
to |t. As ono ot tho son|or managors put |t, 1ho ru|o was no chango
ordors.'
|ungry at tho t|mo tor work, Koroan sh|pyards tondorod tor much
b|ggor llG carr|ors-two t|mos tho s|zo ot thoso thon at|oat-at a vory
attract|vo pr|co. lasGas accoptod tho b|ds. ||ghor vo|umos moant
|owor costs. low, as thoy put |t, Europo was roachab|o.' 1ho jo|nt
vonturo know that |t cou|d compoto aga|nst p|po||no gas |n Europo,
and ovon boyond Europo. |or w|th sutt|c|ont sca|o (and bo|storod by
tho ||qu|ds w|th tho gas) Oatar cou|d do||vor compot|t|vo|y pr|cod gas
anywhoro |n tho wor|d.
3y 2002 Oatar had omorgod as a potont now compot|tor |n tho
g|oba| gas markot. lt cou|d d|spatch |argo amounts ot llG |nto any
major markot-As|a, Europo, and tho Un|tod 3tatos. 3roak|ng w|th tho
trad|t|ona| bus|noss, |t cou|d a|so do so w|thout nocossar||y bo|ng t|od
to a |ong-torm contract. lt bu||t |ts own roco|v|ng torm|na|, |n Europo.
Oatar was at tho torotront |n croat|ng a now bus|noss modo| |n wh|ch
both buyors and so||ors woro w||||ng to buy or so|| llG w|thout
comp|oto ro||anco on |ong-torm contracts. And tho numbors aro hugo:
3y 2007 Oatar had |oaptroggod ovor lndonos|a and Va|ays|a to
bocomo tho wor|d's numbor ono supp||or ot llG, and th|s sma||
om|rato ot 1.b m||||on poop|o was on |ts way to bo|ng ab|o to prov|do
a|most a th|rd ot tho wor|d's llG supp|y.
lt was not just tho phys|ca| rosourcos and tochn|ca| capab|||t|os that
projoctod Oatar |nto th|s prom|or pos|t|on. lt was a|so tho rosu|t ot what
thoso on tho othor s|do ot tho nogot|at|ng tab|o rocogn|zod to bo
ott|c|ont and dotorm|nod doc|s|on mak|ng. Oatar cou|d bo vory tough,
but |t was a|so |ntont on c|os|ng doa|s and gott|ng th|ngs doc|dod
qu|ck|y, not |n mu|t|p|o yoars. As V|n|stor A|-Att|yah put |t, lt wo do a
doa| ono day, wo don't wa|t, wo s|gn |t tho noxt day.' lo||ab|||ty was
ono ot tho cr|t|ca| p|||ars on wh|ch tho Oatar| |ndustry was bu||t. Onco a
doa| was dono, stab|||ty ot contracts undorp|nnod cont|donco and
tac|||tatod |nvostmont. 1ho |mportanco ot th|s approach was mado
c|oar by compar|son to tho othor s|do ot tho mod|an ||no, ott tho coast
ot Oatar, whoro lran attor torty yoars has yot to bo ab|o to turn 3outh
lars gas |nto oxports.
18
3y tho 2000s, |t soomod that natura| gas, carr|od around tho wor|d
on tankors, was on |ts way to bocom|ng a tru|y g|oba| |ndustry.
||stor|ca||y, duo to tho h|gh cost ot transport|ng gas ovor |ong
d|stancos, natura| gas has boon tradod rog|ona||y. 3y br|ng|ng down
costs so s|gn|t|cant|y, th|s no |ongor app||od.
What th|s moant was v|v|d|y domonstratod |n 1u|y 2007. On 1u|y 10,
2007, a |argo oarthquako h|t contra| 1apan, damag|ng tho
Kash|wazak|-Kar|wa luc|oar lowor 3tat|on-tho wor|d's |argost,
homo to sovon roactors. 1ho ont|ro tac|||ty was shut down, croat|ng an
|mmod|ato shortago ot o|octr|c gonorat|on. 1ho ownor ot tho powor
stat|on, 1okyo E|octr|c lowor Company (1ElCO), bogan buy|ng
hoav||y trom tho short-torm llG markot to tuo| stand-by natura| gas-
t|rod powor p|ants that cou|d mako up tor tho nuc|oar powor shortta||.
llG tankors |ntondod tor o|sowhoro |mmod|ato|y changod courso on
tho h|gh soas and hoadod tor 1apan. A|so |n that samo month, 1u|y
2007, ha|t a wor|d away, outagos ot natura| gas p|po||nos t|ow|ng trom
tho natura| gas t|o|ds |n tho lorth 3oa |ntorruptod supp||os to Europo.
1h|s too tr|ggorod a qu|ck d|vors|on ot llG supp||os trom tho|r
|ntondod routos.
A|most tour yoars |ator |n Varch 2011, a g|ant oarthquako and
tsunam| shook 1apan, knock|ng out powor and sott|ng ott a major
nuc|oar acc|dont at tho |ukush|ma 0a||ch| p|ant. latura| gas supp||os
woro rod|roctod to 1apan on an ovon moro mass|vo sca|o.
What had boon an |nt|ox|b|o rog|ona||y basod llG |ndustry had
turnod |nto a t|ox|b|o |ntornat|ona| bus|noss. latura| gas had bocomo a
g|oba| commod|ty.
14
10
1EE NA1uRAL CA5 REVOLu1|ON
Goorgo l. V|tcho||, a |ouston-basod o|| and gas producor, cou|d soo
tho prob|om com|ng. ||s company was go|ng to run short ot natura|
gas, wh|ch wou|d put |t |n a vory d|tt|cu|t pos|t|on. |or |t was contractod
to do||vor a substant|a| amount ot natura| gas trom 1oxas to tood a
p|po||no sorv|ng Ch|cago. 1ho rosorvos on wh|ch tho contract
dopondod woro go|ng down, and |t was not at a|| c|oar whoro ho cou|d
t|nd moro gas to rop|aco thoso dop|ot|ng rosorvos. 3ut ho d|d havo a
strong hunch, p|quod by a goo|ogy roport that ho had road.
1hat was |n tho oar|y 1080s. 1hroo docados |ator, V|tcho||'s
ro|ont|oss comm|tmont to do somoth|ng about tho prob|om wou|d
transtorm tho lorth Amor|can natura| gas markot and shako
oxpoctat|ons tor tho g|oba| gas markot. lndood, tho stubborn conv|ct|on
ot th|s ono man wou|d chango Amor|ca's onorgy prospocts and torco
roca|cu|at|ons around tho wor|d.
1ho son ot a Grook goat hordor who had somohow ondod up |n
Ga|voston, 1oxas, V|tcho|| had grown up d|rt-poor. |o had workod h|s
way through 1oxas A8V Un|vors|ty wa|t|ng tab|os, so|||ng candy and
stat|onory, and do|ng ta||or|ng tor h|s to||ow studonts. Attor Wor|d War
ll, V|tcho|| had startod |n tho o||-and-gas bus|noss |n |ouston, work|ng
out ot a ono-room ott|co atop a drugstoro. Ovor tho yoars ho had bu||t |t
|nto a vory substant|a| company, V|tcho|| Enorgy and 0ovo|opmont,
that tocusod much moro on natura| gas than o||.
|or V|tcho||, natura| gas was v|rtua||y a causo. |o was such a
bo||ovor that whon ho suspoctod somoono ot spoak|ng too k|nd|y ot
coa|, ho wou|d roach tor tho phono and sot h|m stra|ght |n a tow short
sontoncos. What ho wantod to soo was moro natura| gas uso. And ho
s|mp|y wou|d not accopt tho not|on that supp||os woro constra|nod by
scarc|ty.
3ut whoro was ho go|ng to got moro gas? 1ho goo|og|ca| roport that
ho had road |n 1082 po|ntod to a poss|b|o so|ut|on. |or a vory |ong
t|mo |t had boon rocogn|zod that natura| gas was to bo tound not on|y
|n product|vo rosorvo|rs but a|so trappod |n hard, concroto||ko sha|o
rock. 1h|s sha|o rock sorvod as tho sourco rock, tho k|tchon,' whoro
tho gas was croatod, and a|so as tho cap that sat on top ot rosorvo|rs
that provontod tho gas (and o||) trom |oak|ng away.
1
Gas cou|d corta|n|y bo oxtractod trom sha|o rock. ln tact, |t |s thought
that tho vory t|rst natura| gas wo|| |n tho Un|tod 3tatos, |n |rodon|a,
low York, |n 1821, drow trom a sha|o tormat|on. 1ho prob|om was tho
oconom|cs. lt was |nord|nato|y d|tt|cu|t and thus vory oxpons|vo to
oxtract gas trom sha|o. lt just was not anywhoro noar commorc|a||y
v|ab|o. Yot maybo |t was poss|b|o w|th tho r|ght m|xturo ot tochno|og|ca|
|nnovat|on and pors|stonco.
V|tcho||'s |aboratory' was a |argo rog|on ca||od tho 3arnott 3ha|o,
around 0a||as and |ort Worth, 1oxas, wh|ch spraw|od undor ranchos,
suburbs, and ovon 0a||as-|ort Worth lntornat|ona| A|rport. 0osp|to
V|tcho||'s ottorts, tho 3arnott 3ha|o provod cont|nuous|y untorg|v|ng.
V|tcho|| |ns|stod that h|s ong|noors and goo|og|sts koop p|ugg|ng away
|n tho taco ot ongo|ng d|sappo|ntmont and tho|r own skopt|c|sm.
Goorgo, you'ro wast|ng your monoy,' thoy wou|d say to h|m ovor tho
yoars. 3ut whon thoy ra|sod objoct|ons, ho wou|d rop|y, 1h|s |s what
wo'ro go|ng to do.'
2
|ortunato|y, somoth|ng ot a carrot was ava||ab|o, what was ca||od
3oct|on 20. 1h|s was a prov|s|on |n tho 1080 w|ndta|| prot|ts tax b||| that
prov|dod a todora| tax crod|t tor dr||||ng tor so-ca||od unconvont|ona|
natura| gas. Ovor tho yoars, that |ncont|vo d|d what |t was supposod to
do-|t st|mu|atod act|v|ty that wou|d othorw|so not havo takon p|aco. ln
tho 1000s, tho tax crod|t ma|n|y supportod tho dovo|opmont ot two
othor torms ot unconvont|ona| natura| gas, and gas trom t|ght sands,
tho vory namo ot wh|ch convoys tho cha||ongo.
F|CuRE A WAY"
3ut ovon w|th tho |ncont|vo ot tho 3oct|on 20 tax crod|t, produc|ng
commorc|a|-sca|o sha|o gas-anothor torm ot unconvont|ona| gas-
was prov|ng so much moro d|tt|cu|t. ln add|t|on to V|tcho||, a tow othor
compan|os woro a|so tack||ng tho prob|om, but thoy bocamo
d|scouragod and droppod out. ln 1007 tho on|y ono ot tho major
compan|os work|ng on sha|o gas dovo|opmont ottorts |n tho 3arnott
rog|on shut down |ts ott|co. On|y V|tcho|| Enorgy and a tow othor
sma||or |ndopondonts woro |ott. Goorgo V|tcho|| wou|d just not g|vo up.
lt was c|oar to h|m that 3arnott ho|d a |ot ot gas, and ho wantod us to
t|guro a way to got |t out,' roca||od 0an 3toward, who |od tho
dovo|opmont toam. lt wo cou|dn't, thon ho wou|d h|ro othor poop|o who
cou|d. |o had a way ot gott|ng th|ngs out ot poop|o thoy m|ght not know
thoy cou|d do||vor on.'
1ho |ntroduct|on ot 8-0 so|sm|c much |mprovod tho undorstand|ng ot
tho subsurtaco. 3t|||, V|tcho|| Enorgy had not yot crackod tho 3arnott's
codo. A|| sorts ot oxpor|oncod, oducatod to|ks,' sa|d 3toward,
wantod to ba|| out ot tho 3arnott.'
lndood, by tho |ato 1000s tho aroa was so much ott tho radar scroon
that whon poop|o d|d torocasts ot tuturo natura| gas supp||os, tho
3arnott d|d not ovon show up. V|tcho|| Enorgy's board ot d|roctors was
bocom|ng |ncroas|ng|y skopt|ca|. Attor a||, whon a|most two docados ot
ottort woro addod up, |t was c|oar that tho company had |ost a good
doa| ot monoy on tho 3arnott p|ay. 3ut Goorgo V|tcho|| wou|d not g|vo
up, ho |ns|stod that thoy woro gott|ng c|osor to crack|ng tho 3arnott's
codo.
8
BREAK1EROuCE
|racc|ng-othorw|so known as hydrau||c tractur|ng-|s a tochn|quo
that was t|rst usod at tho ond ot tho 1040s. lt |njocts |argo amounts ot
wator, undor h|gh prossuro, comb|nod w|th sand and sma|| amounts ot
chom|ca|s, |nto tho sha|o tormat|on. 1h|s tragmonts undorground rock,
croat|ng pathways tor othorw|so trappod natura| gas (and o||) to t|nd a
routo and t|ow through to tho wo||.
V|tcho|| Enorgy had boon oxpor|mont|ng w|th d|ttoront
mothodo|og|os tor tracc|ng. 3y tho ond ot 1008, tho company t|na||y
ach|ovod |ts broakthrough: |t succosstu||y adaptod a tracc|ng tochn|quo
-what |s known as l3|, or ||ght sand tracc|ng-to broak up tho sha|o
rock. lt was tho tr|a|-and-orror approach that V|tcho|| Enorgy usod that
u|t|mato|y mado tho d|ttoronco,' sa|d 0an 3toward.
Goorgo V|tcho|| rocogn|zod that dovo|op|ng tho 3arnott was go|ng
to tako a |ot ot cap|ta|. |o had a|so boon at |t as an |ndopondont tor
s|xty yoars and that was a |ong t|mo. |o had othor |ntorosts, ho had
dovo|opod tho Wood|ands, tho twonty-t|vo-thousand-acro now
commun|ty north ot |ouston. |o put V|tcho|| Enorgy up tor sa|o. 1hroo
othor compan|os |ookod at tho company but thoy a|| doc|dod, attor duo
d|||gonco, to pass. lt appoarod to a|| ot thom that wh||o V|tcho||'s
pursu|t ot sha|o gas, tracc|ng |nc|udod, may havo boon an |ntorost|ng
|doa, |t was a commorc|a| t|op.
1ho toam at V|tcho|| wont back to work on tho sha|o, turthor
dovo|op|ng |ts capab|||t|os, doopon|ng |ts undorstand|ng-and
produc|ng a |ot moro natura| gas.
Ono ot tho compan|os that had passod was anothor |ndopondont,
0ovon Enorgy, trom Ok|ahoma C|ty. 3ut |n 2001, |ts CEO, larry
l|cho|s, not|cod a suddon surgo |n gas supp|y trom tho 3arnott 3ha|o
aroa. l cha||ongod our ong|noors as to why th|s was happon|ng,' sa|d
l|cho|s. lt tracc|ng was not work|ng, why was V|tcho||'s output go|ng
up?' 1ho answor was c|oar: V|tcho|| Enorgy had |ndood crackod tho
codo. l|cho|s d|d not wasto any moro t|mo. ln 2002 0ovon acqu|rod
V|tcho|| Enorgy tor $8.b b||||on. At that t|mo,' addod l|cho|s,
abso|uto|y no ono bo||ovod that sha|o dr||||ng workod, othor than
V|tcho|| and us.'
0ovon, tor |ts part, had |ts own strong capab|||t|os |n anothor
tochno|ogy, hor|zonta| dr||||ng, wh|ch had bogun to omorgo |n tho
1080s. Advancos |n contro|s and moasuromont a||owod oporators to
dr||| down to a corta|n dopth, and thon dr||| on at an ang|o or ovon
s|doways. 1h|s wou|d oxposo much moro ot tho rosorvo|r, porm|tt|ng
much groator rocovory ot gas (or o||) trom a rosorvo|r.
0ovon comb|nod tho tracc|ng know-how (and tho toam) |t had
acqu|rod trom V|tcho|| w|th |ts own sk|||s |n hor|zonta| dr||||ng. A|| that
roqu|rod a good doa| ot oxpor|montat|on. 0ovon dr|||od sovon such
wo||s |n 2002. 3y 2008,' sa|d l|cho|s, wo woro bocom|ng vory
cont|dont that th|s dr||||ng tru|y workod.' 0ovon dr|||od anothor t|tty-t|vo
hor|zonta| wo||s |n tho 3arnott that yoar. lt d|d work.
4
3ha|o gas, horototoro commorc|a||y |naccoss|b|o, bogan to t|ow |n
s|gn|t|cant vo|umos. Comb|n|ng tho advancos |n tracc|ng and
hor|zonta| dr||||ng |s what wou|d un|oash what bocamo known as tho
unconvont|ona| gas rovo|ut|on.
Entropronour|a| |ndopondont o|| and gas compan|os jumpod on tho
tochno|ogy and qu|ck|y carr|od |t to othor rog|ons-|n lou|s|ana and |n
Arkansas, and Ok|ahoma, and thon to tho m|ghty Varco||us' sha|o that
spraw|s bonoath wostorn low York and lonnsy|van|a down |nto Wost
v|rg|n|a.
1EE 5EALE CALE"
3omoth|ng was vory strango about tho numbors. As thoy ro||od |n tor
2007 and thon 2008, thoy showod somoth|ng unoxpoctod that d|d not
mako sonso-a suddon surgo |n domost|c product|on ot U.3. natura|
gas. |ow was that poss|b|o ? Whoro was that com|ng trom? 1ho
Un|tod 3tatos was supposod to bo tac|ng a sharp doc||no |n domost|c
product|on-tor wh|ch llG was tho on|y suro answor. 1hon |t startod to
bocomo c|oar: a tochno|og|ca| broakthrough was bog|nn|ng to mako
|ts |mpact to|t. 1ho rost ot tho |ndustry now roa||zod that somoth|ng now
was happon|ng. And that |nc|udod both major o|| and gas compan|os,
wh|ch had horototoro boon moro tocusod on b|g |ntornat|ona| llG
projocts, and wh|ch was thought to bo roqu|rod to ottsot tho apparont
shortta|| |n lorth Amor|can natura| gas.
Ovor tho noxt tow yoars, tho output ot sha|o gas cont|nuod to
|ncroaso. 3omo now startod to ca|| |t tho sha|o ga|o.' As tho supp|y
|ncroasod and sk|||s woro turthor dovo|opod, costs camo down. 3ha|o
gas was prov|ng to bo choapor than convont|ona| natura| gas. ln 2000
sha|o was just 1 porcont ot natura| gas supp|y. 3y 2011 |t was 2b
porcont, and w|th|n two docados |t cou|d roach b0 porcont.
1ho sha|o gas transtormod tho U.3. natura| gas markot. loronn|a|
shortago gavo way to substant|a| surp|us, wh|ch turnod tho prospocts
tor llG |n lorth Amor|ca ups|do down. 1ust a tow yoars oar||or, llG
had soomod dost|nod to t||| an |ncroas|ng sharo ot tho U.3. markot.
lnstoad |t bocamo a marg|na| supp|y rathor than a nocoss|ty. E|octr|c
ut|||t|os, romombor|ng gas shortagos and pr|co sp|kos, had boon
ro|uctant to uso moro natura| gas. 3ut now, w|th tho now abundanco
and |owor pr|cos, |owor-carbon gas soomod ||ko|y to p|ay a much
|argor ro|o |n tho gonorat|on ot o|octr|c powor, cha||ong|ng tho
oconom|cs ot nuc|oar powor and d|sp|ac|ng h|ghor-carbon coa|, tho
ma|nstay ot o|octr|c gonorat|on. As a sourco ot ro|at|vo|y |ow-pr|cod
o|octr|c powor, |t croatod a moro d|tt|cu|t compot|t|vo onv|ronmont tor
now w|nd projocts. 3ha|o gas a|so bogan to havo an |mpact on tho
dobato on both c||mato chango and onorgy socur|ty po||cy. 3y tho
bog|nn|ng ot th|s docado, tho rap|d|ty and shoor sca|o ot tho sha|o
broakthrough-and |ts ottoct on markots-qua||t|od |t as tho most
s|gn|t|cant |nnovat|on |n onorgy so tar s|nco tho start ot tho twonty-t|rst
contury. As a rosu|t ot tho sha|o rovo|ut|on, lorth Amor|ca's natura| gas
baso, now ost|matod at 8,000 tr||||on cub|c toot, cou|d prov|do tor
curront |ovo|s ot consumpt|on tor ovor a hundrod yoars-p|us. locont
|nnovat|ons havo g|von us tho opportun|ty to tap |argor rosorvos-
porhaps a contury's worth-|n tho sha|o undor our toot,' lros|dont
Obama sa|d |n 2011.
b
1ho potont|a| horo |s onormous.
0
At tho samo t|mo, tho rap|d growth |n sha|o gas has stokod
onv|ronmonta| controvorsy and po||cy dobato. ln part, domograph|c
d|ttoroncos havo brought tho controvorsy to tho toro. lowor-dons|ty
statos ||ko 1oxas aro accustomod to onorgy dovo|opmont, and
oncourago |t as a major sourco ot |ncomo tor tho popu|at|on and
rovonuos tor tho stato govornmont. los|donts |n moro popu|atod
oastorn statos, ||ko low York and lonnsy|van|a, aro not accustomod
to dr||||ng |n tho|r rog|on (a|though lonnsy|van|a |s corta|n|y |ong
oxpor|oncod w|th coa| m|n|ng and was tho b|rthp|aco ot tho o|| |ndustry.
