Matthew Yeomans

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Ramona Koval: With crude oil prices now at $72 US a barrel, politicians are talking about oil again. Peter Costello says it's an oil shock like that of the 1970s which set off a wave of inflation, but he says it can be controlled. And the federal opposition leader Kim Beazley says it's now time to look at other energy sources, while the Family First senator Steve Fielding says the government should cut petrol excise by ten cents a litre to reduce prices.

So there has never been a better time to try and work out how exactly we got ourselves in the position where our continued dependence on oil will have detrimental effects on our economy, our environment and the stability of our geopolitics as a whole.

And this is where Matthew Yeomans comes in. In his book Oil: Anatomy of an Industry, he explains petrol and where it comes from and where it goes and how we get it and how come the price goes up all the time and even, perhaps, why the stability of the Middle East affects all of us. Matthew Yeomans is a writer for Time Europe and Wired magazine and the editor of Petropulse.com, a daily web journal exploring the effects of oil on everyday life.

Welcome to The Book Show, Mathew. In your book you decide to live a day without dependence on the oil industry. So tell us what kind of a day it was.

Mathew Yeomans: It wasn't a very productive say, I can tell you that. I started by looking into the idea...well, we all know that oil affects and plays an important part in our life but I certainly didn't realise and I don't think many people realise just how vital a role it plays. So from the moment I got up in the morning I thought, well, I can do a day without oil; I'll leave the car alone for the day, that can't be too bad. Well, I couldn't have a shower because our shampoo products are petroleum based. I couldn't shave because shaving foam and razors are made of plastics. Anything we use in plastics comes from petroleum. I couldn't make coffee for myself because the coffee machine was reinforced heavy-duty plasticised glass. And you know what? I couldn't even leave my house because of course at the time I lived in Brooklyn, New York, and there wasn't much grass around, it was all asphalt which is one of the by-products of petroleum.

Ramona Koval: So how long did this day without oil last?

Mathew Yeomans: I had to give up after about ten in the morning. The worst part was that I couldn't change my little son's nappies because of course they all come from petroleum.

Ramona Koval: So for the sake of good responsible fatherhood you had to stop.

Mathew Yeomans: Indeed.

Ramona Koval: You say in the book that the USA uses one-quarter of the world's oil each day. Where does the oil come from?

Mathew Yeomans: The oil for the United States, as the oil for all of us, comes from all around the world. Oil is a fungible commodity, so we don't necessarily get it from any one area, it's bought and sold on a global market. The US used to be able to produce over half of the oil it used itself but in 1970 it reached a point where it had to import more oil than it could actually produce which is quite astounding when at that time the US was the third largest producer of oil in the world. So today the US gets its oil from all over the world; partly from the Middle East, partly from Africa, partly from South America, and a fair amount of it the US still produces itself.

Ramona Koval: In the book you, fairly early on, get onto this remarkably staggering idea about the western powers tying their economic and national security to oil that comes from somewhere else...Middle Eastern oil, in fact. It started with Churchill, didn't it? Tell me about what happened.

Mathew Yeomans: When Churchill was secretary of the navy in the years leading up to WWI, he made a very dramatic and important decision. To gain a military competitive advantage against Germany, he realised that his fleet of ships needed to be faster and more adaptable than the German fleet, and what he did was he took a decision that, rather than relying on coal which...I now live in Cardiff, Wales, and the Welsh valleys were the lifeblood of the navy and driving the economy at that point. He decided to divert the energy away from coal and to put his lot and the British navy's lot onto oil-fired ships. What that did was give the British navy a much faster, quicker fleet, but what it also did, as was not lost on anyone, was tie Britain's economic and military dependence on a commodity and a fuel that it had none of at that point itself, which was oil. A momentous decision.

Ramona Koval: You say it wasn't lost on anyone at the time. There must have been debates about the wisdom of tying yourself to a product that you actually were dependant on others to provide.

Mathew Yeomans: The reason that there wasn't such a great debate about it was that Churchill had a secure source of oil coming to him and that came from a company that was recently formed called the Anglo Iranian Oil Company which was a group of British entrepreneurs who had discovered oil in the Persian Gulf in what we now know as Iran. So what he had ...what I can imagine him thinking, anyway, was that here we have a British company in an area where Britain had a very strong sphere of influence who can supply us with this oil. Little did he know and little did the world know just how important and strategically important that part of the world would become.