Wh||o somo wo|como tho jobs, roya|t|os, and tax rovonuos, othors aro
takon aback by tho surtaco d|srupt|on and tho suddon |ncroaso |n
|argo truck tratt|c on what had boon qu|ot country roads.
3ut, moro than tratt|c, tho onv|ronmonta| dobato |s contorod on
wator. Cr|t|cs warn that tracc|ng may damago dr|nk|ng wator aqu|tors.
1ho |ndustry arguos that th|s |s h|gh|y un||ko|y, as tho tracc|ng takos
p|aco a m||o or moro bo|ow dr|nk|ng wator aqu|tors and |s soparatod
trom thom by th|ck |ayors ot |mpormoab|o rock. Voroovor, tho |ndustry
has a groat doa| ot oxpor|onco w|th tracc|ng: moro than a m||||on wo||s
havo boon traccod |n tho Un|tod 3tatos s|nco tho t|rst trac job s|x
docados ago. |racc|ng usos sma|| amounts ot chom|ca|s, tho gonora|
trond now |s to d|sc|oso thoso chom|ca|s.
A|though most ot tho d|scuss|on |s about tracc|ng, tho b|ggost |ssuo
has bocomo not what goos down, but what comos back-tho wator
that t|ows back to tho surtaco. 1h|s |s tho t|ow back' trom tho tracc|ng
job, and thon tho producod wator' that comos out ot tho wo|| ovor t|mo.
1h|s wator noods to bo hand|od propor|y, managod, and sato|y
d|sposod.
1hroo th|ngs can bo dono w|th tho t|ow back and producod wator. lt
can bo |njoctod |nto doop d|sposa| wo||s, |t can bo put through
troatmont tac|||t|os, or |t can bo rocyc|od back |nto oporat|ons. ln
trad|t|ona| o|| and gas statos, tho wastowator has otton boon
ro|njoctod. 3ut tho goo|ogy ot lonnsy|van|a doos not, tor tho most part,
|ond |tso|t to ro|njoct|on. And so wator that cannot bo rocyc|od has had
o|thor to bo put through |oca| troatmont tac|||t|os or truckod out ot stato.
Abovoground managomont ot wasto has to koop paco w|th tho
rap|d dovo|opmont ot tho sha|o |ndustry. low |argo-sca|o wator
troatmont tac|||t|os aro bo|ng dovo|opod. 1ho |ndustry |s now rocyc||ng
70 to 80 porcont ot tho t|ow back. 1horo |s a|so |ntons|vo tocus on
|nnovat|on. 1hoso |nc|udo dovo|op|ng now mothods to roduco tho
amount ot wator go|ng |n and to troat tho wator com|ng out, and tho
dr||||ng ot moro wo||s trom a s|ng|o pad' to roduco tho tootpr|nt.
A moro rocont concorn |s m|grat|on'-whothor mothano |oaks
toward tho surtaco and |nto somo wator wo||s as a rosu|t ot tracc|ng.
1h|s |s a controvors|a| subjoct. Vothano has boon tound |n wator wo||s
|n gas-produc|ng rog|ons but thoro |s no agroomont on how th|s can
happon. 3omo casos ot mothano contam|nat|on |n wator wo||s havo
boon t|od to sha||ow |ayors ot mothano, not tho m||o-doop dopos|ts ot
sha|o gas whoro tracc|ng takos p|aco. ln othor casos, wator wo||s may
havo boon dug through |ayors ot natura||y occurr|ng mothano w|thout
bo|ng adoquato|y soa|od. lt |s d|tt|cu|t to know tor corta|n bocauso ot a
|ack ot baso||no' data-that |s, moasuromonts ot a wator wo||'s
mothano contont botoro a sha|o gas wo|| |s dr|||od |n tho no|ghborhood.
Gas dovo|opors aro now rout|no|y tak|ng such moasuromonts botoro
dr||||ng bog|ns |n ordor to ostab||sh whothor mothano |s proox|st|ng |n
wator aqu|tors. A now quost|on concorns whothor thoro aro s|gn|t|cant
tug|t|vo om|ss|ons' or whothor thoso om|ss|ons aro capturod.
Ono othor subjoct ot controvorsy |s rogu|at|on |tso|t. 3omo arguo that
dr||||ng |s an unrogu|atod act|v|ty. ln tact, tho ont|ro dr||||ng procoss-
|nc|ud|ng tho wator aspocts-|s hoav||y rogu|atod by a m|xturo ot stato
and todora| agonc|os. 1ho statos aro tho pr|mary rogu|ators ot dr||||ng,
|nc|ud|ng hydrau||c tractur|ng as wo|| as a|| othor act|v|t|os |nhoront |n
tho product|on ot o|| and gas. Wh||o tho todora| govornmont has
u|t|mato author|ty ovor wator troatmont and d|sposa|, |t has do|ogatod
|ts author|ty to many statos whoso own rogu|at|ons moot or oxcood
todora| standards. 1ho noxt tow yoars w||| soo much argumont about
whothor tho todora| govornmont shou|d havo moro rospons|b|||ty. 1horo
w||| a|so bo much moro rosoarch on tho wator |ssuos, and cont|nu|ng
tocus on advanc|ng tho tochno|ogy, both tor dr||||ng and tor
onv|ronmonta| protoct|on |n aroas whoro sha|o gas |s producod.
7
1ho sha|o ga|o had not on|y takon a|most tho ont|ro natura| |ndustry
by surpr|so, |t a|so sont poop|o back to tho goo|og|ca| maps. vory
|argo potont|a| supp||os ot sha|o gas havo boon |dont|t|od |n tho
trad|t|ona| onorgy aroas ot Canada, |n A|borta and 3r|t|sh Co|umb|a,
as wo|| as |n oastorn Canada, |n Ouoboc. Ch|noso o|| compan|os,
rocogn|z|ng s|gn|t|cant potont|a| tor sha|o gas as wo|| as coa|-bod
mothano, havo s|gnod agroomonts w|th Wostorn compan|os to
dovo|op both. A|togothor tho baso ot rocovorab|o sha|o gas outs|do
lorth Amor|ca cou|d bo |argor than a|| g|oba| convont|ona| natura| gas
d|scovorod to dato. 3ut on|y a port|on |s ||ko|y to bo dovo|opod. Evon
so, tho noxt sovora| yoars aro suro|y to soo a substant|a| add|t|on to tho
wor|d's supp|y ot natura| gas.
8
CLOBAL CA5
Wh||o sha|o gas |s, thus tar, a lorth Amor|can phonomonon |n torms ot
|argo-sca|o product|on, |t |s a|roady chang|ng tho dynam|cs ot tho
g|oba| gas bus|noss. |or |ts omorgonco as a now supp|y sourco
co|nc|dod w|th a rap|d bu||dup ot llG. ln 2010 Oatar co|obratod
roach|ng 77 m||||on tons ot llG capac|ty-28 porcont ot tho wor|d
tota|. Austra||a |s omorg|ng as a now llG poworhouso, numbor two
on|y to Oatar and wo|| pos|t|onod to supp|y As|a-and to cont|nuo to
oxpand. A|togothor, botwoon 2004 and 2012, tho wor|d's llG
capac|ty w||| doub|o. 1hat moans that what was accomp||shod |n tho
t|rst torty yoars ot llG dovo|opmont |s bo|ng rop||catod |n just o|ght
yoars. 3ut assumpt|ons that ho|pod undorp|n and dr|vo th|s rap|d
bu||dup aro now somowhat unh|ngod. 1ho Un|tod 3tatos was
supposod to bo a major guarantood markot bocauso ot a projoctod
domost|c shortta||. 3ut |nstoad |t |s a marg|na| markot.
0
1h|s puts much moro llG at soa, ||tora||y, |n soarch ot markots.
Grow|ng As|a w||| absorb a s|gn|t|cant amount, moro than most had
ant|c|patod a tow yoars ago. 3ut tar trom a||. 1hus, tho |mmod|ato
|mpact |s on Europo, wh|ch |s now tho wor|d's numbor ono contostab|o
markot. |roo|y ava||ab|o llG, so|d on a spot bas|s, can tako somo
markot sharo away trom p|po||no gas, whoso pr|co |s, accord|ng to
twonty-yoar contracts, |ndoxod to moro-oxpons|vo o||.
1h|s not on|y croatos groator compot|t|on among gas supp||ors,
push|ng down pr|co. lt a|so has w|do goopo||t|ca| |mpact, tor |t upsots a
tour-docadoo|d oconom|c and po||t|ca| ba|anco that has provod so
durab|o that |t ovon surv|vod tho uphoava| that was sot |n mot|on by tho
co||apso ot tho 3ov|ot Un|on and tho ta|| ot commun|sm. 1ho now gas
compot|t|on |s contra| to tho comp|ox and ovo|v|ng ro|at|onsh|p among
a much-oxpandod Europoan Un|on, tho luss|an |odorat|on, and tho
othor now|y |ndopondont statos ot tho tormor 3ov|ot Un|on, somo ot
whom aro now mombors ot tho Europoan Un|on.
1ho dovo|opmont ot tho gas markot |n Europo |s ombod|od |n tho
wob ot p|po||nos that cr|sscross tho Europoan Cont|nont. look at tho
p|po||no map trom tho 1000s, and a|| ono soos aro a tow strands ot
str|ng. 1oday such a map |ooks ||ko a b|g bow| ot spaghott|. loca| gas
markots had oar||or dovo|opod |n d|ttoront parts ot Europo. 3ut tho roa|
Europoan gas markot on|y bogan w|th tho dovo|opmont ot tho
Gron|ngon t|o|d |n |o||and |n tho 1000s, to||owod by tho ottshoro o||
and gas t|o|ds |n tho 3r|t|sh soctor ot tho lorth 3oa.
ln tho 1070s, a now p|po||no brought tho t|rst 3ov|ot gas |nto Europo
|n tho 1070s. lt camo w|th a strong goopo||t|ca| tono. Wost Gorman
Chanco||or W|||y 3randt s|gnod tho t|rst 3ov|ot gas doa| |n 1070 as a
koy o|omont |n h|s Ostpo||t|k, a|mod at roduc|ng Co|d War tons|ons,
norma||z|ng ro|at|ons w|th tho 3ov|ot Un|on and Eastorn Europo, and
croat|ng somo common |ntorost botwoon East and Wost.
Econom|cs,' as 3randt put |t, was an ospoc|a||y |mportant part ot our
po||cy.' |o spoc|t|ca||y, |t |nd|roct|y, wantod to roostab||sh contact w|th
commun|st East Gormany, wh|ch had boon cut ott comp|oto|y by tho
construct|on ot tho 3or||n Wa|| |n 1001. 1ho dopondonco t|owod |n both
d|roct|ons, th|s gas trado, tor tho 3ov|ots, bocamo a major-and
cruc|a|-sourco ot hard curroncy oarn|ngs.
10
Ovor tho yoars that to||owod, tho gas bus|noss wou|d bo bu||t up and
managod by a handtu| ot Wostorn Europoan transport and d|str|but|on
compan|os jo|nod togothor by 2b-yoar contracts w|th tho gas oxport
arm ot tho 3ov|ot V|n|stry ot Gas lndustry.
WOuNDED BY A FR|END"
3y tho oar|y 1080s, major d|scovor|os |n Wost 3|bor|a had propo||od
tho 3ov|ot Un|on ahoad ot tho Un|tod 3tatos as tho wor|d's |argost gas
producor. lnov|tab|y, thoso b|g now supp||os prov|dod turthor |mpotus
to so|| moro gas |nto Wostorn Europo.
1ho 3ov|ots and tho Europoans bogan to p|an tor a |argo, now,
8,700-m||o p|po||no trom tho groat Urongoy t|o|d |n Wost 3|bor|a. 3ut
botoro |t was ovor bu||t, tho proposod p|po||no croatod a b|ttor rupturo
|n tho Wostorn a|||anco, prot|gur|ng tho controvors|os ovor tho
goopo||t|cs ot Europoan natura| gas that cont|nuo to tho prosont.
1ho loagan adm|n|strat|on bocamo a|armod at tho prospoct ot a
much |argor East-Wost gas trado. lt had |aunchod a major arms
bu||dup to countor 3ov|ot m|||tary oxpans|on, tho |ast th|ng tho
adm|n|strat|on wantod was add|t|ona| hard curroncy oarn|ngs trom
natura| gas t|nanc|ng tho 3ov|ot m|||tary|ndustr|a| comp|ox. lt a|so
toarod that groator ro||anco on 3ov|ot gas wou|d croato vu|norab|o
dopondonco that tho 3ov|ots cou|d oxp|o|t to pry apart tho Wostorn
a|||anco and that-|n a t|mo ot cr|s|s-wou|d g|vo tho 3ov|ots cruc|a|
|ovorago. 1ho Amor|can adm|n|strat|on warnod that tho 3ov|ot Un|on
cou|d uso dopondonco on |ts natura| gas to b|ackma||' tho Europoans
by throaton|ng to turn ott tho hoat and stovos |n Vun|ch.
11
1ho loagan adm|n|strat|on struck back at tho proposod now
p|po||no. lt |mposod a un||atora| ombargo that proh|b|tod compan|os
trom oxport|ng tho b||||ons ot do||ars ot oqu|pmont that was ossont|a| to
tho construct|on and tho oporat|ons ot tho p|po||no. lt app||od not on|y
to U.3. compan|os, but to Europoan compan|os whoso oqu|pmont was
basod on U.3. tochno|ogy.
1ho Europoans, howovor, woro as dotorm|nod as tho 3ov|ots to go
ahoad. 1hoy wantod both tho d|vors|t|cat|on away trom tho V|dd|o East
and tho onv|ronmonta| bonot|ts trom roducod coa| uso. 1hoy a|so
wantod tho rovonuos and tho jobs, as wo|| as tho opportun|ty to oxpand
tho|r oxport markots |n tho 3ov|ot b|oc. Evon loagan's c|osost a||y,
3r|t|sh lr|mo V|n|stor Vargarot 1hatchor, |ook|ng at tho |oss ot jobs |n
an aroa ot 3cot|and w|th 20 porcont unomp|oymont, pushod back.
G|von hor ro|at|onsh|p w|th loagan, sho took tho ombargo vory
porsona||y. Wo too| part|cu|ar|y woundod by a tr|ond,' sho sa|d. 1ho
3r|t|sh govornmont ordorod tho 3r|t|sh compan|os that had contracts
w|th tho 3ov|ots to |gnoro tho ombargo and to go ahoad and sh|p tho|r
goods. Voroovor, |t bocamo apparont that tho 3ov|ots cou|d rop||cato
somo ot tho supposod|y propr|otary tochno|ogy, a|bo|t at h|ghor cost.
1hus tho ombargo wou|d on|y do|ay, not provont, tho now p|po||no trom
go|ng ahoad.
12
3y tho ond ot 1082, a so|ut|on wou|d bo tound. 1ho Wostorn a|||os
wou|d vory sor|ous|y study' tho prob|om |n ordor to dotorm|no what
wou|d bo a prudont' |ovo| ot dopondonco on tho 3ov|ot Un|on. Attor
much d|scuss|on, tho study ovontua||y ostab||shod a dopondonco rat|o
ot 2b porcont, wh|ch just happonod to bo h|ghor than tho sharo ot
3ov|ot gas ovon w|th tho now p|po||no. lt was a|so undorstood that
natura| gas trom a major now sourco, lorway's 1ro|| t|o|d, wou|d bog|n
to t|ow |nto Europoan markots.
1ho Urongoy p|po||no was |ndood bu||t, and tho t|ow ot 3ov|ot gas
|nto Europo moro than doub|od ovor a docado. Evon whon tho 3ov|ot
Un|on co||apsod, tho gas cont|nuod to t|ow. ln tho 1000s tho oarn|ngs
trom gas oxports wou|d provo a cr|t|ca| sourco ot rovonuos tor luss|a
as tho govornmont ot 3or|s Yo|ts|n strugg|od to stay at|oat |n thoso
d|tt|cu|t yoars.
1EE ENERCENCE OF CAZPRON
Out ot tho 3ov|ot co||apso, and spoc|t|ca||y out ot tho V|n|stry ot Gas
lndustry, a now luss|an gas company omorgod: Gazprom. Evontua||y
|t wou|d havo pr|vato sharoho|dors not on|y |n luss|a but around tho
wor|d, and wou|d bocomo, tor |nvostors and tund managors, a proxy
stock tor tho ovora|| portormanco ot tho luss|an stock markot and
oconomy. At ono po|nt, |n m|d-2008, Gazprom's stock markot
cap|ta||zat|on catapu|tod to moro than $800 b||||on, and |t rankod as tho
th|rd-|argost company |n tho wor|d by that moasuro, boh|nd ExxonVob||
and lotroCh|na.
18
Gazprom roma|ns just ovor 80 porcont ownod by tho luss|an stato
w|th wh|ch |t |s c|oso|y a||gnod and to wh|ch |t pays taxos ot ono k|nd or
anothor oqu|va|ont to about 1b porcont ot tho tota| govornmont budgot.
ln many moot|ngs w|th Wostorn bus|nossmon, lr|mo V|n|stor v|ad|m|r
lut|n has domonstratod a doop |ntorost and an oxtraord|nar||y dota||od
know|odgo about tho gas bus|noss. |or h|s part, 0m|try Vodvodov,
botoro bocom|ng luss|a's pros|dont, was cha|rman ot Gazprom. 1ho
company producos ovor 80 porcont ot luss|a's tota| natura| gas
output. lt a|so has a monopo|y ovor gas transportat|on w|th|n luss|a
and ovor a|| gas oxports. lt |s, thus, luss|a's |ntor|ocutor w|th tho g|oba|
gas markot. Gazprom, wh||o rota|n|ng |ts pr|macy at homo, has a|so
boon mov|ng to bocomo a g|oba| d|vors|t|od onorgy company. 1hat
bogan w|th tho ostab||shmont ot a jo|nt markot|ng company |n Gormany
|n 1008 w|th W|ntorsha||, a Gorman onorgy company.
3y 200b Europoan gas supp|y appoarod to bo |n po||t|ca| ba|anco.
0omost|c Europoan product|on was 80 porcont, luss|a supp||od 20
porcont, lorway, 10 porcont, A|gor|a, 10 porcont, and about a|most
anothor 10 porcont trom othor sourcos, |argo|y llG. 3ut by thon tho
systom that had croatod tho Europoan gas markot was d|s|ntograt|ng,
and many ot tho prom|sos on wh|ch |t had boon bu||t woro
progross|vo|y d|ss|pat|ng, croat|ng now tons|ons and cont||cts.
|or ono th|ng, Europo was go|ng through groat chango. 1ho
Europoan Un|on had grown to 27 mombors, tho now add|t|ons bo|ng
o|thor tormor 3ov|ot sato|||tos or, |n tho caso ot tho 3a|t|c nat|ons,
tormor const|tuonts ot tho 3ov|ot Un|on. 1hoso now mombors havo a
h|gh dogroo ot dopondonco on luss|an gas, but tho|r onorgy ro|at|ons
aro wrappod up |n ovora|| unsott|od and somot|mos tonso ro|at|ons
w|th luss|a.
1ho gas markot was a|so chang|ng |n somowhat unprod|ctab|o
ways. ln ordor to promoto compot|t|on,' tho Europoan Un|on was
sook|ng to broak up tho |ntogratod compan|os that had ho|pod bu||d
tho markot and movo away trom tho stab|||ty ot 2b-yoar contracts that
tho compan|os had usod as tho bu||d|ng b|ocks. lnstoad tho EU
wantod to promoto trad|ng, hubs, and spot markots. 3ut |t was not
c|oar how tho noxt gonorat|on ot oxpons|vo now gas t|o|ds |n luss|a
(or o|sowhoro) cou|d bo dovo|opod w|thout tho guarantoo ot such |ong-
torm contracts. At tho samo t|mo, gas supp||os trom tho lorth 3oa
woro doc||n|ng. ln add|t|on, tho dom|nanco ot p|po||no gas cou|d orodo
as |ncroas|ng|y |argo vo|umos ot llG sought ontry |nto Europo.
And tho 3ov|ot Un|on was gono. 1ho rog|on through wh|ch tho
cr|t|ca| p|po||nos trans|tod was no |ongor o|thor part ot tho 3ov|ot Un|on
or |ts sato|||tos, but rathor |ndopondont countr|os. 1hoy woro
dopondont on luss|a tor tho|r gas, but h|story ot 3ov|ot dom|nat|on
wo|ghod hoav||y on tho|r ro|at|ons.
14
And luss|a was dopondont on
thom tor accoss to tho Europoan markot.
uKRA|NE VER5u5 Ru55|A
lo ro|at|onsh|p was moro comp|ox than that w|th Ukra|no. luss|a and
Ukra|no woro bound togothor by h|story. 1ho luss|an stato had
actua||y boon toundod |n K|ov, now tho cap|ta| ot Ukra|no, and Ukra|no
had boon part ot tho luss|an Emp|ro trom 1048. luss|an, and not
Ukra|n|an, was tho da||y |anguago ot ||to |n 3ov|ot Ukra|no. Attor
|ndopondonco |n 1001, tho country soomod to havo a natura| sp||t:
oastorn Ukra|no st||| |ookod to luss|a, wostorn Ukra|no grav|tatod
|ncroas|ng|y toward Europo.