Ramona Koval: You call WWI the first oil war. Why?

Mathew Yeomans: Because both sides realised that to have the military advantage that they needed to command sources of oil. What happened in WWI was an amazing and scarily technological set of innovations; you saw the first aeroplane, you saw the first tank. Basically it was the first motorised war, and because of that the demand suddenly for oil and the demand for sources of oil was apparent to any military power.

Ramona Koval: And the lack of oil also defeated Germany and Japan in WWII.

Mathew Yeomans: Yes, they basically ran out of oil in WWII, and one of the fundamental areas takes us back to North Africa of course and there was a large push by both the allies and the Germans to try and reach secure sources of oil in Middle East and the allied forces cut Germany off which, after that point, sent Germany into a series of military retrenchments and actually spurred Germany to try and produce its own fuel, its own oil from coal. In the case of Japan it was even more proactive than that on the part of the Japanese. The Japanese, it could be argued, got into WWII with its attack on Pearl Harbour because they feared that their roots to oil in Indonesia would be cut off by the US.

Ramona Koval: What about the relationships between the western powers and the Saudis? This started as long ago as just after WWII with President Roosevelt. What happened then?

Mathew Yeomans: Immediately after WWII, with the lessons that had been learnt of just how important it was to have access to oil, both Roosevelt and Churchill were very keen on doing a deal and becoming friends with King Saud, the father of the state of Saudi Arabia. Churchill met with the king first, but the king was very suspicious about Churchill and Britain because of Britain's historical role within this part of the Middle East. Directly after that, Roosevelt met with the king as well, and basically what Roosevelt is said to have promised...there is no documentation or recording of this, but it is understood that what Roosevelt promised was that the US would protect the security of Saudi Arabia in return for secure sources of oil from Saudi Arabia for the future.

Ramona Koval: Let's go, then, to the 1960s where Opec comes in, the organisation of the petroleum exporting countries. What triggered them to form?

Mathew Yeomans: Opec we tend to think of as being a Middle East driven organisation cartel, but actually the initial emphasis and the initial incentive for these oil producing companies to basically have their say and to dictate their own prices came from much further afield, from Venezuela. In Venezuela in the 1950s there had been a nationalist revolt against the role of US oil companies who had basically been setting the prices and dictating how much revenue Venezuela got from the oil that basically the US companies were producing. Out of that came a movement, a quasi-nationalist movement to basically rid themselves of American influence and American control over their own resources. Through that, the Venezuelans basically made a pact with Middle Eastern countries such as Saudi Arabia, such as Iraq at the time, to say hold on a minute, we should have control of our own resources. Why are we just allowing these international companies, mainly American but also British Petroleum which was the descendant of Anglo Iranian, and also Shell of course...why are we letting these companies basically take our resources, only pay us a very small percentage when they are our resources and we can control them? And from that as well...or filtering into that was the growing sense of Arabisation and nationalistic fervour that had grown out of Egypt in the 1950s, and that fed into that as well. So what you then saw in the 1960s...and it didn't come about...there were a number of failures because what happened was a number of the countries just really couldn't combine together to actually give that show of force. But what you began to see coming through the 1960s was a fundamental changing in the relationship between the international oil companies and the producing countries themselves whereby the countries said, 'Enough. These are our resources and we are going to charge what we want to charge for it.'

Ramona Koval: You say also that environmental pollution, human rights abuses, political murders and civil war are the legacies of too many nations that possess oil, that they're more prone to social and economic conflict than nations that claim no significant natural resource riches. What's the evidence for that?

Mathew Yeomans: I don't say that myself. Actually, it comes out of a World Bank study, and it isn't just looking at oil, it's looking at commodity-rich countries, countries that have rich resources in gold, in precious metal, in other major commodities, but especially in oil and especially countries that have oil that has been discovered through the 20th century and so-called developing nations. Basically the ability to get rich quick off this amazing resource that the developed world craves, it puts amazing pressures on these societies that maybe are only just coming to terms with company law, human rights and basically how to function in the world of developed societies in that regard. And the ability for corruption, the ability for conflict is huge, and the study that I alluded to which was a World Bank study, I think, and the stats may be a little off there, but there was a 44% likelihood, greater than any other society, that countries that have oil would descend into civil chaos and war.