Gas much comp||catod tho now ro|at|onsh|p botwoon tho two
countr|os. 3|nco tho broakup ot tho 3ov|ot Un|on |n 1001, luss|a and
Ukra|no had otton boon at odds, and somot|mos rancorous|y so, ovor
gas pr|c|ng and supp|y, and ovor tho tar|tts and |ndood contro| ot tho
cruc|a| p|po||no to Europo.
1ho v|ctory by tho Wostorn-or|ontod Orango lovo|ut|on |n tho
0ocombor 200b Ukra|no pros|dont|a| o|oct|on put tho two countr|os on
a path to controntat|on. 1ho Orango lovo|ut|on a|mod at roduc|ng
luss|an |nt|uonco and roor|ont|ng toward Europo. 1ho now pros|dont,
v|ktor Yuschonko, had, pr|or to tho o|oct|on, baro|y surv|vod a
mystor|ous po|son|ng w|th doad|y d|ox|n, and ho bu||t much ot h|s
campa|gn on turn|ng away trom luss|a.
latura| gas bocamo tho |nov|tab|o tocus tor r|s|ng tons|ons. Ukra|no
was hoav||y dopondont on gas trom luss|a. lt has tho most onorgy-
|ntons|vo oconomy |n tho wor|d, throo t|mos moro onorgy |ntons|vo than
that ot no|ghbor|ng lo|and. 1ho prov|ous govornmont had nogot|atod a
doa| w|th Voscow that gavo Ukra|no tho gas at a stoop d|scount trom
tho pr|co chargod to Wostorn Europo. 1h|s was roa||y a subs|dy to tho
agod 3ov|ot-ora |ndustr|a| |ntrastructuro and ono that was ossont|a| to
koop|ng |t compot|t|vo |n wor|d markots. |or yoars, |ntornat|ona|
|nst|tut|ons ||ko tho Wor|d 3ank had boon urg|ng Ukra|no to ra|so
domost|c gas pr|cos to |mprovo onorgy ott|c|oncy, but Ukra|no had
ros|stod trom toar ot tho |mpact on |ts |ndustr|os and on jobs.
ln |ts ro|at|ons w|th luss|a, Ukra|no had ono trump-tho p|po||no
notwork, wh|ch carr|od ovor 80 porcont ot luss|a's gas oxports to
Europo. Yuschonko had doscr|bod th|s systom as Ukra|no's crown
jowo|s,' and ho had no |ntont|on ot |ott|ng luss|a ga|n contro|.
1b
3ut tor luss|a, groator contro| ovor thoso p|po||nos was a doc|s|vo
objoct|vo, oxact|y bocauso |t was so contra| to |ts oxport pos|t|on.
Ukra|no owod luss|a b||||ons ot do||ars |n unpa|d b|||s tor gas.
Voroovor, |t was buy|ng gas at much |owor pr|cos than tho Europoans.
1hat m|ght havo boon accoptab|o woro Ukra|no st||| a||gnod w|th
luss|a. 3ut |t was not. 1horotoro, Voscow askod why |t shou|d prov|do
what was, |n ottoct, a $8 b||||on-p|us annua| subs|dy to a host||o
Orango lovo|ut|on, thus dopr|v|ng Gazprom and tho luss|an
govornmont ot rovonuos that thoy wou|d othorw|so havo. |or months
attor Yuschonko bocamo pros|dont, |ncroas|ng|y angry nogot|at|ons on
gas pr|cos draggod on botwoon Gazprom and Ukra|no, w|th no
roso|ut|on. Comp||cat|ng th|ngs turthor was tho ox|stonco ot a strango
and nontransparont company ca||od losUkrEnorgo, wh|ch appoarod
to contro| tho t|ow ot gas |n and out ot Ukra|no.
At 10:00 a.m. on tho co|d w|ntor 3unday ot low Yoar's 0ay, 1anuary
1, 2000, p|po||no prossuro suddon|y bogan to go down at tho bordor
|nto Ukra|no. Gazprom had bogun to cut gas do||vor|os d|roctod to
Ukra|no |tso|t. Voscow |mmod|ato|y warnod Ukra|no not to s|phon ott
any ot tho gas that was moant to t|ow on to Europo. lotw|thstand|ng,
Ukra|no procoodod to do oxact|y that, and somo shortta||s ot gas
bocamo ov|dont not on|y |n Ukra|no but a|so |n Contra| Europo.
1ho showdown was roso|vod w|th|n a tow days and tho gas
sh|pmonts rosumod. 3ut tho shock wavos rovorboratod across tho
ont|ro Cont|nont. luss|an do||vory ot gas to somo tormor const|tuonts
ot tho tormor 3ov|ot Un|on had boon d|sruptod at t|mos ot tons|on. 3ut
novor |n tour docados had thoro boon a doc|s|on that wou|d d|srupt
supp||os to Europo. 3uch d|srupt|ons as had occurrod woro tho rosu|t
ot woathor or tochn|ca| ma|tunct|ons. |oro now, |t soomod to somo,
was concroto proot ot tho dangors ot dopondonco that had an|matod
tho p|po||no batt|o ot tho 1080s. Europo noods a c|oar and moro
co||oct|vo po||cy on tho socur|ty ot our onorgy supp|y,' sa|d Andr|s
l|oba|gs, tho EU onorgy comm|ss|onor. Austr|a's oconom|c m|n|stor
was b|untor: 0opondonco on luss|a shou|d bo roducod,' ho doc|arod.
Ovor tho noxt coup|o ot yoars, natura| gas bocamo a hoatod subjoct ot
contont|on and susp|c|on botwoon East and Wost. At ono po|nt, A|oxo|
V|||or, tho CEO ot Gazprom, to|d tho Europoans, Got ovor your toar ot
luss|a, or run out ot gas.'
10
|or tho|r part, luss|a and Ukra|no had had turthor standotts ovor
natura| gas pr|c|ng. Evon tho subsoquont govornmont ot lros|dont
v|ktor Yanukovych, wh|ch had bottor ro|at|ons w|th Voscow, st|||
cont|nuod to doscr|bo |ts p|po||no notwork as our nat|ona| troasuro.'
D|VER5|F|CA1|ON
1ho |ast|ng |mpact ot tho gas controvors|os was to tuo| a now
campa|gn ot d|vors|t|cat|on on both s|dos ot tho argumont. 1hat moant
a now round ot p|po||no po||t|cs that was o|ovatod to tho goopo||t|ca|
|ovo|. 1ho luss|ans woro dotorm|nod to got around Ukra|no and
lo|and w|th a sor|os ot now p|po||nos. Gazprom and Ell had a|roady
bu||t 3|uo 3troam, wh|ch crossos tho 3|ack 3oa trom luss|a to 1urkoy
and |s tho doopost undorwator p|po||no |n tho wor|d. 1hoy now bru|tod
tho |doa ot 3outh 3troam, wh|ch wou|d cross tho 3|ack 3oa trom
luss|a to 3u|gar|a and do||vor gas to lta|y. luss|a a|so |aunchod a
|argo now p|po||no projoct, lord 3troam, |n partnorsh|p w|th major
Wostorn Europoan gas compan|os and cha|rod by tormor Gorman
Chanco||or Gorhard 3chrodor. lord 3troam travo|s undor tho 3a|t|c
3oa trom noar 3t. lotorsburg to northorn Gormany.
3ut most contont|ous ot a|| aro tho EU and Europoan proposa|s
a|mod at br|ng|ng non-luss|an gas to Europo by sk|rt|ng luss|a's
southorn bordor and |nvo|v|ng countr|os that woro tormor|y part ot tho
3ov|ot Un|on, countr|os that luss|a cont|nuos to soo as part ot |ts
sphoro ot |nt|uonco. 1ho Europoan Un|on ca||s th|s tho |ourth Corr|dor
and omphas|zos that |t |s not a cha||ongo to luss|a but just an
appropr|ato d|vors|t|cat|on. 3omo Europoan compan|os havo
comb|nod to promoto tho labucco projoct. 1h|s odd namo was
borrowod trom a vord| opora that somo ot tho or|g|na| p|annors had
soon ono n|ght wh||o moot|ng |n v|onna. labucco wou|d p|ck up gas |n
1urkoy and carry |t a|| tho way to Gormany.
3ut whoro wou|d tho gas como trom to t||| tho |ourth Corr|dor
p|po||no systom? 1hat |s tho contra| quost|on and a sourco ot groat
uncorta|nty-|n torms ot pr|co, ava||ab|||ty, and ro||ab|||ty-and po||t|cs.
lt cou|d bo trom 1urkmon|stan, wh|ch has |mmonso rosourcos but has
mado oxport|ng oast to Ch|na |ts numbor ono pr|or|ty. lt cou|d bo
Azorba|jan, but |t has |ts own p|ans. 1ho gas rosourcos |n Kurd|stan, |n
northorn lraq, cou|d potont|a||y bo vory |argo, but both tho po||t|cs and
socur|ty s|tuat|on aro vory unsott|od. 1ho trans|t toos across 1urkoy
nood to bo roasonab|o, both tor sh|ppors and buyors. 1ho Europoan
markot has to bo |argo onough to absorb tho gas and thus just|ty tho
b||||ons ot do||ars |n |nvostmont. ln tho moant|mo, luss|a's |ntorost |s to
d|scourago tho |ourth Corr|dor, wh|ch wou|d somowhat orodo |ts own
markot pos|t|on |n Europo, and movo qu|ck|y to proompt w|th |ts own
now p|po||nos.
17
1h|s c|ash ot p|po||no po||t|cs |s turthor unsott|od by tho potont|a| tor
a|tornat|vo now supp||os-trom tho g|oba| llG markot. 1hoso supp||os
cou|d groat|y |ncroaso, both bocauso ot tho grow|ng llG capac|ty
around tho wor|d and tho d|sappoaranco ot tho U.3. markot ow|ng to
sha|o gas. 1hoso add|t|ona| vo|umos ot llG wou|d compoto w|th
prosont and tuturo p|po||no gas, putt|ng downward prossuro on a|| gas
pr|cos and thus mak|ng tho oconom|cs ot now p|po||no projocts moro
prob|omat|c. ln add|t|on, a major now sourco ot gas m|ght bo opon|ng
up on Europo's doorstop |n tho oastorn Vod|torranoan. 1ho doopwator
lov|athan t|o|d ottshoro lsrao| |s ono ot tho |argost d|scovor|os so tar
th|s contury.
And thon thoro |s tho potont|a| tor sha|o gas. 1horo |s no goo|og|c
|aw that rostr|cts sha|o gas to lorth Amor|ca. On|y around 2000 d|d
sor|ous work on sha|o gas bog|n to dotorm|no how abundant sha|o gas
|s |n Europo, and how d|tt|cu|t to oxtract. A now study suggosts that
Europo's ondowmont ot unconvont|ona| gas-sha|o gas and coa|-bod
mothano-may bo as |argo as that ot lorth Amor|ca. 0ovo|opmont ot
thoso rosourcos cou|d prov|do an a|tornat|vo to gas |mports, whothor
thoy como by p|po||no trom tho oast or by sh|p |n tho torm ot llG.
18
3ut |t |s st||| oar|y days, and a groat doa| ot ottort w||| bo roqu|rod to
dovo|op such rosourcos. Obstac|os w||| rango trom |oca| oppos|t|on
and nat|ona| po||cy to |ack ot |ntrastructuro and shoor dons|ty ot
popu|at|on. 3t||| tho |mporat|vos ot d|vors|t|cat|on w||| ||ko|y tuo| tho
dovo|opmont ot unconvont|ona| gas rosourcos |n somo parts ot
Europo, as o|sowhoro-most notab|y |n lo|and and Ukra|no. 1ho now
supp||os w||| componsato tor doc||n|ng convont|ona| domost|c supp||os.
Voroovor, by onhanc|ng tho sonso ot socur|ty and d|vors|t|cat|on
around gas supp||os, tho dovo|opmont ot unconvont|ona| gas cou|d
ond up bo|stor|ng cont|donco |n ro|y|ng on oxpandod gas |mports.
A FuEL FOR 1EE Fu1uRE
latura| gas |s a tuo| ot tho tuturo. Wor|d consumpt|on has tr|p|od ovor
tho |ast th|rty yoars, and domand cou|d grow anothor b0 porcont ovor
tho noxt two docados. lts sharo ot tho tota| onorgy markot |s a|so
grow|ng. Wor|d consumpt|on on an onorgy-oqu|va|ont bas|s was on|y
4b porcont that ot o||, today |t |s about 70 porcont. 1ho roasons aro
c|oar: lt |s a ro|at|vo|y |ow-carbon rosourco. lt |s a|so a t|ox|b|o tuo| that
cou|d p|ay a |argor ro|o |n o|octr|c powor, both tor |ts own toaturos and
as an ottoct|vo-and |ndood nocossary-comp|omont to groator
ro||anco on ronowab|o gonorat|on. And tochno|ogy |s mak|ng |t moro
and moro ava||ab|o, whothor |n torms ot advancos |n convont|ona|
dr||||ng, tho ab|||ty to movo |t ovor |ong-d|stanco p|po||nos, tho
oxpans|on ot llG onto much |argor sca|o, or, most rocont|y, tho
rovo|ut|on |n unconvont|ona| natura| gas.
A tow yoars ago tho tocus was ma|n|y on rap|d growth |n llG. W|th
that wont a w|dosproad bo||ot that a truo wor|d gas markot was |n tho
mak|ng, ono |n wh|ch supp||os wou|d oas||y movo to ono markot or
anothor, and ono |n wh|ch pr|cos wou|d convorgo. 1ho arr|va| ot sha|o
gas has, tor tho t|mo bo|ng, d|sprovod that assumpt|on. Yot tho
omorgonco ot th|s now rosourco |n lorth Amor|ca |s corta|n|y hav|ng a
wor|dw|do |mpact-domonstrat|ng that tho gas markot |s g|oba| attor
a||-just not qu|to |n tho way that wou|d havo boon oxpoctod.
PAR1 1EREE
1ho EIoctric Ago
17
AL1ERNA1|NC CuRREN15
E|octr|c|ty undorp|ns modorn c|v|||zat|on. 1h|s tundamonta| truth |s otton
oxprossod |n torms ot koop|ng tho ||ghts on,' wh|ch |s appropr|ato, as
||ght|ng was o|octr|c|ty's t|rst major markot and roma|ns a nocoss|ty.
3ut today that phraso |s a|so a motaphor tor |ts porvas|vonoss and
ossont|a||ty. E|octr|c|ty do||vors a proc|s|on unmatchod by any othor
torm ot onorgy, |t |s a|so a|most |nt|n|to|y vorsat||o |n how |t can bo
usod.
Cons|dor what wou|d not work and wou|d not happon w|thout o|octr|c
powor. Obv|ous|y, no rotr|gorators, no a|r-cond|t|on|ng, no to|ov|s|on,
no o|ovators. lt |s ossont|a| tor ovory k|nd ot |ndustr|a| procoss|ng. 1ho
now d|g|ta| wor|d ro||os on o|octr|c|ty's proc|s|on to dr|vo ovoryth|ng that
runs on m|croprocossors-computors, to|ophonos, smart phonos,
mod|ca| oqu|pmont, osprosso mach|nos. E|octr|c|ty makos poss|b|o
and |ntogratos tho roa|-t|mo notworks ot commun|cat|ons, t|nanco, and
trado that shapo tho wor|d oconomy. And |ts |mportanco on|y grows, as
most now onorgy-consum|ng dov|cos roqu|ro o|octr|c|ty.
1
E|octr|c|ty may bo a||-porvas|vo. 3ut |t |s a|so most|y takon tor
grantod, much moro so than o||. Attor a||, gaso||no usago roqu|ros tho
consc|ous act|v|ty onco or tw|co a wook ot pu|||ng |nto tho t||||ng stat|on
and t||||ng up. 1o tap |nto o|octr|c|ty, a|| ono noods to do |s t||p a sw|tch.
Whon poop|o th|nk about powor, |t's usua||y on|y whon tho month|y b|||
arr|vos or on thoso |ntroquont t|mos whon tho ||ghts aro suddon|y
oxt|ngu|shod o|thor by a storm or somo broakdown |n tho do||vory
systom.
A|| th|s o|octr|t|cat|on d|d |ndood bog|n w|th a t||p ot a sw|tch.
1EE W|ZARD OF NENLO PARK
On tho attornoon ot 3optombor 4, 1882, tho po|ymath|c |nvontor
1homas Ed|son was |n tho Wa|| 3troot ott|cos ot tho nat|on's most
powortu| bankor, 1. l. Vorgan. At 8:00 p.m., Ed|son throw tho sw|tch.
1hoy'ro on!' a Vorgan d|roctor oxc|a|mod, as a hundrod ||ghtbu|bs ||t
up, t||||ng tho room w|th tho|r ||ght.
2
loarby, at tho samo momont, b2 bu|bs wont on |n tho ott|cos ot tho
Now York 7lmos, wh|ch proc|a|mod tho now o|octr|c ||ght sott,' and
gracotu| to tho oyo . . . w|thout a part|c|o ot t||ckor to mako tho hoad
acho.' 1ho curront tor thoso bu|bs t|owod undorground, through w|ros
and tubos, trom a coa|-t|rod o|octr|c gonorat|ng p|ant that Ed|son had
bu||t a tow b|ocks away, on loar| 3troot, part|y t|nancod by 1. l.
Vorgan, to sorvo ono squaro m||o ot |owor Vanhattan. W|th that, tho
ago ot o|octr|c|ty had bogun.
1ho loar| 3troot stat|on was tho t|rst contra| gonorat|ng p|ant |n tho
Un|tod 3tatos. lt was a|so a major ong|noor|ng cha||ongo tor Ed|son
and h|s organ|zat|on, |t roqu|rod tho bu||d|ng ot s|x hugo dynamos,' or
gonorators, wh|ch, at 27 tons oach, woro n|cknamod 1umbos' attor
tho hugo o|ophant trom Atr|ca w|th wh|ch tho c|rcus showman l. 1.
3arnum was thon tour|ng Amor|ca.
Anothor |andmark ovont |n o|octr|c powor occurrod a tow months
|ator, on 1anuary 18, 1888. 1hat was tho t|rst o|octr|c|ty b||| ovor-
d|spatchod to tho Anson|a 3rass and Coppor Company, tor tho
h|stor|c sum ot $b0.44.
8


lt had roqu|rod a docado ot |ntonso, a|most round-tho-c|ock work by
1homas Ed|son and h|s toam to got to that o|octr|c momont on loar|
3troot. 3t||| on|y |n h|s m|dth|rt|os at tho t|mo, Ed|son had a|roady mado
h|mso|t Amor|ca's most co|obratod |nvontor w|th h|s broakthroughs on
tho to|ograph and tho phonograph. |o was a|so sa|d to bo tho most
tamous Amor|can |n tho rost ot tho wor|d. Ed|son was to ostab||sh tho
rocord tor tho groatost numbor ot Amor|can patonts ovor |ssuod to ono
porson-a tota| ot 1,008. Vuch |ator, wo|| |nto tho twont|oth contury,
nowspapor and magaz|no po||s cont|nuod to so|oct h|m as Amor|ca's
groatost' and most usotu| c|t|zon.'
Ed|son was |argo|y so|t-taught, ho had on|y a coup|o ot yoars ot
torma| schoo||ng, p|us s|x yoars as an |t|norant to|ographor, mak|ng
such ach|ovomonts ovon moro romarkab|o. ||s part|a| doatnoss mado
h|m somowhat |so|atod and so|t-contorod, but a|so gavo h|m an
unusua| capac|ty tor concontrat|on and croat|v|ty. |o procoodod by
oxpor|mont, roason|ng, and shoor dotorm|nat|on, and, as ho onco
sa|d, by mothods wh|ch l cou|d not oxp|a|n.' |o had sot up a rosoarch
|aboratory |n Von|o lark, low 1orsoy, w|th tho amb|t|ous a|m, as ho
put |t, ot mak|ng an |nvont|on tactory that wou|d do||vor a m|nor
|nvont|on ovory ton days and a b|g th|ng ovory s|x months or so.'
4
1EE 5uBD|V|5|ON OF L|CE1"
1hat was not so oasy, as ho tound whon ho homod |n on o|octr|c|ty. |o
wantod to rop|aco tho thon-prova|ont gas-t|rod |amp. What ho a|so
wantod to do, |n h|s own words, was to subd|v|do' ||ght, that |s, do||vor
o|octr|c ||ght not just ovor a tow |argo stroot||ghts as was thon poss|b|o,
but mako |t subd|v|dod so that |t cou|d bo brought |nto pr|vato homos.'
Vany scottod at Ed|son's grand amb|t|on. Exports appo|ntod by tho
3r|t|sh lar||amont d|sm|ssod Ed|son's rosoarch as good onough tor
our transat|ant|c tr|onds' but unworthy ot tho attont|on ot pract|ca| or
sc|ont|t|c mon.'
1o provo thom wrong and succosstu||y subd|v|do ||ght, Ed|son wou|d
havo to croato an ont|ro systom-not just tho ||ghtbu|b but a|so tho
moans to gonorato o|octr|c|ty and d|str|buto |t across a c|ty. Ed|son's
gon|us,' ono scho|ar has wr|tton, |ay |n h|s ab|||ty to d|roct a procoss
|nvo|v|ng prob|om |dont|t|cat|on, so|ut|on as |doa, rosoarch and
dovo|opmont, and |ntroduct|on |nto uso.' ||s a|m was not just to |nvont
a bottor ||ghtbu|b (thoro had a|roady boon 20 or so ot ono k|nd or
anothor) but to |ntroduco an ont|ro systom ot ||ght|ng-and to do so on
a commorc|a| bas|s, and as qu|ck|y as poss|b|o.
b
1ho |nvontor had to start somowhoro, wh|ch d|d moan w|th tho
||ghtbu|b. 1ho cha||ongo, tor a pract|ca| bu|b, was to t|nd a t||amont that,
whon o|octr|c|ty t|owod through |t, wou|d g|vo ott a p|oas|ng ||ght but that
a|so cou|d |ast not just ono hour but tor many hours. Attor
oxpor|mont|ng w|th a w|do var|oty ot poss|b|o sourcos-|nc|ud|ng ha|rs
trom tho boards ot two ot h|s omp|oyoos-ho camo up w|th a sor|os ot
carbon t||amont, t|rst mado trom cotton throad and thon trom
cardboard and thon bamboo, that passod tho tost.


Yoars ot acr|mon|ous and oxpons|vo ||t|gat|on to||owod among Ed|son
and othor compot|ng ||ghtbu|b |nvontors ovor who had |ntr|ngod whoso
patonts. 1ho U.3. Court ot Appoa|s t|na||y roso|vod tho |oga| t|ght |n tho
Un|tod 3tatos |n 1802. ln 3r|ta|n, howovor, tho court upho|d compot|ng
patonts by tho Eng||sh sc|ont|st 1osoph W||son 3wan. lathor than t|ght
3wan, Ed|son ostab||shod a jo|nt vonturo w|th h|m to manutacturo
||ghtbu|bs |n 3r|ta|n.
1o croato an ont|ro systom roqu|rod cons|dorab|o tund|ng. A|though
not ca||od such at tho t|mo, ono ot tho othor |nvont|ons that cou|d bo
crod|tod to Ed|son and h|s |nvostors was vonturo cap|ta|. |or what ho
dovo|opod |n Von|o lark, low 1orsoy, was a tororunnor ot tho vonturo
cap|ta| |ndustry that wou|d grow, co|nc|donta||y, around anothor Von|o
lark-th|s ono |n 3|||con va||oy |n Ca||torn|a. As an Ed|son b|ographor
has obsorvod, |t was h|s mo|d|ng ot tho |aboratory and bus|noss
ontorpr|so that onab|od h|m to succood.'
0
Costs woro a constant prob|om, and as thoy |ncroasod, so d|d tho
prossuros. 1ho pr|co ot coppor, noodod tor tho w|ros, kopt go|ng up. lt
|s vory oxpons|vo oxpor|mont|ng ,' Ed|son moanod at ono po|nt. 1ho
r|s|ng costs stra|nod h|s ro|at|ons w|th h|s |nvostors, |oad|ng h|m to
comp|a|n, Cap|ta| |s t|m|d.'
3ut ho d|d koop happy h|s |oad |nvostor-1. l. Vorgan-by w|r|ng
up Vorgan's lta||anato mans|on on Vad|son Avonuo |n tho East 80s |n
low York C|ty w|th 88b bu|bs. 1hat roqu|rod tho |nsta||at|on ot a stoam
ong|no and o|octr|c gonorators |n a spoc|a||y dug co||ar undor tho
mans|on. 1ho c|ang|ng no|so |rr|tatod not on|y tho no|ghbors but a|so
Vrs. Vorgan. Voroovor, tho systom roqu|rod a tochn|c|an to bo on duty
trom 8:00 p.m. to 11:00 p.m. ovory day, wh|ch was not oxact|y ott|c|ont.
Vak|ng mattors worso, ono n|ght Ed|son's w|r|ng sot 1. l. Vorgan's
||brary on t|ro. 3ut, through |t a||, Vorgan roma|nod ph|ogmat|c, w|th h|s
oyo on tho objoct|vo. l hopo tho Ed|son Company approc|atos tho
va|uo ot my houso as an oxpor|monta| stat|on,' tho bankor dry|y
romarkod.
7
BA11LE OF 1EE CuRREN15"
Excopt tor Vorgan's mans|on, Ed|son concontratod on dovo|op|ng
contra| gonorat|ng stat|ons that wou|d supp|y part ot tho c|ty. 3ut
Ed|son's systom had a major ||m|t|ng t|aw. 3ocauso ot |ts |ow vo|tago,
Ed|son's d|roct curront o|octr|c|ty cou|d not travo| vory tar. lt Ed|son had
had h|s way, ovory squaro m||o ot a c|ty wou|d havo noodod |ts own
gonorat|ng p|ant, wh|ch wou|d havo corta|n|y m|n|m|zod tho oconom|os
ot sca|o and much s|owod tho sproad ot o|octr|c powor.
A|tornat|ng curront-othorw|so known as AC-prov|dod an
a|tornat|vo. 1ho l|ttsburgh |ndustr|a||st Goorgo Wost|nghouso had
acqu|rod tho patont ot a br||||ant but occontr|c 3orb|an |nvontor, l|ko|a
1os|a, that mado a|tornat|ng curront pract|ca|. A transtormor wou|d stop
up o|octr|c|ty to much h|ghor vo|tago, wh|ch moant |t cou|d bo
oconom|ca||y transportod |ong d|stancos ovor transm|ss|on ||nos, and
thon stoppod down at tho othor ond tor subd|v|s|on |nto |nd|v|dua|
homos. 1hat mado poss|b|o |argor gonorat|ng p|ants, sorv|ng a much
groator aroa. W|th that camo truo oconom|os ot sca|o and much |owor
costs.
What to||owod was a t|tan|c strugg|o botwoon Ed|son and
Wost|nghouso. 3ocauso o|octr|c|ty was a notworks systom, thoro
cou|d bo on|y ono w|nnor, and tho outcomo wou|d bo w|nnor takos a||.
Ed|son throw a|| h|s torm|dab|o prost|go |nto h|s tur|ous batt|o
aga|nst a|tornat|ng curront, donounc|ng |t as unsato and warn|ng that |t
wou|d |oad to poop|o's acc|donta| o|octrocut|on. At that t|mo,
o|octrocut|on happonod to bo much |n tho nows, as tho stato ot low
York was cons|dor|ng tho o|octr|c cha|r as tho protorrod mothod tor
oxocut|ons. 1ho stato's o|octrocut|on oxport, a|so socrot|y work|ng tor
Ed|son, sought to |noxtr|cab|y ||nk a|tornat|ng curront w|th o|octrocut|on
and doath by tho o|octr|c cha|r. As part ot tho campa|gn, Ed|son
h|mso|t o|octrocutod an|ma|s to domonstrato tho dangors ot a|tornat|ng
curront. Ed|son's group wont turthor and tr|od to dub tho o|octr|c cha|r
tho Wost|nghouso' and to doscr|bo oxocut|on by o|octrocut|on as
bo|ng Wost|nghousod.'
8
Yot tho supor|or|ty ot a|tornat|ng curront was so c|oar that
Wost|nghouso's a|tornat|ng curront systom prova||od. Wost|nghouso
grabbod markot sharo trom Ed|son and ostab||shod tho toundat|ons
tor |argo-sca|o gonorat|on. Ed|son's tochno|og|ca| stubbornnoss
woakonod h|s company t|nanc|a||y dur|ng a t|mo ot bus|noss
d|tt|cu|t|os. ||s company, Ed|son Gonora| E|octr|c-aga|nst h|s own
torvont protostat|ons-was torcod |nto a morgor w|th a compot|tor. 1o
add to tho |gnom|ny and Ed|son's pa|n, tho morgor str|ppod h|s namo
trom tho morgod company. 1horoattor, |t wou|d bo known s|mp|y as
Gonora| E|octr|c.
E|octr|c|ty's ascondancy was on d|sp|ay at tho Ch|cago Wor|d's |a|r
ot 1808, wh|ch was so popu|ar that tho numbor ot poop|o attond|ng |t
ovor s|x months was oqu|va|ont to moro than a th|rd ot tho ont|ro
popu|at|on ot tho Un|tod 3tatos. 1ho throngs woro amazod by tho
domonstrat|ons ot a|| tho vorsat||o th|ngs o|octr|c|ty cou|d do. Ono ot
thom was somoth|ng romarkab|o that most had novor soon botoro: tho
wor|d's ta|r omb|azonod tho n|ght, oarn|ng Ch|cago tho n|cknamo tho
wh|to c|ty.' At tho ta|r's contor tho Gonora| E|octr|c Company oroctod
tho 1owor ot l|ght' as a tr|buto to Ed|son. 3ut tho oxpos|t|on a|so
domonstratod Wost|nghouso's v|ctory ovor Ed|son, tor |t was
Wost|nghouso and 1os|a's a|tornat|ng curront that poworod most ot tho
||ght|ng and tho oxh|b|ts.
0
1ho tochn|ca| p|ocos woro now |n p|aco tor tho growth ot o|octr|c
powor. 3ut what wou|d bo tho bus|noss modo|?
1EE NE1ER NAN
3amuo| lnsu|| t|rst wont to work |n london at tho ago ot tourtoon as an
ott|co boy at tho 3r|t|sh magaz|no Voolty lolr. 1hon, answor|ng a
c|ass|t|od advort|somont, ho was h|rod as a socrotary |n tho ott|co ot
tho Europoan roprosontat|vo ot 1homas Ed|son. 1horo ho mado such
a good |mpross|on that tho ch|ot ong|noor rocommondod h|m to tho
|nvontor, and |n 1881 lnsu|| om|gratod to Amor|ca to work as Ed|son's
socrotary. 1ho t|rst day lnsu|| arr|vod |n Von|o lark, Ed|son kopt h|m up
to m|dn|ght, d|ctat|ng to h|m, and thon to|d h|m to got somo rost, as
thoy wou|d start aga|n at s|x |n tho morn|ng. 1ho 117-pound lnsu||
qu|ck|y ostab||shod h|mso|t as tho dynamo |n Ed|son's organ|zat|on.
Attor Ed|son |ost contro| ot tho company |n 1802, lnsu|| movod to
Ch|cago to tako ovor ono ot tho 20 or so compot|ng gonorat|ng
compan|os |n tho c|ty.
10
ln tho oar|y 1800s, o|octr|c|ty was st||| a |uxury product. Customors
woro chargod by tho numbor ot bu|bs |nsta||od |n tho|r homos or
ott|cos. lnsu|| had much grandor amb|t|ons. |o wantod sca|o: ho
wantod to |owor pr|cos and so|| to as many poop|o as ho cou|d and by
so do|ng domocrat|zo o|octr|c|ty. |o cou|dn't got thoro by hav|ng
poop|o pay by tho bu|b. 3ut how to do |t? As otton happons |n
|nnovat|on, lnsu|| stumb|od upon tho answor by acc|dont.
On a tr|p to Eng|and |n 1804, lnsu||, worn out by h|s tronot|c paco,
doc|dod to go down to tho soas|do rosort ot 3r|ghton tor a ||tt|o rost. As
ovon|ng ro||od |n, ho was stunnod to soo tho town ||ght up. A|| tho
shops, no mattor what tho|r s|zo, woro br|ght w|th o|octr|c ||ghts. |ow
cou|d th|s bo? 1ho managor ot tho |oca| powor p|ant, |t turnod out, had
|nvontod a motor that cou|d moasuro how much o|octr|c|ty oach storo
or homo usod. 1h|s mado poss|b|o a now bus|noss modo|: |nstoad ot
pay|ng by tho bu|b, poop|o cou|d pay by tho|r usago, a|ong w|th an
add|t|ona| chargo covor|ng tho cap|ta| |nvostod |n tho projoct. Wo had
to go to Europo,' lnsu|| oxp|a|nod attorward, to |oarn somoth|ng about
tho pr|nc|p|os undor|y|ng tho sa|o ot tho product.'
11
1ho motor, |mportod by lnsu|| to Ch|cago, wou|d bocomo tho
|ntortaco, tho m|dd|oman so to spoak, botwoon tho gonorat|ng
company and tho customor. E|octr|c|ty cou|d bo pr|cod by
consumpt|on, not by tho numbor ot bu|bs. 1h|s tac|||tatod tho sca|o that
lnsu|| wantod and ho|pod propo| tho vast growth |n h|s bus|noss. lnsu||
d|d ovoryth|ng o|so ho cou|d to got sca|o, trom aggross|vo markot|ng to
|nsta|||ng tho wor|d's |argost gonorators to ga|n|ng now customors ||ko
tho rap|d|y oxpand|ng tro||oy ||nos, wh|ch ho cou|d o|octr|ty-a|| |n ordor
to so|| to tho most poop|o ho cou|d, at tho |owost pr|cos poss|b|o. lnsu||
assurod othor ut|||ty oxocut|vos |n 1010 that |t thoy pr|cod tho|r product
choap|y onough, thoy wou|d groat|y |ncroaso tho|r sa|os and you w|||
bog|n to roa||zo tho poss|b|||t|os ot th|s bus|noss, and thoso
poss|b|||t|os may oxcood your w||dost droams.'
12
NA1uRAL NONOPOLY": 1EE RECuLA1ORY
BARCA|N
1o bu||d h|s omp|ro, lnsu|| usod tho groat t|nanc|a| |nnovat|on ot tho day
-tho ho|d|ng company-a company that contro|s part ot or a|| tho
|ntorost |n anothor company or compan|os. lnsu|| constructod a
pyram|d ot thoso ho|d|ng compan|os, w|th oach t|or ho|d|ng a
contro|||ng |ntorost |n tho ono bo|ow, on down to tho baso-tho powor
p|ants thomso|vos. ln such a way, lnsu||, through h|s ho|d|ng compan|os,
cou|d contro| a hugo amount ot assots w|th a ro|at|vo|y sma|| out|ay ot
cap|ta|, and thus roap outs|zo roturns.
1o bu||d out tho pyram|d baso, lnsu|| wou|d acqu|ro |oca| o|octr|c
ut|||t|os and c|oso tho|r sma||, |nott|c|ont powor p|ants, and bu||d much
|argor contra| stat|ons p|us tho transm|ss|on ||nos to sorvo groups ot
|oca||t|os. Accoss to o|octr|c|ty wou|d bo much oxpandod, and pr|cos
wou|d como down. ln th|s way h|s compan|os bocamo tho prov|dor ot
o|octr|c|ty to m||||ons ot Amor|cans.
3ut chaot|c compot|t|on throatonod th|s now modo|. An o|octr|c
gonorat|ng company typ|ca||y had to obta|n a tranch|so trom tho
mun|c|pa||ty, and tho mun|c|pa||ty m|ght grant tranch|sos to a numbor ot
compot|ng compan|os. Voroovor, |n many casos, tho who|o bus|noss
ot tranch|s|ng cou|d bocomo qu|to corrupt-a tranch|so grantod cou|d
a|so bo a tranch|so w|thdrawn.
A|togothor, botwoon 1882 and 100b, tho c|ty ot Ch|cago grantod 20
powor tranch|sos, p|us anothor 18 trom towns that |t had absorbod.
3omo ot tho tranch|sos woro as sma|| as a tow b|ocks on tho
northwost s|do' or tho o|d two|tth ward.' 1hroo ot thom covorod tho
ont|ro c|ty. At ono po|nt, mombors ot tho Ch|cago C|ty Counc|| and
tho|r tr|onds sot up a compot|t|vo powor company w|th tho obv|ous
purposo ot torc|ng lnsu|| to purchaso |t at vast|y |nt|atod pr|cos. 3uch
was lnsu||'s musc|o, howovor, that ho was ab|o to knock down tho
pr|co. 1ho po||t|ca| |nstab|||ty surround|ng a tranch|so mado cap|ta|
ra|s|ng d|tt|cu|t, yot th|s |ndustry had an onormous appot|to tor
|nvostmont cap|ta| |n ordor to oxpand and ach|ovo tho groator
ott|c|onc|os and |owor costs that camo trom |argor sca|o.
18
|acod w|th such a troachorous bus|noss onv|ronmont, lnsu||
promotod yot anothor |nnovat|on-th|s, not tochn|ca|, but po||t|ca|: |t
was tho rogu|atory barga|n. 3ocauso ot tho |argo |nvostmont roqu|rod
by tho bus|noss, tho oconom|cs ot th|s |ndustry d|ctatod, |n h|s v|ow,
that |t bo a monopo|y. 3ut ho arguod |t was a part|cu|ar k|nd ot
monopo|y-a natura| monopo|y.' lt was vory wastotu| to havo two
compan|os |ay|ng w|ros down tho samo a||oy and bu||d|ng capac|ty
and compot|ng hoad to hoad to supp|y tho samo customor. Costs to
tho customor wou|d ond up h|ghor, not |owor. 3y contrast, bocauso ot
tho ott|c|oncy ot |ts |nvostmont, a natura| monopo|y wou|d do||vor |owor
pr|cos to tho consumor.
1h|s was whoro tho barga|n camo |n. lnsu|| rocogn|zod tho po||t|ca|
roa||ty: lt tho bus|noss was a natura| monopo|y,' ho sa|d, |t must ot
nocoss|ty bo rogu|atod by somo torm ot govornmonta| author|ty'-
spoc|t|ca||y a stato pub||c ut|||ty comm|ss|on, wh|ch wou|d dotorm|no
tho ta|rnoss' ot |ts ratos. |or, ho sa|d, compot|t|on |s an unsound
oconom|c rogu|ator' |n tho o|octr|c|ty bus|noss. 1h|s ca|| tor govornmont
rogu|at|on hard|y ondoarod h|m to many ot h|s to||ow o|octr|c|ty
ontropronours, but |t bocamo tho way tho bus|noss workod. ln duo
courso, th|s rogu|atory barga|n was |ngra|nod |nto pub||c po||cy: as a
natura| monopo|y, tho o|octr|c powor bus|noss had to bo troatod as a
rogu|atod |ndustry w|th |ts ratos and |ts prot|ts dotorm|nod by a pub||c
ut|||ty comm|ss|on. What was roqu|rod ot tho rogu|ators |n turn was, as
3upromo Court 1ust|co O||vor Wondo|| |o|mos 1r. wroto |n 1012, ta|r
|ntorprotat|on ot a barga|n.'
14
W|scons|n and low York ostab||shod tho t|rst such comm|ss|ons |n
1007. 3y tho 1020s, about ha|t tho statos had dono so, and ovontua||y
a|| ot thom d|d. 1h|s now rogu|atory barga|n |mposod a tundamonta|
rospons|b|||ty on tho natura| monopo||st-tho ut|||ty had tho ob||gat|on
to sorvo'-to do||vor o|octr|c|ty to v|rtua||y ovoryono |n |ts torr|tory and
prov|do accoptab|o, ro||ab|o sorv|co at roasonab|o cost. Othorw|so, |t
wou|d |oso |ts ||conso to oporato.
ELEK1ROPOL|5: 1ECENOLOCY 1RAN5FER
ACRO55 1EE 5EA5
Ch|cago, ||t up by lnsu||, bocamo tho wor|d's showcaso tor o|octr|c|ty. lt
had on|y ono r|va|: 3or||n, wh|ch bocamo known around tho wor|d as
E|oktropo||s.
1ho |nvontor Wornor von 3|omons and an ong|noor namod Em||
lathonau wou|d bo doc|s|vo t|guros |n 3or||n's-and Gormany's-
o|octr|ca| proom|nonco. lathonau acqu|rod tho Gorman r|ghts to
Ed|son's o|octr|ca| |nvont|ons. ||s company ach|ovod rocogn|t|on |n
1884 whon |t succoodod |n ||ght|ng up tho popu|ar Cato 3auor, on tho
Untor don l|ndon, tho most prom|nont bou|ovard |n 3or||n. lathonau
bu||t up what ovontua||y bocamo AEG-A||gomo|no E|oktr|z|tts
Goso||schatt-Gorman tor tho Gonora| E|octr|c Company.'
3y 1012 3or||n wou|d bo doscr|bod as o|octr|ca||y, tho most
|mportant c|ty' |n Europo. 3|omons and AEG bocamo torm|dab|o
compan|os, compot|ng hoad-on tor contracts to o|octr|ty c|t|os and
towns throughout Gormany.
E|octr|c|ty was tho ha||mark ot progross |n tho |ato n|notoonth and
oar|y twont|oth contur|os. l||um|nat|ng that progross, 3or||n, w|th throo
m||||on poop|o, and Ch|cago, w|th two m||||on, oas||y outshono london,
wh|ch, w|th sovon m||||on poop|o, was tho |argost-and most |mportant
-c|ty |n tho Wostorn wor|d.
Whoroas Ch|cago and 3or||n both had contra||zod systoms, london
was h|gh|y tragmontod, w|th 70 gonorat|ng stat|ons, about 70 d|ttoront
mothods ot charg|ng and pr|c|ng, and 0b soparato ut|||t|os, |nc|ud|ng
such var|ogatod t|rms as tho Wostm|nstor E|octr|c 3upp|y Corporat|on,
tho Char|ng Cross E|octr|c 3upp|y Company, and tho 3t 1amos and
la|| Va|| Company, and many moro. londonors who cou|d attord
o|octr|c|ty toastod broad |n tho morn|ng w|th ono k|nd, ||t tho|r ott|cos
w|th anothor, v|s|tod assoc|atos |n a noarby ott|co bu||d|ng us|ng st|||
anothor, and wa|kod homo a|ong stroots that woro |||um|natod by yot
anothor k|nd.'
london |aggod bocauso ot tho |ack ot a rogu|atory tramowork that
wou|d havo promotod a moro rat|ona| un|t|od systom. A prom|nont
ong|noor comp|a|nod |n 1018 that london usod an absurd|y sma||
amount ot o|octr|c|ty' tor a c|ty |ts s|zo. 1horo |s a vory groat dangor ot
our not on|y bo|ng |ast, but ot our roma|n|ng |ast.' london cont|nuod to
|ag tor yoars attor.
1b
A|N FOR 1EE 1OP"
ln tho Un|tod 3tatos by tho 1020s, 3amuo| lnsu|| had |mp|omontod h|s
torm|dab|o bus|noss modo|-tak|ng advantago ot tho oconom|os ot
sca|o dor|vod trom contra||zod, mass product|on to prov|do an
|noxpons|vo product to a d|vorso customor baso-on a grand sca|o.
||s groat o|octr|c powor omp|ro strotchod across tho V|dd|o Wost and
|nto tho East. Ch|cago |tso|t showod tho sca|o ot what had boon
ach|ovod. Whon lnsu|| took ovor Ch|cago Ed|son |n 1882, thoro woro
just b,000 customors |n tho ont|ro c|ty, and thoy pa|d by tho numbor ot
o|octr|c bu|bs. 1ho opt|m|st|c v|ow at that t|mo was as many as 2b,000
Ch|cagoans m|ght u|t|mato|y uso o|octr|c|ty.'
3ut by tho 1020s, 0b porcont ot tho homos |n Ch|cago woro w|rod
tor o|octr|c|ty. And thoy pa|d by usago. 1h|s was tho prototypo ot
lnsu||'s v|s|on tor tho wor|d: Evory homo, ovory tactory and ovory
transportat|on ||no w||| obta|n |ts onorgy trom ono common sourco, tor
tho s|mp|o roason that that w||| bo tho choapost way to produco and
d|str|buto |t.' 3y tho boom yoars ot tho 1020s, lnsu|| h|mso|t had
bocomo not on|y ono ot tho most tamous bus|nossmon |n tho wor|d but
a|so an |con ot cap|ta||sm. Vany saw h|m as tho groatost bus|noss
statosman ot tho ago, h|s words woro vonoratod ||ko thoso ot a sago,
and lnsu|||sm' was app|audod as tho tuturo ot cap|ta||sm.
10
At tho poak, |n 1020, lnsu||'s omp|ro ot ho|d|ng and oporat|ng
compan|os, va|uod |n tho b||||ons, contro||od powor compan|os |n 82
statos, and ho ho|d 0b cha|rmansh|ps, 8b d|roctorsh|ps, and 11
pros|donc|os. |o was a man ot w|do ronown and a groat bonotactor.
|o was tho pros|d|ng ango|' ot tho C|v|c Opora |ouso |n Ch|cago and
was rospons|b|o tor |ts bu||d|ng.
loportors constant|y sought out h|s w|sdom. Askod by ono roportor
tor h|s adv|co to young mon start|ng out, ho sa|d, A|m tor tho top.' And
what was h|s groatost amb|t|on |n ||to'?
1o hand down my namo as c|oan as l roco|vod |t,' ho rop||od.
1hat was not qu|to to bo.
17
| EAVE ERRED": 1OO NuCE DEB1
ln tho boom|ng |ato 1020s, lnsu||'s omp|ro wont on a buy|ng sproo,
acqu|r|ng now compan|os and conso||dat|ng contro| ot |ts ho|d|ngs-a||
ot th|s at h|ghor and h|ghor pr|cos. ln 0ocombor 1028 ho croatod a
now company, lnsu|| Ut|||t|os lnvostmonts, and to assuro h|s contro|
ovor h|s omp|ro, ho |ssuod sharos to tho pub||c at $12. 3otoro tho
summor ot 1020 was out, tho stock had h|t $1b0.
18
1ho bus|noss roqu|rod cont|nua||y groator sca|o to br|ng down costs,
do||vor choapor powor, oxpand tho customor baso-and to assuro
prot|ts. 3ut such oxpans|on croatod onormous cap|ta| noods, wh|ch
lnsu|| mot by tak|ng on moro dobt and by so|||ng common stock to
customors and tho pub||c. lnsu|| ro|ont|oss|y pursuod growth. Evon attor
tho 1020 stock crash, h|s compan|os woro st||| mak|ng |nvostmonts,
and tak|ng on st||| moro dobt w|th somo abandon. 1ho ontorpr|so
bocamo |ovoragod to an oxtraord|nary dogroo. Voroovor, lnsu||'s
account|ng pract|cos woro suspoct. ||s compan|os, |t was sa|d, wou|d
ovorchargo oach othor tor sorv|cos. 1hoy wou|d a|so so|| assots
among thomso|vos, mark|ng up tho book va|uos attor tho sa|os, thoy
v|rtua||y |gnorod account|ng tor tho doproc|at|on ot assots. 1ho who|o
bus|noss was prod|catod on lnsu||'s ab|||ty to cont|nuo ra|s|ng mass|vo
sums, ovon as |nvostors had ||tt|o undorstand|ng ot tho actua| t|nancos
ot tho compan|os. 3ut t|mo was runn|ng out.
As tho Groat 0opross|on dooponod and tho stock markot cont|nuod
to doc||no, banks bogan to ca|| |n tho|r |oans trom lnsu||. 1ho ug|y roa||ty
bocamo c|oar: tho dobt ho had takon on tor acqu|s|t|ons tar oxcoodod
tho va|uo ot tho stock that had boon p|odgod as co||atora|, tor tho va|uo
ot th|s stock had boon p|ummot|ng. l havo orrod,' lnsu|| sa|d. Vy
groatost orror was |n undorost|mat|ng tho ottoct ot tho t|nanc|a|
pan|c.'
10
ln 1082 lnsu||'s who|o omp|ro co||apsod, dono |n by |ts dobt and
|ntr|cato|y comp|ox corporato structuro. Whon tho bankors, at a
moot|ng |n low York, to|d lnsu|| that thoy wou|d g|vo h|m no moro
rosp|to and woro pu|||ng h|s |oans, ho |s roportod to havo sa|d, l w|sh
my t|mo on oarth had a|roady como.'
1ho Now York 7lmos had doscr|bod lnsu|| as a man ot toros|ght
and v|s|on . . . ono ot tho toromost and groatost bu||dors ot Amor|can
|ndustr|a| omp|ros.' 3ut now lnsu|| was d|sgracod, too broko to bo
bankrupt,' sa|d ono bankor. lnsu||'s ta|| trom tho p|nnac|o was as
proc|p|tous and ca|am|tous as any |n Amor|can h|story.
20
1housands ot sma|| |nvostors woro |ott ho|d|ng socur|t|os worth on|y
ponn|os on tho do||ar. 1ho todora| govornmont |aunchod cr|m|na|
chargos aga|nst h|m tor traud and ombozz|omont. lot on|y was ho now
poor, ho had a|so bocomo, accord|ng to both prosocutors and much ot
tho pub||c, a scoundro|, an ombozz|or, and a crook. Evoryth|ng o|so
was torgotton.
3ut lnsu|| was moro than tho scapogoat tor tho Groat 0opross|on.
|o had vory qu|ck|y bocomo tho vory ombod|mont ot tho ov||s ot
cap|ta||sm |n an oconom|ca||y prostrato country that was c|oso to |os|ng
ta|th |n tho systom. |rank||n loosovo|t, campa|gn|ng tor pros|dont |n
1082, p|odgod to got' tho lnsu||s.
lnsu|| t|od tho country. |o chartorod a Grook tro|ghtor to cru|so tho
Vod|torranoan wh||o cons|dor|ng tak|ng up an ottor to bocomo m|n|stor
ot powor ot luman|a or sook|ng po||t|ca| asy|um o|sowhoro. Whon ho
dockod |n lstanbu|, tho 1urk|sh author|t|os arrostod h|m and packod
h|m back to tho Un|tod 3tatos, whoro tho sma||, wh|to-ha|rod 74-yoar-
o|d was trans|tod, undor armod guard, to a Ch|cago courthouso.
|orm|dab|o prosocutor|a| ta|ont was arrayod aga|nst lnsu||.
1ho jury took just t|vo m|nutos to como to |ts doc|s|on. 3ut tho jurors,
|n ordor to avo|d any susp|c|on, usod var|ous rusos to sta||, |nc|ud|ng
ordor|ng |n a cako and cottoo and ho|d|ng a b|rthday party tor ono ot
thom. ||na||y, tho jurors wa|kod back |nto tho courtroom w|th tho|r
doc|s|on. lnsu|| was not gu||ty.
0osp|to h|s acqu|tta|, lnsu|| doc|dod |t wou|d bo bottor to ||vo out h|s
||to |n lar|s. |o had |ost v|rtua||y a|| h|s monoy, ovon tho ownorsh|p ot
h|s sh|rt studs bocamo tho subjoct ot a |awsu|t. ln ordor to savo monoy,
lnsu|| mado h|s way around tho c|ty on tho lar|s Votro. ln 1088 ho
co||apsod trom a hoart attack at tho l|aco do |a Concordo stat|on.
1horo ho d|od c|utch|ng a subway t|ckot |n h|s r|ght hand. 1ho pross
pouncod on tho tact that tho groat cap|ta||st, tho arch|toct ot tho
modorn o|octr|c powor |ndustry, had d|od so poor that ho was tound
v|rtua||y ponn||oss, w|th just a tow cont|mos |n h|s pockot. |o had ||tt|o
|n porsona| ottocts to |oavo boh|nd. ||s |ogacy was tho bus|noss modo|
tor o|octr|c powor.
21
1EE NEW DEAL: CONPLE1|NC 1EE
ELEC1R|F|CA1|ON OF ANER|CA
1ho host|||ty toward lnsu|| and tho ho|d|ng-company structuro was
onormous. lt was w|do|y bo||ovod that spocu|ators and bankors had
usod tho ho|d|ng-company systom to gougo customors, |oot tho
ut|||t|os, and mako |nord|nato and unconsc|onab|o prot|ts. 1ho |odora|
1rado Comm|ss|on |ott no doubt ot |ts v|ow ot tho systom op|tom|zod
by lnsu|| w|th tho to||ow|ng words-traud, doco|t, m|sroprosontat|on,
d|shonosty, broach ot trust and oppross|on.'
22
3ut lnsu||'s v|s|on had a|so mado o|octr|c|ty ava||ab|o to m||||ons ot
Amor|cans. 1ho docados ot comp|ox systom-bu||d|ng woro oas|or to
|gnoro or torgot,' wroto ono scho|ar ot tho o|octr|c powor |ndustry.
1hoy |nvo|vod d|tt|cu|t concopts, osotor|c tochno|ogy, uncommon
oconom|cs, and soph|st|catod managomont.' lnsu||'s omp|ro, and tho
bus|noss modo| ho dovo|opod, brought tho U.3. pub||c attordab|o
ro||ab|o o|octr|c powor |n a romarkab|y short por|od ot t|mo.
A top low 0oa| pr|or|ty was to o||m|nato tho ho|d|ng-company
systom p|onoorod by lnsu|| and by wh|ch most ot tho U.3. powor
|ndustry oporatod. 1ho ut|||t|os and tho|r supportors tought back |n tho
most contont|ous and b|ttor domost|c po||t|ca| batt|o ot tho ont|ro low
0oa|. l am aga|nst pr|vato soc|a||sm ot concontratod powor as
thorough|y as l am aga|nst govornmonta| soc|a||sm,' loosovo|t
doc|arod. And |n tho ond tho low 0oa| d|d prova|| w|th tho h|stor|c
lub||c Ut|||ty |o|d|ng Act ot 108b, wh|ch dot|nod tho now |oga| structuro
ot tho o|octr|c powor |ndustry. 0os|gnod to got tho lnsu||s out ot o|octr|c
powor, |t doa|t what was tr|umphant|y ca||od tho doath sontonco' to tho
k|nd ot comp|ox ho|d|ng-company notwork that lnsu|| had
mastorm|ndod. |o|d|ng compan|os woro ottoct|vo|y porm|ttod on|y tor
ut|||t|os that woro goograph|ca||y adjacont and |n somo way phys|ca||y
|ntogratod.
28
3ut whon |t camo to o|octr|c|ty, tho nat|on was d|v|dod |n two. C|ty
dwo||ors had oasy accoss to powor, prov|dod o|thor by |nvostor-ownod
ut|||t|os or mun|c|pa||ty ownod. 3ut rura| dwo||ors had a|most no
accoss. lnvostor-ownod ut|||t|os woro not str|ng|ng ||nos out |nto tho
countrys|do bocauso, thoy sa|d, tho costs woro too h|gh and tho |oad
dons|ty too |ow.
1h|s |ott tarmors stuck |n tho n|notoonth contury w|th ond|oss hours ot
backbroak|ng |abor. Cows had to bo m||kod by hand. 1horo woro no
rotr|gorators to koop tood trosh |ong onough to got |t to markot. lt was
ovon worso tor tho tarmor's w|to. |ours had to bo spont tond|ng tho hot
stovo, moro hours boat|ng tho |aundry c|oan outs|do. 3y ono ost|mato,
|t took 08 o|ght-hour days a yoar por tarm to pump and hau| wator back
to tho houso. |a|t ot a|| tarm tam|||os d|d tho|r |aundry and bathod tho|r
ch||dron outs|do. A|| bocauso thoro was no o|octr|c|ty.
24
1h|s changod w|th tho low 0oa|, bog|nn|ng w|th a todora||y ownod
dam at Vusc|o 3hoa|s, |n A|abama, wh|ch had boon bu||t to prov|do
powor tor manutactur|ng oxp|os|vos dur|ng tho ||rst Wor|d War. Attor a
bru|s|ng po||t|ca| batt|o, |t bocamo tho start|ng po|nt tor tho
govornmont-ownod 1onnossoo va||oy Author|ty, w|th anothor 20 or so
dams to bo bu||t as part ot tho systom.
ln 1080 loosovo|t s|gnod |og|s|at|on croat|ng tho lura|
E|octr|t|cat|on Adm|n|strat|on. lt prov|dod |oans to rura| cooporat|vos,
wh|ch bu||t transm|ss|on and d|str|but|on ||nos to |so|atod tarms across
Amor|ca that, unt|| thon, had had to dopond upon korosono |amps tor
tho|r ||ght and oxhaust|ng |abor tor tho|r powor. 3omo ot tho co-ops
a|so wont |nto o|octr|c|ty gonorat|on.
Othor |og|s|at|on ostab||shod markot|ng author|t|os that gavo
protoronco to rura| cooporat|vos and mun|c|pa|s tor tho powor
gonoratod by tho b|g now todora| dams, ||ko 3onnov|||o and Grand
Cou|oo |n tho northwost, and tho |oovor 0am on tho Co|orado. 1ho
lEA and tho cooporat|vos that workod w|th |t transtormod tho ||to ot
rura| Amor|ca.
L|VE BE11ER ELEC1R|CALLY"
1ho 10b0s and 1000s woro tho yoars |n wh|ch Amor|ca roa||y bocamo
an o|octr|t|od soc|oty. W|th tho ond ot Wor|d War ll, m||||ons ot U.3.
so|d|ors roturnod homo. l|s|ng marr|ago and b|rth ratos, comb|nod
w|th tho G.l. 3||| that mado |t oas|or tor votorans to purchaso homos,
|od to a surgo |n domand tor now housos. A groat suburban houso-
bu||d|ng movomont ro||od out trom tho c|t|os, w|th moro than 18 m||||on
now homos bu||t |n tho Un|tod 3tatos botwoon 104b and 10b4-and
w|th o|octr|c|ty p|ay|ng an |ncroas|ng|y |mportant ro|o |n tho Amor|can
homo and Amor|can ||to. 0ur|ng tho postwar yoars ot tho 10b0s, U.3.
o|octr|c|ty domand grow at an astound|ng annua| rato ot 10 porcont
(comparod w|th about 1 porcont |n rocont yoars) as moro and moro
usos woro tound tor o|octr|c|ty |n homos, ott|cos, and tactor|os.
2b
loth|ng so much capturod tho bu||d-out ot o|octr|c|ty |n tho postwar
ora as Gonora| E|octr|c's l|vo 3ottor E|octr|ca||y' campa|gn, |aunchod
|n tho m|d-10b0s and supportod by 800 ut|||t|os. 3ut such a campa|gn
noodod a spokosman, |ndood a nat|ona| champ|on. lt turnod toward
|o||ywood.
ln tho oar|y 10b0s, lona|d loagan's mov|o caroor was not go|ng a||
that wo||. Yos, ho was a wo||-known scroon actor, but not qu|to a top
|oad|ng man. As pros|dont ot tho 3croon Actors Gu||d, tho actors
un|on, ho had corta|n|y honod h|s po||t|ca| sk|||s boh|nd tho sconos, but
that had dono noth|ng to advanco h|s prosonco on tho s||vor scroon.
|o and h|s w|to lancy had a baby at homo, but no scr|pts or
paychocks woro com|ng |nto tho houso. ||na||y, h|s agont |andod h|m a
job at tho last |ront|or |oto| |n las vogas, do|ng stand-up comody
and opon|ng tor a s|ng|ng group ca||od tho Cont|nonta|s. 1hough
loagan protostod that ho no|thor sang nor dancod, tho monoy was
good, and tho two-wook show was so|d out, but ho tound tho work
bor|ng, and ho and lancy had no |ntorost |n tho gam|ng tab|os. 1h|s
was not why ho had bocomo an actor.
1hon h|s agont ca||od w|th a moro |ntorost|ng ottor: to host a
proposod to|ov|s|on sor|os ca||od OE 7bootor and bocomo tho rov|ng
ambassador tor Gonora| E|octr|c. 1ho pay was vory good-$12b,000
a yoar ($1 m||||on |n today's monoy). |o took |t. Ovor tho noxt o|ght
yoars ho spont a groat doa| ot t|mo on tho road-tho oqu|va|ont ot two
yoars-v|s|t|ng 18b GE p|ants around tho country, g|v|ng spoochos,
and moot|ng 2b0,000 GE workors. 1ho t|mo away trom homo was
|ongthonod by h|s contract, wh|ch porm|ttod h|m to avo|d a|rp|anos and
cr|sscross tho country on|y by tra|n and car bocauso ot h|s toar ot
t|y|ng. (As ho wroto to a tr|ond |n 10bb, l am ono ot thoso proh|stor|c
poop|o who won't t|y.') ln tho courso ot thoso yoars on tho road tor GE,
ho dovo|opod tho spooch'-tho thomat|c ama|gam ot patr|ot|sm,
Amor|can va|uos, cr|t|c|sm ot b|g govornmont and rogu|at|on, and
anocdotos and attab|o good humor-that wou|d |aunch h|m |nto tho
govornorsh|p ot Ca||torn|a and thon onto tho pros|doncy. 3ut that was
a|| |n tho tuturo. ln tho moant|mo, OE 7bootor, w|th lona|d loagan at
tho ho|m, bocamo ono ot tho top-ratod shows on 3unday n|ght.
20
Gonora| E|octr|c a|so turnod tho loagan homo |n tho lac|t|c
la||sados soct|on ot los Ango|os |nto a stunn|ng showcaso tor tho a||-
o|octr|c homo-tho most o|octr|c houso |n tho country,' loagan ca||od
|t. Wo tound ourso|vos w|th moro rotr|gorators, ovons and tancy ||ghts
than wo cou|d uso,' lancy loagan sa|d. GE kopt t|nd|ng now
app||ancos to do||vor-a co|or to|ov|s|on, a rotr|goratod w|no co||ar,
and an amaz|ng now |nnovat|on, an o|octr|c garbago d|sposa|. 3o
groat was tho oxtra o|octr|c |oad that |t had to bo accommodatod w|th
add|t|ona| w|r|ng and a throo-thousand-pound stoo| cab|not on tho s|do
ot tho houso. loagan wou|d joko that thoy had a d|roct o|octr|c ||no to
|oovor 0am.
27
And so, |ong botoro lona|d loagan bocamo tho tort|oth pros|dont
ot tho Un|tod 3tatos and tho g|oba| proponont tor troodom and troo
markots, ho a|roady bocamo tho torvont advocato tor tho a||-o|octr|c
homo.' ln a sor|os ot to|ov|s|on commorc|a|s, ho and lancy |nv|tod
v|owors |nto tho|r a||-o|octr|c homo, whoro thoy oxto||od many ot tho|r
GE app||ancos, rang|ng trom a toastor ovon to a vacuum c|oanor to a
watt|o |ron to a portab|o to|ov|s|on that thoy proud|y carr|od onto tho|r
pat|o and out by tho poo|.
Vy o|octr|c sorvants do ovoryth|ng,' sa|d lancy loagan, as hor
husband savorod tho cottoo trom an o|octr|c cottoo makor.
1hat's tho po|nt ot ||v|ng bottor o|octr|ca||y,' rop||od a boam|ng
loagan.
Attor g|v|ng tho|r young daughtor, latt|, a tour around tho houso, and
|ott|ng hor |dont|ty a|| tho|r housoho|d app||ancos, lancy loagan sa|d,
lt makos qu|to a d|ttoronco |n how wo ||vo.'
1o thoso who had ||vod through tho dopr|vat|on ot tho 0opross|on |n
Amor|ca's c|t|os and on |ts tarms, tho o|octr|c homo and thoso o|octr|c
sorvants' tru|y d|d moan a vor|tab|o rovo|ut|on |n tho qua||ty and oaso ot
domost|c ||to. W|th what was a|roady that charactor|st|ca||y attab|o
shako ot h|s hoad, loagan summod |t up, You roa||y bog|n to ||vo
whon you ||vo bottor . . .' And thon h|s daughtor jumpod |n to
onthus|ast|ca||y add, E|octr|ca||y!'
28


|oro |t was-tho Amor|can 0roam and what wou|d bocomo a droam
around tho wor|d-a|| o|octr|c. Or, at |oast, |ncroas|ng|y o|octr|c. l|v|ng
bottor o|octr|ca||y was rot|octod |n tho rap|d growth |n tho nat|on's
consumpt|on ot o|octr|c|ty. 3ut how to gonorato tho o|octr|c|ty to moot
tho nat|on's grow|ng domands tor powor?
18
1EE NuCLEAR CYCLE
lt was an odd |ocat|on tor a pros|dont-o|oct to bo br|otod on tho most
d|ro throat tac|ng tho wor|d. 3ut tho sma|| ott|co bo|ong|ng to tho c|ub
managor was tho on|y p|aco road||y ava||ab|o at tho Augusta lat|ona|
Go|t C|ub |n Goorg|a, whoro 0w|ght E|sonhowor was on a go|t|ng
vacat|on attor h|s o|octora| v|ctory |n 10b2.
What E|sonhowor |oarnod that morn|ng was vory sobor|ng. 1ho
subjoct was tho grow|ng r|sk ot nuc|oar war.
3ovon yoars oar||or, two atom|c bombs dotonatod ovor tho
1apanoso c|t|os ot ||rosh|ma and lagasak| had brought tho 3ocond
Wor|d War to a suddon conc|us|on. ln tho |mmod|ato postwar yoars,
tho Un|tod 3tatos, w|th |ts a||y 3r|ta|n, ho|d what soomod to bo an
atom|c monopo|y. 3ut thon |n 1040, |n what was a stunn|ng shock, tho
3ov|ot Un|on, abottod by a notwork ot spy r|ngs, tostod |ts t|rst atom|c
bomb wo|| ahoad ot what was ant|c|patod.
1
1hat lovombor morn|ng |n 10b2, E|sonhowor bogan by ask|ng tho
br|otor, a son|or ott|c|a| trom tho Atom|c Enorgy Comm|ss|on, about
tho p|usos and m|nusos ot comb|n|ng |n a s|ng|o tac|||ty tho gonorat|on
ot c|v|||an nuc|oar o|octr|c|ty w|th tho product|on ot woapons-grado tuo|.
1hon, gott|ng down to tho |mmod|ato bus|noss at hand, tho br|otor
pu||od tho top-socrot documonts trom an ovors|zo onvo|opo. 1ho top|c,
on wh|ch tho now pros|dont noodod to bo urgont|y |ntormod, was tho
stato ot tho nuc|oar arsona| and tho toarsomo rato at wh|ch dostruct|vo
powor was grow|ng.
A ||tt|o moro than a wook oar||or, tho Un|tod 3tatos had tostod
V|ko'-tho t|rst tu||-sca|o thormonuc|oar dov|co,' sa|d ono ot tho
documonts-tho prototypo ot a tar moro powortu| hydrogon bomb, 1b0
t|mos moro powortu| than tho atom|c bomb. 1ho lac|t|c |s|and on
wh|ch V|ko' had boon tostod was now, |n tho stark words ot tho
documont, m|ss|ng,' rop|acod by an undorwator crator a|most a m||o
|n d|amotor. E|sonhowor |nstant|y absorbod tho s|gn|t|canco. 1horo
was now, ho sa|d, onough dostruct|vo powor to dostroy ovoryth|ng.'
|o worr|od about tho dangorous tomptat|on to th|nk that such woapons
cou|d bo usod ||ko othor woapons.'
Attor tho moot|ng, tho t|rst th|ng that tho br|otor d|d, ovon botoro
gott|ng back on tho p|ano, was to burn tho socrot documonts.
2


1ho dangors ot nuc|oar cont||ct wou|d doop|y prooccupy E|sonhowor
throughout h|s pros|doncy. |o had boon 3upromo Commandor |n
Europo dur|ng Wor|d War ll, and ho know that tho U.3. nuc|oar arsona|
was a|roady sovora| t|mos moro dostruct|vo than a|| tho mun|t|ons
oxp|odod dur|ng tho war. 1ho luss|ans woro hoadod down tho samo
path.
Was thoro not somo way to tompor tho arms raco and movo tho
atom' onto a moro poacotu| path? 1ho doath ot 1osoph 3ta||n |n
Varch 10b8 ho|d out that prospoct, poss|b|y. 3ut thon |n August 10b8,
a 3ov|ot woapon tost-n|cknamod 1oo 4'-sot ott now a|arms, s|nco
|t soomod to |nd|cato that tho 3ov|ot Un|on was a|so tar a|ong |n
dovo|op|ng a hydrogon bomb. 1horo was much d|scuss|on |n tho U.3.
govornmont about how to s|ow down tho arms raco, |nc|ud|ng a sot ot
proposa|s codo-namod lrojoct Whoat|os' and tho soom|ng|y ond|oss
rodratt|ng ot a major pros|dont|a| addross tor tho Un|tod lat|ons on tho
nuc|oar dangor. Wo don't want to scaro tho country to doath,'
E|sonhowor |nstructod h|s spoochwr|tor. 3ut ho was dotorm|nod to
tako tho |n|t|at|vo. 1ho wor|d |s rac|ng towards catastropho,' ho wroto
|n h|s d|ary. 3omoth|ng must bo dono to put a brako on th|s
movomont.' At tho samo t|mo, as tho Atom|c Enorgy Comm|ss|on put
|t |n a momo to tho pros|dont, ach|ov|ng oconom|ca||y compot|t|vo
nuc|oar powor' was a goa| ot nat|ona| |mportanco.'
ln h|s addross at tho Un|tod lat|ons, do||vorod |n 0ocombor 10b8,
E|sonhowor tr|od to skotch out that d|ttoront path. lt m|ght or m|ght not
work, but |t had to bo tr|od. Atoms tor loaco' |s what E|sonhowor
ca||od |t. |o summar|zod tho bu||dup ot tho nuc|oar arsona|s. 3ut ho
a|so ca||od tor U.3.-3ov|ot cooporat|on to modu|ato tho nuc|oar arms
raco and to comm|t to tho dovo|opmont ot tho poacotu| atom tor
poop|o around tho wor|d. 1hat moant, pr|mar||y, tho gonorat|on ot
o|octr|c|ty w|th nuc|oar powor. loacotu| powor trom atom|c onorgy |s
no droam ot tho tuturo,' ho prom|sod.
8


1ho way nuc|oar onorgy was dovo|opod attor Wor|d War ll st||| shapos
|ts ro|o-prosont and potont|a|-|n tho twonty-t|rst contury. 1hat bog|ns
w|th dos|gns thomso|vos. At tho hoart ot a|| ot tho roactor dos|gns |s a
coro whoro rad|oact|vo mator|a| gonoratos a contro||od cha|n roact|on,
ro|oas|ng a groat amount ot onorgy and hoat. Whoro tho dos|gns d|ttor
|s |n tho coo|ant that t|ows around tho coro, koop|ng |t trom gott|ng too
hot wh||o at tho samo t|mo bocom|ng hot onough |tso|t to produco
stoam, wh|ch |n turn dr|vos a turb|no and producos o|octr|c|ty. |or |ts
coo|ant, Canada's CAl0U roactor usod hoavy wator, a var|ant ot
natura| wator that occurs raro|y |n naturo. A 3r|t|sh dos|gn usod gas
rathor than wator as tho coo|ant.
3ut tho most common typo ot roactor, dovo|opod |n tho Un|tod
3tatos, usos ||ght wator-wh|ch |s anothor torm tor norma| wator-tor
tho coo|ant. As tho wator c|rc|os tho coro, |t |s hoatod to such a |ovo| as
to produco, o|thor d|roct|y or |nd|roct|y, tho stoam to dr|vo a turb|no.
1ho ||ght-wator roactor |s tho bas|s tor about 00 porcont ot tho 440 or
so nuc|oar roactors curront|y oporat|ona| |n tho wor|d, and v|rtua||y a||
thoso prosont|y p|annod.
Whatovor tho coo|ant, |t |s typ|ca| to spoak ot tho nuc|oar-tuo| cyc|o.
|or tho ||ght-wator roactor, tho cyc|o bog|ns w|th tho m|n|ng ot uran|um
and thon movos to onr|chmont to |ncroaso tho concontrat|on ot tho
|sotopo U-28b to a |ovo| that w||| bo ab|o to susta|n a contro||od cha|n
roact|on. 1h|s moro-concontratod tuo| |s thon tabr|catod |nto tuo| rods
that w||| bo |nsortod |nto tho roactor. 1ho cyc|o cont|nuos through tho
uso ot tho tuo| |n tho roactor a|| tho way through to tho dopos|t|on ot tho
spont tuo| |n somo torm ot storago or poss|b|o rouso.
1ho or|g|ns ot tho ||ght-wator roactor go back to tho way |n wh|ch tho
U.3. lavy, attor Wor|d War ll, sot out to harnoss tho atom to powor |ts
submar|no t|oot. lt owos |ts prodom|nanco to tho s|ng|o-m|ndod dr|vo ot
ono porson, an |ntonso|y tocusod ong|noor, Adm|ra| |yman l|ckovor.
W|do|y cons|dorod to bo tho groatost ong|noor ot a|| t|mo' |s how
lros|dont 1|mmy Cartor doscr|bod h|m. l|ckovor, who ach|ovod tho
v|rtua||y unhoard-ot toat ot spond|ng 08 yoars on act|vo duty, was not
on|y, as ho |s romomborod today, tho tathor ot tho nuc|oar navy, ho |s
a|so, to a vory cons|dorab|o dogroo, tho tathor ot today's nuc|oar
powor |ndustry.
4
1EE ADN|RAL
Evoryth|ng |n my ||to has boon sort ot a co|nc|donco,' l|ckovor onco
sa|d. |yman l|ckovor was born Cha|m l|ckovor |n a sma|| v|||ago |n a
1ow|sh shtot| ot czar|st-ru|od lo|and, most ot whoso |nhab|tants wou|d
ovontua||y por|sh |n tho |o|ocaust. At ago s|x l|ckovor |mm|gratod to
tho Un|tod 3tatos w|th h|s mothor and s|stor. ||s tathor, a ta||or, who
had gono ahoad to low York, d|d not know thoy had arr|vod. ||s
mothor, tr|ckod out ot hor monoy on tho sh|p ovor and now ponn||oss,
was bo|ng ho|d |n dotont|on w|th hor ch||dron. 1ust botoro thoy woro to
bo doportod back to lo|and, h|s tathor |oarnod by chanco that thoy
woro stuck |n |mm|grat|on and ovontua||y stumb|od on thom on E|||s
ls|and. 1ho l|ckovors sott|od |n Ch|cago. 1ho tam||y was so poor that
tho boy had to tako h|s t|rst job, ago n|no, ho|d|ng a |antorn |n a
mach|no shop. Wh||o |n h|gh schoo|, l|ckovor workod tho n|ght sh|tt,
trom 8:00 to 11:00, at tho Wostorn Un|on to|ograph agoncy. A p|cturo
trom tho 1010 lopub||can convont|on |n Ch|cago shows h|m stand|ng
st|tt|y at attont|on |n h|s Wostorn Un|on un|torm as ho wou|d |ator stand
|n h|s nava| un|torm. 1hrough a |ucky t|uko, ho won a nom|nat|on to tho
lava| Acadomy at Annapo||s.
b
Anx|ous, toartu| ot ta||uro, and corta|n|y no ath|oto-and subjoct to
oxtra haz|ng bocauso ho was 1ow|sh-l|ckovor spont ovory momont
ho cou|d at tho acadomy study|ng. |o was, as ho |ator put |t, try|ng to
got by, stay a||vo.' At n|ght whon tho ||brary c|osod, ho ovon crammod
h|mso|t |nto an unusod showor sta|| to got |n oxtra t|mo w|th h|s books.
l|ckovor may not havo boon tho most popu|ar m|dsh|pman |n h|s
c|ass, but ho graduatod w|th d|st|nct|on. |owovor, as a rosu|t ot a nava|
d|sarmamont troaty, |t |ookod as though thoro wou|d bo tow caroor
borths |n tho navy tor tho Annapo||s graduatos, |nc|ud|ng l|ckovor.
0oop|y d|sappo|ntod, ho socurod an ontry-|ovo| ong|noor|ng job at
Ch|cago's Commonwoa|th Ed|son, tho ||nchp|n ot 3amuo| lnsu||'s
omp|ro. 3ut thon, a nava| post|ng bocamo ava||ab|o. l|ckovor
subsoquont|y sorvod on two submar|nos-ono, tho 3-48, ot such tau|ty,
sooty, dangorous and ropo||ont ong|noor|ng as to soar |nto l|ckovor's
sou| a tanat|c|sm about tho abso|uto |mportanco ot h|gh ong|noor|ng
standards. 1h|s conv|ct|on wou|d |ntuso ovoryth|ng ho d|d thoroattor.
0
0ur|ng Wor|d War ll, l|ckovor hoadod tho E|octr|ca| 3oct|on |n tho
3uroau ot 3h|ps. 1horo ho honod h|s zoa|otry tor oxco||onco and an
obsoss|on w|th proc|s|on. An organ|zor 8 |oador ot outstand|ng
ab|||ty,' sa|d h|s t|na| t|tnoss roport, and ono ot tho country's toromost
ong|noors.' What th|s roport d|d not |nc|udo was h|s dr|v|ng,
dom|noor|ng, |rasc|b|o, abras|vo, somot|mos hyporsons|t|vo, oxtromo|y
cont|dont porsona||ty. 1h|s was tho t||p s|do ot h|s s|ng|o-m|ndod tocus
on m|ss|on and oxtraord|nar||y domand|ng naturo. 1h|s comb|nat|on ot
qua||t|os wou|d mako somo torovor |oya| to h|m and othors, b|ttor
onom|os-|ator |nc|ud|ng much ot tho son|or lavy brass. 3ut, ho wou|d
say, my job was not to work w|th|n tho systom. Vy job was to got
th|ngs dono and mako th|s country strong.'
l havo tho char|sma ot a ch|pmunk,' l|ckovor, |ato |n ||to, to|d
nowscastor 0|ano 3awyor. |o addod, l novor havo thought l was
smart. l thought tho poop|o l doa|t w|th . . . woro dumb, |nc|ud|ng you.'
3awyor qu|ck|y rop||od, 1o bo ca||od dumb by you |s to bo |n vory
good company.'
7
l|ckovor had a d|st|nct|vo g|tt that mado h|m, |n tho oyos ot many,
tho bost ong|noor |n tho lavy. l bo||ovo l havo a un|quo charactor|st|c
-l can v|sua||zo mach|nos oporat|ng r|ght |n my m|nd,' ho onco
oxp|a|nod. l do not th|nk thoro has boon anyono |n tho U.3. lavy who
has had as much ong|noor|ng oxpor|onco as l havo had.'
8
1EE NuCLEAR NAVY
Attor Wor|d War ll, dosp|to tho d|s||ko that many had tor h|m,
l|ckovor's namo was addod at tho |ast m|nuto to tho rostor ot nava|
ott|cors d|spatchod to tho socrot atom|c rosoarch c|ty at Oak l|dgo,
1onnossoo. 1ho|r m|ss|on was to |oarn about tho mystor|os ot nuc|oar
onorgy and what ro|o |t m|ght havo |t harnossod |n poacotu| powor
gonorat|on.
l|ckovor qu|ck|y rocogn|zod tho stratog|c potont|a| ot a nuc|oar navy
and thoroattor comm|ttod h|mso|t to roa||z|ng |t. ln part|cu|ar, ho
undorstood that nuc|oar submar|nos cou|d ottor a rango and capab|||ty
that tar oxcoodod that ot tho d|oso|-tuo|od submar|nos ot Wor|d War ll.
3y so do|ng, nuc|oar powor ottorod an oxtraord|nary so|ut|on to an
|ntractab|o prob|om that bodov||od contomporary submar|nos-tho
constra|nts ot convont|ona| battor|os, wh|ch ||m|tod tho amount ot t|mo
that submar|nos cou|d spond at tu|| spood undorwator. 3y contrast, |t
was thought, nuc|oar subs shou|d bo ab|o to cru|so undorwator at tu||
spood tor hours, days, or ovon months.
l|ckovor was g|von doub|o duty, ho was put |n chargo ot tho nuc|oar
propu|s|on programs tor both tho navy and tor tho now Atom|c Enorgy
Comm|ss|on. 1h|s doub|o post|ng ho|pod h|m to ovorcomo tho
torm|dab|o ong|noor|ng and buroaucrat|c obstac|os to roa||z|ng tho
nuc|oar submar|no. lt was sa|d that ho wou|d wr|to |ottors to h|mso|t and
thon answor thom, onsur|ng |nstant s|gn-ott trom both tho navy and tho
AEC. 1ho urgoncy ot tho program |ncroasod |n 1040 w|th tho t|rst
3ov|ot atom|c bomb tost.
lt was ono th|ng to bu||d an atom|c bomb. lt was qu|to anothor to
harnoss a contro||od cha|n roact|on ot t|ss|on to gonorato powor. 3o
much had to bo |nvontod and dovo|opod trom scratch-tho tochno|og
y, tho ong|noor|ng, tho know-how. lt was l|ckovor who choso tho
prossur|zod ||ght-wator roactor as tho propu|s|on systom. |o a|so
|mposod an ong|noor|ng and tochn|ca| d|sc|p||no unknown to |ndustry
or, oxcopt tor h|s own organ|zat|on, to govornmont.'
0
1o accomp||sh h|s goa|s, l|ckovor bu||t a cadro ot h|gh|y sk|||od and
h|gh|y tra|nod ott|cors tor tho nuc|oar navy, who woro constant|y pushod
to oporato at poak standards ot portormanco. lt that moant bo|ng a
taskmastor and a mart|not, l|ckovor wou|d bo a taskmastor and a
mart|not. Evon a m|nor ovors|ght or dov|at|on trom l|ckovor's vory h|gh
standards wou|d ||ko|y moan that an ott|cor wou|d bo donukod'-
ojoctod trom tho nuc|oar sorv|co.
Whon |ntorv|ow|ng cand|datos tor tho nuc|oar navy, l|ckovor wou|d,
|n ordor to throw thom ott and tost thom, soat thom |n cha|rs w|th
shortonod tront |ogs and at tho samo t|mo pos|t|on thom so that tho
sun||ght stroamod through spoc|a||y adjustod vonot|an b||nds stra|ght
|nto tho|r oyos. 1hat way thoy had to ma|nta|n tho|r w|ts,' ho oxp|a|nod,
wh||o thoy woro s||d|ng ott tho cha|r.'
10
Onco, whon a young submar|no ott|cor was app|y|ng to tho nuc|oar
navy, ho proud|y to|d l|ckovor that ho had como |n b0th |n h|s c|ass ot
820 at tho lava| Acadomy. l|ckovor ac|d|y askod h|m |t ho had dono
h|s bost. Attor a momont's hos|tat|on, tho takon-aback ott|cor, namod
1amos Ear| Cartor, adm|ttod that ho had not.
Why not?' l|ckovor askod.
1hat quost|on-Why lot tho 3ost?-bocamo tho t|t|o ot h|s
campa|gn autob|ography whon, as 1|mmy Cartor, ho ran tor tho
pros|doncy docados |ator.
11
ln l|ckovor's t|ro|oss campa|gn to bu||d a nuc|oar submar|no and
bu||dozo through buroaucracy, ho so a||onatod h|s supor|ors that ho
was tw|co passod ovor tor promot|on to adm|ra|. lt took congross|ona|
|ntorvont|on to t|na||y socuro h|m tho t|t|o.

l|ckovor's mothods workod. 1ho dovo|opmont ot tho tochno|ogy, tho
ong|noor|ng , and construct|on tor a nuc|oar submar|no-a|| thoso woro
ach|ovod |n rocord t|mo. 1ho t|rst nuc|oar submar|no, tho U33
Nootl|os, was comm|ss|onod |n 10b4. 1ho who|o ontorpr|so had boon
ach|ovod |n sovon yoars-comparod w|th tho quartor contury that
othors had prod|ctod. ln 10b8, to groat acc|a|m, tho Nootl|os
accomp||shod a torm|dab|o, |ndood unth|nkab|o, toat-|t sa||od 1,400
m||os undor tho lorth lo|o and tho po|ar |co cap. 1ho journoy was
nonstop oxcopt tor thoso t|mos whon tho sh|p got tomporar||y stuck
botwoon tho mass|vo |co cap and tho sha||ow soa bottom. Whon, on
tho sh|p's roturn, tho Nootl|os's capta|n was roco|vod at tho Wh|to
|ouso, tho abras|vo l|ckovor, who was u|t|mato|y rospons|b|o tor tho
vory ox|stonco ot tho Nootl|os, was po|ntod|y oxc|udod trom tho
coromony.
At a soparato moot|ng, tho sh|p's capta|n prosontod Adm|ra|
l|ckovor w|th a p|oco ot po|ar |co, carotu||y prosorvod |n tho sh|p's
troozor. lt was ono ot tho raro t|mos that thoso who roportod to h|m
ovor saw tho trosty adm|ra| sm||o. 3y tho t|mo l|ckovor t|na||y rot|rod |n
1080, 40 porcont ot tho navy's major combatant sh|ps wou|d bo
nuc|oar propo||od.
12
1EE REAC1OR A1 OBN|N5K
1ho Nootl|os was tho t|rst contro||od app||cat|on ot nuc|oar powor tor
voh|c|o propu|s|on. |owovor, |n tho summor ot 10b4, 3ov|ot rad|o
announcod anothor t|rst' tor 3ov|ot sc|onco': tho t|rst c|v|||an roact|on
anywhoro |n tho wor|d had gono |nto oporat|on |n tho sc|onco c|ty ot
Obn|nsk, south ot Voscow. 1ho 3ov|ot Un|on, doc|arod tho 3ov|ot
nows agoncy 1A33, had |oapod ahoad ot 3r|ta|n and tho Un|tod
3tatos |n tho dovo|opmont ot atom|c onorgy.'
3ut tho actua| roactor at Obn|nsk was t|ny, capab|o ot supp|y|ng
powor on|y to somo |oca| co||oct|vo tarms and tactor|os and a tow
thousand ros|donts. lt was a|so a tororunnor ot a part|cu|ar typo ot
3ov|ot roactor ca||od tho l3VK, wh|ch wou|d ach|ovo untortunato
notor|oty somo docados |ator.
18
1OO CEEAP 1O NE1ER"
Evon botoro tho |aunch ot tho Nootl|os, tho dovo|opmont ot a c|v|||an
nuc|oar roactor was bog|nn|ng. lt too was undor tho t|rm contro| ot
Adm|ra| l|ckovor. 1ho c|v|||an roactors woro basod upon tho navy's
dos|gns. 1ho dos|gn |s otton attr|butod to tho submar|no roactors, but
thoro was an |ntormod|ato stop. Attor work had a|roady bogun on
dovo|op|ng a roactor tor a|rcratt carr|ors, tho E|sonhowor
adm|n|strat|on doc|dod that tho program wou|d bo too oxpons|vo and
|nstoad conc|udod that tho qu|ckost way to got to nuc|oar powor wou|d
bo by str|pp|ng tho carr|or propu|s|on projoct ot |ts d|st|nct|vo nava|
toaturos and mak|ng |t tho bas|s tor a c|v|||an roactor.
1ho roact|on to tho Atom|c Enorgy Comm|ss|on's announcomont ot
tho c|v|||an program was onthus|ast|c. 7lmo magaz|no ca||od |t a now
phaso' ot tho atom|c ago, tho Now York 7lmos wont ovon turthor,
announc|ng tho com|ng ago ot atom|c powor. 1ho opt|m|sm ot tho
t|mos was capturod |n 10b4 whon tho hoad ot tho Atom|c Enorgy
Comm|ss|on, low|s 3trauss, mado what wou|d turn |nto tho tamous
prophocy that nuc|oar powor wou|d, w|th|n 1b yoars, do||vor o|octr|ca|
onorgy too choap to motor.'
14
1ho t|rst U.3. nuc|oar p|ant was bu||t at 3h|pp|ngport, lonnsy|van|a. lt
wont |nto oporat|on |n 10b7, just throo yoars attor tho |aunch ot tho
Nootl|os. 1ho 3r|t|sh actua||y boat |t by a yoar, w|th tho t|rst commorc|a|
product|on ot nuc|oar powor |n tho wor|d at Ca|dor |a|| |n 3r|ta|n, wh|ch
Ouoon E||zaboth dod|catod |n 10b0. 3ut Ca|dor |a|| was a sma||
powor p|ant (bu||t w|th a dos|gn now cons|dorod obso|oto).
3h|pp|ngport, by contrast, ranks as tho wor|d's t|rst tu||-sca|o atom|c
powor stat|on.' 1ho dos|gn and construct|on ot tho powor p|ant was
d|roctod by nono othor than Adm|ra| |yman l|ckovor, who rota|nod
oporat|ona| ovors|ght tor tho noxt twonty-t|vo yoars. 1hough tho roactor
had boon sca|od up trom tho ono dos|gnatod tor an atom|c-poworod
a|rcratt carr|or, |t had a|so boon tundamonta||y rothought and
rodos|gnod to produco o|octr|c powor. lt portormod tar abovo |ts ratod
dos|gn and oporatod v|rtua||y tau|t troo. 1h|s was crod|t to l|ckovor,
w|th h|s dotorm|nod oxact|tudo, and to tho toam ho assomb|od.
1b
1ho roa| commorc|a| turn|ng po|nt tor nuc|oar powor camo |n 1008,
whon a low 1orsoy ut|||ty ordorod a commorc|a| p|ant to bo bu||t at
Oystor Crook. 1hat roactor was a|so basod upon tho dos|gn
dovo|opod undor l|ckovor.
1EE CREA1 NuCLEAR BANDWACON
Ovor tho noxt tow yoars, about b0 nuc|oar powor p|ants woro ordorod,
as ut|||t|os c|amborod a|| ovor oach othor to jump onto what was
bocom|ng known as tho groat bandwagon markot.' lt was 1homas
Ed|son vorsus Goorgo Wost|nghouso a|| ovor aga|n, w|th Gonora|
E|octr|c and Wost|nghouso batt||ng tor markot sharo w|th tho|r
rospoct|vo vors|ons ot ||ght-wator roactors. Wost|nghouso champ|onod
tho lWl, tho prossur|zod-wator roactor, and GE, tho 3Wl, tho bo|||ng
wator roactor. Atom|c onorgy, somo projoctod, cou|d prov|do a|most
ha|t ot tota| U.3. o|octr|c|ty by tho t|rst docado ot tho twonty-t|rst contury.
Ono |oad|ng sc|ont|st doc|arod, luc|oar roactors now appoar to bo
tho choapost ot a|| sourcos ot onorgy' w|th tho prom|so ot tho
pormanont and ub|qu|tous ava||ab|||ty ot choap powor.'
10
3ut nuc|oar powor, |t turnod out, was not choap at a||. Costs wont up
-way up. 1ho roasons woro many and |ntorconnoctod. 1horo was not
onough standard|zat|on |n p|ants and dos|gns. Vany ut|||t|os d|d not
havo tho hott and oxpor|onco to tako on projocts that woro much
b|ggor than thoy had ant|c|patod and moro comp|ox and d|tt|cu|t to
manago. 1ho vondors woro prom|s|ng moro than thoy cou|d do||vor |n
a t|mo tramo that thoy cou|d not moot. And thoro was |nsutt|c|ont
oporat|ng oxpor|onco.
At tho samo t|mo, tho quost|on ot how sato |s sato onough?'
omorgod as a burn|ng |ssuo. What woro tho r|sks ot an acc|dont and
rad|at|on oxposuro? At both tho todora| and stato |ovo|s, ||cons|ng and
porm|tt|ng took much |ongor than oxpoctod. Grow|ng onv|ronmonta|
and spoc|t|ca||y ant|nuc|oar movomonts promptod constant rogu|atory
do|ays, rov|ows, and changos. Concroto wa||s that had a|roady boon
|a|d |n had to bo robu||t and th|ckonod, p|p|ng had to bo takon out and
roworkod. l|ants had to bo rodos|gnod and thon rodos|gnod aga|n
and aga|n dur|ng construct|on, moan|ng that costs wont up and thon
wont up aga|n, tar oxcood|ng tho or|g|na| budgots.
1ho p|ants a|so bocamo moro oxpons|vo bocauso ot tho gonora|
|nt|at|onary prossuros ot tho ora, and thon h|gh |ntorost ratos. lnstoad ot
s|x yoars, p|ants woro tak|ng ton yoars to bu||d, turthor dr|v|ng up
t|nanc|ng costs. l|ants that woro supposod to cost $200 m||||on ondod
up cost|ng $2 b||||on. 3omo cost much moro. 1ho ovo|ut|on |n tho
costs,' sa|d an oconom|st trom tho Atom|c Enorgy Comm|ss|on, w|th
somo undorstatomont, cou|d bo c|ass|t|od as a traumat|c, rathor than
a succosstu|, oxpor|onco.'
17
1EE BuDDEA |5 5N|L|NC": PROL|FERA1|ON
Anothor concorn was omorg|ng as wo||-about tho r|sks ot nuc|oar
pro||torat|on and tho d|vors|on ot nuc|oar mator|a|s and know-how.
Vombors ot what was bocom|ng known as tho arms-contro|
commun|ty, tocus|ng on pro||torat|on, addod tho|r vo|cos to thoso ot tho
ant|nuc|oar act|v|sts.
|or a numbor ot yoars, thoro was cont|donco that tho nuc|oar
woapons c|ub' was stab|o and h|gh|y oxc|us|vo, ||m|tod to just t|vo
mombors-tho Un|tod 3tatos, tho 3ov|ot Un|on, 3r|ta|n, |ranco, and
Ch|na. 1ho doctr|no ot mutua||y assurod dostruct|on-known as VA0
-ottorod tho stab|||ty ot dotorronco botwoon tho Un|tod 3tatos and tho
3ov|ot Un|on. 3ut thon, |n Vay ot 1074, tho lnd|an toro|gn m|n|stor
roco|vod a crypt|c phono mossago: 1ho 3uddha |s sm|||ng.' |o know
what that codo moant, lnd|a had just oxp|odod a poacotu| nuc|oar
dov|co' |n tho lajasthan 0osort, 100 m||os trom tho bordor w|th
lak|stan. 1ho nuc|oar monopo|y ot tho t|vo powors had boon brokon,
and tho prospoct tor turthor pro||torat|on was now vory roa|.
18
lt was now om|nont|y c|oar that a strong ||nk-|t that ||nk was sought
-ox|stod botwoon poacotu| nuc|oar powor' and a nuc|oar woapon.
1horo was on|y ono atom, and tho samo nuc|oar p|ant that producod
o|octr|c|ty cou|d a|so produco p|uton|um |n |ts spont tuo|, wh|ch cou|d
bo usod as a woapons tuo|. 1hat was tho way tho lnd|ans had dono |t.
Voroovor, an onr|chmont tac|||ty that turnod out nuc|oar tuo| w|th tho 8
porcont to b porcont concontrat|on roqu|rod tor a roactor cou|d koop
onr|ch|ng tho uran|um ovor and ovor unt|| |t roachod an 80 porcont or
00 porcont concontrat|on ot U-28b. 1hat was woapons-grado uran|um,
and out ot that cou|d bo mado an atom|c bomb.
lnt|uont|a| sc|ont|sts and mombors ot tho toro|gn-po||cy commun|ty |n
tho Un|tod 3tatos and othor countr|os bogan to quost|on tho promot|on
ot nuc|oar powor-not on grounds ot satoty, but bocauso ot tho r|sks ot
pro||torat|on. 0ur|ng Wor|d War ll, |arvard chom|stry protossor Goorgo
K|st|akowsky, known as K|sty,' had boon ono ot tho ch|ot dos|gnors ot
tho atom|c bomb at tho socrot los A|amos |aboratory. lator ho was
tho Wh|to |ouso sc|onco adv|sor to lros|dont E|sonhowor. 3ut now, |n
1077, troub|od by socond thoughts, ho sa|d, Wo must ho|d back on
groat oxpans|on ot nuc|oar powor unt|| tho wor|d gots bottor. lt's just too
damn r|sky r|ght now.'
10
1EREE N|LE |5LAND
Whatovor tho|r b|ttor d|ttoroncos, on ono th|ng propononts and
oppononts ot nuc|oar powor cou|d abso|uto|y agroo: 1ho coro ot an
oporat|ng roactor had to bo kopt constant|y supp||od w|th cop|ous
amounts ot coo|ant to d|ss|pato tho hoat producod by t|ss|on.'
Othorw|so, somoth|ng torr|b|o cou|d happon.
And that n|ghtmaro sconar|o suddon|y soomod about to bocomo a
roa||ty-|n tho prodawn hours ot Varch 28, 1070, |n Un|t 2 at tho 1hroo
V||o ls|and nuc|oar powor p|ant, on tho 3usquohanna l|vor, noar
|arr|sburg, lonnsy|van|a. 1ho cha|n roact|on ot ovonts startod at 4:00
a.m. w|th a shutdown |n tho toodwator pumps that woro moant to koop
tho roactor coro coo|. ln|t|a||y tho prob|oms woro d|sm|ssod as a
norma| aborrat|on.' 1hon a who|o sor|os ot turthor ma|tunct|ons and
oporator orrors onsuod, ono p|||ng on top ot tho noxt. At ono po|nt, tho
|nstrumontat|on m|s|od tho oporators |nto th|nk|ng that thoro was too
much wator |n tho coo||ng systom, |nstoad ot too ||tt|o. 1hoy turnod ott
tho omorgoncy coo||ng systom and shut down tho pumps that woro
c|rcu|at|ng wator, wh|ch o||m|natod tho|r ab|||ty to romovo hoat trom tho
roactor coro. A|| th|s gonoratod a soquonco ot ovonts that mo|tod part
ot tho roactor's coro, torcod a comp|oto shutdown ot tho p|ant, and |od
to a m|nor ro|oaso ot rad|oact|vo stoam. lt a|so |gn|tod toars ot a major
rad|oact|vo |oak and a tota| mo|tdown .
20
1ho rosu|t was |mmod|ato pan|c. luc|oar l|ghtmaro' was tho covor
ot 7lmo magaz|no. 1ho Now York Post hoad||nod luc|oar loak Goos
Out ot Contro|.' 1housands ot poop|o t|od tho|r homos, ros|donts ovor
a w|do aroa woro |nstructod to koop tho|r w|ndows t|ght|y shut and turn
ott a|r cond|t|onors to provont |ntako ot contam|natod a|r. A|most a
m||||on poop|o woro to|d to proparo tor |mmod|ato ovacuat|on.
A tow days attor tho acc|dont, 1|mmy Cartor, tho nuc|oar ong|noor-
turnod-pros|dont, arr|vod by ho||coptor at 1hroo V||o ls|and. |o v|owod
tho cr|pp|od roactor trom a schoo| bus and thon, a|ong w|th h|s w|to,
los|ynn, tourod tho p|ant's contro| room w|th h|s shoos garbod |n
yo||ow p|ast|c boot|os. 1ho pros|dont prom|sod to bo porsona||y
rospons|b|o tor |ntorm|ng tho Amor|can poop|o' about tho acc|dont.
|oars woro turthor stokod by tho co|nc|donta| ro|oaso ot a mot|on
p|cturo, 7bo Cbloo 5yooromo, about a nuc|oar mo|tdown. 1ho t||m and
|ts mossago bocamo a nat|ona| sonsat|on, ho|p|ng to tood tho pan|c.
21
1EE AF1ERNA1E
1ho acc|dont at 1hroo V||o ls|and r|votod tho wor|d. lt a|so |od to an
ovorhau| ot satoty managomont, |nc|ud|ng much groator tocus on
human tactors and provont|ng oporator orrors. Who bottor to prov|do
undorstand|ng ot what had gono wrong and what noodod to bo dono
than Adm|ra| |yman l|ckovor ? 1|mmy Cartor askod h|s o|d boss to
ho|p h|m w|th tho |nvost|gat|on.
l|ckovor wroto a |ongthy pr|vato |ottor to tho pros|dont to put tho
|ssuo |n porspoct|vo as l soo |t basod on my own oxpor|onco.' ln a
|ottor ot |ast|ng va|uo tor |ts |ns|ght |nto d|sastors, l|ckovor wroto:
lnvost|gat|ons ot catastroph|c acc|donts |nvo|v|ng man-mado
dov|cos otton show that:
1. 1ho acc|dont rosu|tod trom a sor|os ot ro|at|vo|y m|nor
oqu|pmont ma|tunct|ons to||owod by oporator orrors.
2. 1|mo|y rocogn|t|on and prompt corroct|ons . . . cou|d
havo provontod tho acc|dont trom bocom|ng s|gn|t|cant.
8. 3|m||ar oqu|pmont ma|tunct|ons and oporator orrors had
occurrod on pr|or occas|ons, but d|d not |oad to
acc|donts bocauso tho start|ng cond|t|ons, or soquonco
ot ovonts, woro s||ght|y d|ttoront. lt tho oar||or |nc|donts
had boon hoodod, and prompt corroct|vo act|ons takon,
tho subsoquont catastroph|c acc|dont wou|d havo boon
avo|dod.
4. 1o roduco tho probab|||ty ot a ropot|t|on ot s|m||ar or
worso catastroph|c acc|donts, adoquato tochn|ca|
standards must bo ostab||shod and ontorcod, and
|ncroasod tra|n|ng ot oporators must bo prov|dod.
1h|s pattorn has boon charactor|st|c ot brokon dams, a|rcratt
crashos, sh|p s|nk|ngs, oxp|os|ons, |ndustr|a| t|ros otc.
As was prod|ctab|o,' tho adm|ra| sa|d, tho |nvost|gat|on |nto 1hroo
V||o ls|and rovoa|od tho samo pattorn.' l|ckovor wont on to |dont|ty
many prob|oms, trom |ack ot tra|n|ng and d|sc|p||no |n oporat|ons to
|ack ot standard|zat|on. |or oxamp|o, |t makos no sonso that tho
contro| room tor Un|t 1 at 1hroo V||o ls|and |s dos|gnod much
d|ttoront|y than tho contro| room tor Un|t 2, ovon though both roactor
p|ants woro dos|gnod by tho samo manutacturor.'
l|ckovor d|d warn tho pros|dont aga|nst ro|y|ng upon a 'cops and
robbors' syndromo' botwoon govornmont rogu|ators and tho nuc|oar
powor |ndustry. Govornmont rogu|ators wou|d novor bo sutt|c|ont and
cou|d not adoquato|y do tho job. lnstoad tho adm|ra| advocatod that tho
ut|||t|os como togothor to croato a contra| organ|zat|on that cou|d
prov|do a moro coord|natod and oxport tochn|ca| |nput and contro| tor
tho commorc|a| nuc|oar powor program than |s prosont|y poss|b|o tor
oach ut|||ty w|th |ts ||m|tod statt'-a pos|t|on that ho had advocatod tor
yoars.
22
3hort|y attor, tho nuc|oar powor |ndustry toundod tho lnst|tuto ot
luc|oar lowor Oporat|ons to sorvo oxact|y that purposo. 1ho |nst|tuto
bocamo tho |ndustry's own watchdog, and a vory tough ono, w|th tho
ut|||t|os str|ngont|y ova|uat|ng ono anothor. 1ho compan|os a||
undorstood that tho v|ab|||ty ot nuc|oar powor |n tho Un|tod 3tatos was
at stako and that thoy woro a|| |n |t togothor. 1ho |ndustry cou|d not
w|thstand anothor acc|dont. lt wou|d oporato at l|ckovor standards.
1ho acc|dont at 1hroo V||o ls|and brought tho groat nuc|oar
bandwagon to a scrooch|ng ha|t. Ordors tor moro than 100 now
roactors |n tho Un|tod 3tatos woro ovontua||y canco|od. 1ho |ast
nuc|oar powor roactor to go |nto oporat|on |n tho Un|tod 3tatos was
ono that had boon ordorod |n 1070.
1ho noxt sovora| yoars provod to bo a t|mo ot agony tor tho U.3.
powor |ndustry. A tow ut|||t|os wont bankrupt. Othors camo vory c|oso.
Construct|on was ha|tod on p|ants that woro as much as 00 porcont
comp|otod. 1ho 3horoham p|ant on long ls|and was actua||y tu||y
comp|otod and undorwont |ow-|ovo| tost|ng. 3ut |n tho taco ot |oca|
oppos|t|on, attor produc|ng on|y a sma|| amount ot powor, |t was shut
down torovor. Evontua||y tho $0 b||||on p|ant was so|d ott tor a grand
tota| ot ono do||ar to tho long ls|and lowor Author|ty.
3t|||, ovor 100 nuc|oar powor roactors d|d ond up oporat|ng |n tho
Un|tod 3tatos, a|though otton at tar h|ghor cost than or|g|na||y oxpoctod
and w|th construct|on oxtondod ovor much |ongor t|mo spans than
p|annod. 1hoy bocamo part ot tho baso |oad ot tho nat|on's powor
supp|y. 3ut thoy woro not oporat|ng anywhoro noar tho|r tu|| capac|t|os.
lmprov|ng oporat|ons bocamo tho top pr|or|ty tor tho |ndustry. 1o do so
|t drow on tho most obv|ous poo| ot ta|ont-tho a|umn| trom Adm|ra|
l|ckovor's nuc|oar navy. 1ho m|ss|on ot tho rot|rod nava| ott|cors was
to mako tho t|oot ot ox|st|ng nuc|oar powor p|ants work bottor, at
l|ckovor standards.
3t||| what was romarkab|o was how tast tho nuc|oar powor |ndustry
had dovo|opod and how |argo |t had grown. 1ho dos|gn and bu||d|ng
program had commoncod on|y |n tho oar|y 1000s. Yot w|th|n ||tt|o moro
than two docados, nuc|oar powor was supp|y|ng about 20 porcont ot
U.3. o|octr|c|ty, and that roma|nod tho caso ovon attor tho brakos woro
s|ammod on.
FRANCE'5 1RAN5FORNA1|ON
luc|oar dovo|opmont was a|so stym|od |n othor countr|os. lopu|ar
oppos|t|on to nuc|oar powor had omorgod |n Europo pr|or to 1hroo
V||o ls|and. Austr|a comp|otod a nuc|oar powor p|ant at Zwontondort,
20 m||os trom v|onna. 3ut |t was novor turnod on and |t has sat |d|o
ovor s|nco. ln many othor countr|os, po||t|ca| sta|omato and |ndoc|s|on
woro a|so s|ow|ng amb|t|ous programs.
Ono country that wont roso|uto|y ahoad was |ranco. ln tho
|mmod|ato attormath ot tho 1078 ombargo, 1oan 3|ancard, tho son|or
onorgy ott|c|a| |n tho govornmont, mado tho caso to lros|dont
Goorgos lomp|dou that |ranco had to doc|s|vo|y movo away trom o||
-ospoc|a||y o|| |n o|octr|ca| gonorat|on. 1ho nat|on's o|octr|c|ty supp|y
cou|d not dopond on o||, wh|ch cou|d bo cut ott. 1ho por|od trom horo
on w||| bo qu|to d|ttoront-a transtormat|on, not a cr|s|s,' 3|ancard sa|d
to tho pros|dont. lt |s not roasonab|o,' ho cont|nuod, tor |ranco to bo
dopondont' on doc|s|ons trom tho V|dd|o East. Wo must pursuo a
po||cy ot d|vors|t|cat|on.' lomp|dou was moro than rocopt|vo to
3|ancard's argumont. 1hough sor|ous|y ||| w|th cancor and swo||on trom
tho ottocts ot troatmont, ho convonod h|s son|or adv|sors and
cont|rmod nuc|oar powor as tho way to o||m|nato o|| trom |ronch
o|octr|c|ty and rostoro autonomy to tho nat|on's onorgy pos|t|on.
luc|oar powor, rathor than o||, wou|d |ncroas|ng|y bo tho bas|s ot
|ranco's onorgy supp|y, comp|omontod by a roturn to coa| and a now
omphas|s on onorgy ott|c|oncy.
Yot, to tho govornmont's constornat|on, tho nuc|oar program
|mmod|ato|y |gn|tod dotorm|nod oppos|t|on across tho country. |our
hundrod sc|ont|sts s|gnod a proc|amat|on domand|ng that tho
govornmont postpono tho |nsta||at|on ot now p|ants unt|| a|| satoty
quost|ons cou|d bo answorod.
28
0osp|to tho protosts, and |argo domonstrat|ons around tho country,
|ranco's contra||zod po||t|ca| systom, bo|storod by tho prost|g|ous
ong|noor|ng cu|turo |n tho uppor roachos ot |ronch govornmont, |ockod
|n tho comm|tmont. Evon tho o|oct|on |n 1081 ot tho 3oc|a||st |rano|s
V|ttorrand as pros|dont d|d not a|tor tho comm|tmont to nuc|oar powor.
labor un|ons and tho commun|sts, who woro part ot h|s coa||t|on, woro
a|roady onboard, as thoy saw nuc|oar as a promotor ot jobs and
onorgy socur|ty. 1ho tact that tho stato company, E|octr|c|to do |ranco,
oporatod tho ont|ro powor |ndustry a|so groat|y ho|pod. loop|o trustod
E0|,' sa|d lh|||ppo do ladoucotto, cha|rman ot |ranco's
Comm|ss|on tor tho logu|at|on ot Enorgy. lt was soon as tho u|t|mato
|ronch champ|on.' |ranco cont|nuod to bu||d dozons ot roactors ovor
tho docados. Ono str|k|ng rosu|t ot th|s cont|nu|ng comm|tmont was to
propo| |ranco |nto tho vanguard ot tho g|oba| nuc|oar supp|y |ndustry.
24
BLACK 51ALK5"
1ho othor Europoan country that cont|nuod to movo ahoad on nuc|oar
powor was tho 3ov|ot Un|on. ln 1008-04 tho t|rst standard-s|zo c|v|||an
roactors |n tho 3ov|ot Un|on woro comm|ss|onod. 3y tho m|dd|o ot tho
1080s, 2b roactors woro oporat|ng |n tho 3ov|ot Un|on.
Ono typo ot 3ov|ot c|v|||an roactor was so s|m||ar to Wost|nghouso's
prossur|zod ||ght-wator roactor that |t was dubbod tho East|nghouso.'
Anothor dos|gn was tho l3VK, a prototypo ot wh|ch was that t|rst t|ny
roactor |n tho sc|ont|t|c c|ty ot Obn|nsk. 1ho l3VK was basod on a
roactor dovo|opod tor manutactur|ng woapon-grado nuc|oar tuo|. As |t
was bo|ng adaptod tor c|v|||an nuc|oar powor, somo 3ov|ot sc|ont|sts
had warnod that |t was not sato and arguod strong|y aga|nst us|ng |t tor
c|v|||an nuc|oar powor. 3ut tho po||t|ca| author|t|os ovorru|od tho
sc|ont|sts. lt was much choapor to bu||d, and |t bocamo a ma|nstay ot
3ov|ot nuc|oar powor.
|our such l3VK roactors woro bu||t at tho ||tt|o v|||ago ot lr|pyat,
about 0b m||os north ot K|ov, thon tho cap|ta| ot tho 3ov|ot ropub||c ot
Ukra|no. 3ut tho p|ant bocamo bottor known by tho namo ot tho noarby
town, Chornoby|, wh|ch |n Ukra|n|an moans b|ack sta|ks,' tor a |ong
grass that was common to tho rog|on.
ln tho oar|y morn|ng hours ot Apr|| 20, 1080, oporators woro carry|ng
out a poor|y dos|gnod oxpor|mont a|mod, |ron|ca||y, at onhanc|ng tho
satoty ot tho p|ant. 1hrough a sor|os ot m|stakos, thoy |ost contro|. 1ho
t|rst ot two oxp|os|ons b|ow tho top ott tho roactor, to||owod by a t|ro.
1hoso roactors d|d not havo tho k|nd ot conta|nmont vosso|s that woro
standard |n tho Wost to provont a catastropho. lad|oact|vo c|ouds
woro ro|oasod and carr|od by tho w|nds across vast strotchos ot tho
Europoan Cont|nont. 1ho t|rst |nd|cat|ons that somoth|ng had gono
sor|ous|y wrong woro ho|ghtonod rad|oact|v|ty road|ngs on sonsors |n
3wodon. 1ho word sproad qu|ck|y, |nc|ud|ng back |nto tho 3ov|ot
Un|on. 1orr|t|od crowds packod tho ra||way stat|on |n K|ov, try|ng to
squoozo onto ovorcrowdod tra|ns and t|oo tho rog|on. |oar and pan|c
sproad throughout tho 3ov|ot Un|on. W|thout any nows or |ntormat|on,
tho rumors bocamo moro and moro sonsat|ona|.
3ut tor moro than two wooks tho 3ov|ot |oadorsh|p and mod|a
don|od that anyth|ng sor|ous had happonod-|t was a|| tho croat|on ot
tho Wostorn pross. Ono son|or 3ov|ot onorgy ott|c|a|, moot|ng
Wostornors |n Voscow, poundod h|s t|st down on tho tab|o and
|ns|stod that any not|on ot a nuc|oar acc|dont act|on was a tota|
tabr|cat|on by tho Wostorn nowspapors.
1hon, on Vay 14, 1080, 3ov|ot |oador V|kha|| Gorbachov wont on
to|ov|s|on and |n sobor, sombor tonos d|d somoth|ng that 3ov|ot
|oadors novor d|d: gravo|y roportod what had actua||y happonod. Wh||o
attompt|ng to d|spo| somo ot tho sonsat|ona||sm surround|ng tho ovont
|n tho Wostorn mod|a, Gorbachov ta|kod about tho now-ov|dont por||s
ot what ho ca||od tho s|n|stor powor ot uncontro||od nuc|oar onorgy.'
2b
1h|s was a h|stor|c turn|ng po|nt. W|th|n tho 3ov|ot Un|on, th|s
acc|dont-wh|ch accord|ng to dogma cou|d novor happon-was a
major po||t|ca| and soc|a| shock that contr|butod to shattor|ng
cont|donco |n tho commun|st systom and tho myths that ho|pod to ho|d
|t togothor.
1EE EXCEP1|ON5
Across Wostorn Europo, Chornoby|'s |mpact on tho onorgy soctor was
|mmonso, |t tuo|od and so||d|t|od tho oppos|t|on to nuc|oar powor. lta|y
p|odgod no now nuc|oar powor p|ants and ovontua||y shut down |ts
capac|ty. 3wodon and Gormany |ntroducod morator|a on nuc|oar
powor and a|mod at a phasoout. 3r|ta|n's Atom|c Enorgy Comm|ss|on
proparod to dovoto tho rost ot |ts days to tho docomm|ss|on|ng ot
p|ants. Chornoby| had dono |n Europo what 1hroo V||o ls|and had dono
|n tho Un|tod 3tatos: brought tho dovo|opmont ot now nuc|oar powor to
a stop.
ln Europo, on|y |ranco p|owod on w|th |ts program. |ranco's
comm|tmont to nuc|oar onorgy was novor rocons|dorod, |n sp|to ot
major acc|donts,' sa|d lh|||ppo do ladoucotto. Evor s|nco tho ond ot
Wor|d War l, onorgy |ndopondonco had bocomo a motto.' 3o|stor|ng
a|| ot th|s was tho tact that so many po||cymakors camo trom a
tochnocrat|c ong|noor|ng background.
20
W|th |ts po||t|ca| toundat|on socurod, nuc|oar wou|d bocomo tho
|nd|sponsab|o baso|oad ot |ronch powor supp|y. lts b8 roactors supp|y
a|most 80 porcont ot |ranco's o|octr|c powor. |ranco |s a|so tho
|argost oxportor ot o|octr|c|ty |n tho wor|d: thoso sa|os to no|ghbor|ng
countr|os const|tuto |ranco's tourth-|argost oxport.
ln 1apan, too, nuc|oar powor p|ants cont|nuod to como on||no-w|th
moro than a dozon |n tho docado to||ow|ng Chornoby|'s mo|tdown. 3ut
1apan's cu|tura| |ogacy rogard|ng nuc|oar powor was moro
comp||catod. lt was tho on|y country to havo ovor suttorod a nuc|oar
attack, and tho po||t|cs ot nuc|oar powor cou|d ongondor a powortu|
omot|ona| rosponso trom votors and po||t|c|ans a||ko. 3ut tho o||
shocks ot tho 1070s, wh|ch throatonod to undorm|no 1apan's postwar
oconom|c m|rac|o, woro doop|y traumat|c. lndood, so much so that tho
po||t|ca| w||| to support tho nuc|oar program roma|nod strong.
Un||ko tho Un|tod 3tatos or tho Un|tod K|ngdom, 1apan had no
cho|co but to dopond on |mports tor v|rtua||y a|| ot |ts toss||-tuo| supp|y,'
sa|d Vasah|sa la|toh, a tormor|y son|or onorgy ott|c|a| |n 1apan.
Accord|ng|y, 1apan has v|owod nuc|oar onorgy as an attordab|o,
stab|o o|octr|c|ty sourco and as ossont|a| tor 1apan's onorgy socur|ty.'
lathor than abandon tho nuc|oar p|an, 1apan strongthonod satoty
rogu|at|ons and movod ahoad. 1o a |argo oxtont oppos|t|on was
noutra||zod.' 3y tho bog|nn|ng ot 2011 1apan's b4 oporat|ng nuc|oar
roactors woro do||vor|ng 80 porcont ot 1apan's tota| powor, and tho
ott|c|a| targot was tor nuc|oar powor to prov|do b0 porcont ot 1apan's
o|octr|c|ty by 2080.
27
1apan's comm|tmont soomod |mmutab|o and
unshakoab|o.
3ut 1apan, a|ong w|th |ranco, was tho b|g oxcopt|on.
WEA1 FuEL FOR 1EE Fu1uRE?
ln tho Un|tod 3tatos, tho shuttor|ng ot nuc|oar dovo|opmont |ott a b|g
quost|on: lt not uran|um, what wou|d bo tho tuo| ot tho tuturo |n o|octr|c
powor? O|| was a|roady bo|ng dr|von out ot tho o|octr|c powor soctor |n
rosponso to tho o|| cr|sos ot tho 1070s. latura| gas was an obv|ous
answor. Excopt that |n 1078, Congross had bannod |ts uso |n now
powor p|ants duo to tho sharp |ncroaso |n natura| gas pr|cos |n tho
1070s and tho conv|ct|on that thoro was a shortago. latura| gas, |t was
sa|d, was too va|uab|o to bo burnod |n powor p|ants, but rathor shou|d
bo savod tor h|ghor purposos-hoat|ng homos. luc|oar powor was tar
trom bo|ng too choap to motor' and was now subjoct to a do tacto
morator|um.
1hat |ott on|y ono rosourco: coa|, wh|ch onco aga|n bocamo tho
ma|nstay tor much ot tho now capac|ty. lt was domost|c, |t was
abundant, and |t prov|dod socur|ty and dopondab|||ty. 3ut tor how
|ong? 1ho costs ot now capac|ty wou|d tr|ggor changos |n tho
rogu|atory barga|n that undor|ay tho powor |ndustry |n tho Un|tod 3tatos
-and, onco aga|n, |n tho doc|s|ons about tuo|s. 1ho most dramat|c
|mpact wou|d bo |n Ca||torn|a.
10
BREAK|NC 1EE BARCA|N
A|most 1.b m||||on votors-|t was tho b|ggost w|n ovor rocordod |n a
Ca||torn|a gubornator|a| o|oct|on: that was tho ovorwho|m|ng marg|n by
wh|ch 0omocrat Gray 0av|s dotoatod h|s lopub||can opponont |n
1008. 3ocauso ot Ca||torn|a's |mportanco, that tr|umph automat|ca||y
startod ta|k ot h|m as a potont|a| tuturo pros|dont. 0av|s was a caroor
3acramonto po||t|c|an. |o had boon ch|ot ot statt to Govornor 1orry
3rown |n tho 1070s and pa|nstak|ng|y c||mbod h|s way up tho po||t|ca|
|addor thoroattor. lndood, so ontronchod was 0av|s |n Ca||torn|a
po||t|cs that on h|s o|oct|on as govornor, an a|do jokod that |n tho days
s|nco 0av|s had boon ch|ot ot statt, |t had takon tho now govornor 28
yoars to wa|k 1b toot.'
1
Attor h|s t|rst 100 days |n ott|co, 0av|s was moro popu|ar than h|s
boss, 1orry 3rown, had boon |n tho samo t|mo tramo and ovon moro
popu|ar than Ca||torn|a's bost-known tormor govornor, lona|d loagan.
As tor bo|ng govornor, 0av|s had a p|an: do noth|ng rad|ca|. lt corta|n|y
mado sonso. Attor a doop rocoss|on, tho stato's oconomy was
surg|ng.
3ut so, by tho way, was |ts o|octr|c|ty domand. A|though tho
|mp||cat|ons woro ||tt|o undorstood, tho |mpact wou|d soon not on|y
shako Ca||torn|a but wou|d bo to|t throughout tho Un|tod 3tatos and |n
tho rost ot tho wor|d. lt wou|d a|so stark|y dramat|zo tundamonta|
roa||t|os ot o|octr|c powor.
3y tho 1000s tho rogu|atory barga|n that had |ong boon tho toundat|on
ot tho o|octr|ca| powor bus|noss |n tho Un|tod 3tatos was moro than
ha|t a contury o|d. E|octr|c powor pr|cos woro ostab||shod not |n tho
markotp|aco but rathor by a stato's pub||c ut|||ty comm|ss|on (lUC), |n
accord w|th tho modo| or|g|na||y promotod by 3amuo| lnsu||. 1hoy d|d
so by a||ow|ng ut|||t|os to pass on, |n tho|r ratos to consumors, tho cost
ot sorv|co-that |s, tho cost ot ovoryth|ng, |nc|ud|ng p|ants, tuo|, and
oporat|ons, p|us an add|t|ona| sum that was tho porm|ttod prot|t. 1ho
lUC wou|d thon doc|do how thoso costs woro to bo a||ocatod |n torms
ot tho pr|cos pa|d by tho d|ttoront c|assos ot customors-ros|dont|a|,
commorc|a|, and |ndustr|a|.
On tho|r s|do ot tho barga|n, tho ut|||t|os woro roqu|rod to prov|do
ro||ab|o sorv|co, un|vorsa||y ava||ab|o, at roasonab|o cost. 1hoy wou|d
onsuro that tho ||ghts stayod on. lt tho powor wont ott bocauso a storm
had knockod down tho powor ||nos or a b||zzard had d|sruptod tho
systom, tho ||nomon wou|d bo out as tast as tho|r trucks cou|d ro||, and
tho ut|||ty wou|d scramb|o to got tho powor back on. 1h|s was a|| basod
on tho concopt ot natura| monopo|y. Compot|t|on was dot|n|to|y not part
ot tho barga|n.
RA1E 5EOCK
3ut chango was com|ng. |or many yoars o|octr|c|ty pr|cos |n tho
Un|tod 3tatos had boon doc||n|ng dramat|ca||y-botwoon 1084 and
1070, by an aston|sh|ng 80 porcont. 1hat was tostamont to tho |mpact
ot sca|o, tochno|ogy, and |owor costs that camo w|th h|ghor vo|umos.
3ut |n tho 1070s and 1080s, pr|cos abrupt|y turnod up: low powor
p|ants-whothor nuc|oar or coa|-woro prov|ng to bo oxpons|vo,
somot|mos vory oxpons|vo. Costs woro a|so dr|von by tho 1078 lub||c
Ut|||ty logu|atory lo||c|os Act (lUllA). 1hat |aw had torcod ut|||t|os to
buy powor at h|gh avo|dod' costs trom sma||-s|zo gonorators ot
ronowab|o powor-|argo|y w|nd and sma|| hydro p|ants.
Avo|dod costs woro a vory |ntorost|ng concopt: lt was an ost|mato ot
how much tho samo amount ot powor wou|d cost woro |t gonoratod
trom an o||- or gas-t|rod tac|||ty. lt was not an actua| pr|co, but an
oxpoctod pr|co somot|mo |n tho tuturo. 1hoso avo|dod costs woro
otton poggod at stratosphor|ca||y h|gh ant|c|patod o|| pr|cos. 3ut |n tho
1080s, o|| and gas pr|cos had doc||nod, moan|ng that lUllA
avo|dod-cost powor pr|cos woro tar abovo actua| markot costs. A|| th|s
moant that consumors, |n many parts ot tho country, woro h|t by rato
shock'-stoop r|sos |n o|octr|c|ty ratos, as tho costs trom now nuc|oar
and coa| p|ants, and trom tho lUllA mach|nos, woro passod on to
thom |n tho|r month|y b|||s.
los|dont|a| consumors may havo comp|a|nod about tho|r b|||s, but
thoro was ||tt|o thoy cou|d roa||y do, as|do trom bo|ng moro carotu| |n
tho|r uso ot o|octr|c|ty. |or |ndustr|os that usod a good doa| ot
o|octr|c|ty, rato shock h|t tho|r bottom ||no and mado thom |oss
compot|t|vo aga|nst compan|os |n |owor-cost statos. 1hoy noodod to
do somoth|ng to br|ng down tho|r powor pr|cos. 1ho|r answor was to
promoto what was var|ous|y ca||od dorogu|at|on' or rostructur|ng,'
wh|ch wou|d a||ow thom to t|nd a way to buy choapor powor trom
somoono o|so rathor than moro oxpons|vo powor trom tho|r |oca| ut|||ty.
ln a h|stor|c sh|tt, that wou|d |oad toward o|octr|c ratos bo|ng
dotorm|nod |n a markotp|aco, not by tho lUC-that |s, toward
compot|t|on |n what had horototoro boon assumod to bo a natura|
monopo|y. Gott|ng dorogu|at|on r|ght, howovor, wou|d not provo so
oasy tor o|octr|c powor. Evon compot|t|vo markots aro, attor a||, not
oxact|y troo. 1hoy dopond, cruc|a||y, on tho ru|os by wh|ch thoy oporato.
0orogu|at|on was mado ovon moro compo|||ng by tho appoaranco
ot a sh|tt |n tho tuo| m|x tor o|octr|c powor. As now nuc|oar p|ants camo
on||no thoy contr|butod a grow|ng sharo ot powor gonorat|on-|ovo||ng
out at 20 porcont ot supp|y nat|ona||y. 3ut tho b|g growth was |n coa|. ln
tho t|ttoon yoars to||ow|ng tho natura| gas shortagos ot tho m|d-1070s,
coa| consumpt|on |n o|octr|c gonorat|on ||tora||y doub|od and was
rospons|b|o tor about bb porcont ot a|| o|octr|c|ty producod |n tho
Un|tod 3tatos. Coa|'s groat advantago was that |t was abundant and |t
was a domost|c tuo|.
3ut natura| gas too was now abundant, and |t too was a|so
domost|c. lt was a tuo| wo|| su|tod tor tho dorogu|atod powor bus|noss.
1ho gas bubb|o, tho |ong-|ast|ng surp|us ot natura| gas to||ow|ng |ts
dorogu|at|on, mado gas choap. ln tho taco ot tho chang|ng oconom|cs,
tho proh|b|t|on on tho uso ot natura| gas |n powor gonorat|on was
c|oar|y |rrat|ona|, and tho ban was ||ttod. At tho samo t|mo, a now
gonorat|on ot h|g