Ramona Koval: It is amazing that access to this black gold doesn't make these nations wealthy and happy.

Mathew Yeomans: Well, it makes some people wealthy and happy, it just doesn't filter down through to the general populus, and most oftentimes what revenue there is doesn't even stay in the country, it goes out to bank accounts in countries that have relationships where they won't divulge what the top earners are making. There was a case, an international investigation into Angola in the 1990s that showed that literally millions upon millions of pounds or dollars in oil revenue that supposedly was being filtered down into the society had made itself into the offshore bank accounts of maybe just 30 or 40 major people in the country, many of whom were friends and family of the Angolan leader.

Ramona Koval: Mathew, you say that all this dependence on petrol is in part (in the American case and I suppose it's the same with all of us all over the world) our automobile addiction. But at the moment in the USA it's personified by the SUV obsession. Can you talk about why Americans want to drive small tanks around their cities?

Mathew Yeomans: I think maybe for the same reason now that a lot of British people are trying to do it as well and I imagine in Australia a fair amount of SUVs or 4x4s or in the UK they're called 'Chelsea tractors' which is quite an amusing little term. A lot of it comes from this sense of security, a misguided perception that SUVs, 4x4s make you safer when you're on the road when actually a number of studies have shown that because of their high wheel base and their high centre of gravity that they're prone to roll over far more and perhaps don't make you safe at all. If the driver in front of me has got one and I can't see one, well, I better get one because then I'll be safer. So there's certainly a kind of safety, security issue involved there, but part of it is that they were pushed quite effectively in marketing and in sponsorship and in advertising by the automobile makers themselves who basically could produce SUVs fairly cheaply based on the existing trucks that they used to make, and there were a series of legal and legislative loopholes which we won't go into here that actually made it more competitive for them to produce those and also to sell them on to the consumers. So what you had was a concerted effort to push this new brand of large cars to an American public and an American public who drive a great distance and at the time (and still do, comparatively) pay very little for their gasoline, were all too happy to embrace this trend.

Ramona Koval: So let's now look at the current relationship between Iraq and America and the war there. What's your analysis of why there is a war in Iraq?

Mathew Yeomans: Why there is a war in Iraq now or why there was there a war in Iraq back in 2003 when they invaded? I think if we take it back to 2003, it's pretty obvious now there was no weapons of mass destruction and it seems increasingly clear that the Bush administration probably were fairly sure that that wasn't the main reason they were into it and that there probably weren't weapons there. That wasn't why they really went in. My belief is that the United States saw an opportunity to bring down Saddam Hussein, to create regime change because they knew that Saddam Hussein was weak at the time. They'd spent the best part of the last decade bombing him, wearing down his defences, and the reason they wanted to get rid of him was that deep down they believed he still could pose a threat to Middle Eastern security. Any threat to Middle Eastern security is a threat to global but also US security as well. This is not some crazy foreign policy dreamt up by the Bush administration, this is a fundamental belief of American foreign policy that goes back to Roosevelt with that pledge of security, but goes forward and was articulated most straightforwardly by President Jimmy Carter in the days when the US hostages were taken in Iran. In what became known as the Carter Doctrine, the president said that any threat to Middle Eastern stability will be interpreted as a threat to the United States security as well. What the Bush administration did a little more categorically and a little more clearly than any other administration had said in the past was that our energy security equals our national security, and I do believe that they thought that Saddam Hussein could still pose a threat to energy security in the Middle East and they decided to take him down for it. The irony is that what they've created is something much worse.

Ramona Koval: What are we going to say now about the rise of China and their very hot economy? What's the effect of all this on what we've been talking about so far?

Mathew Yeomans: It's interesting, President Hu Jintao is, I believe, visiting Washington this very day, and what you see is the coming together now of the number one and the number two global consumers of oil around the world. The growth of China and also of India as well, these two burgeoning, rampant economies, is putting an enormous strain on oil resources and around the world. What you're seeing and what we've seen since 2003 is the price of oil jump from below $40 a barrel to $70 a barrel. When it settled at $70 a barrel this week, that was the first time that it has ever closed (and we're talking about the futures prices of oil now) at that level. That's a large jump, and what we've seen over the last three years is a steady rise where it really hasn't dropped down. Most analysts now assume that we're going to be living with this high price of oil for the foreseeable future, the reason being is that we don't just have the western world demanding large amounts of oil, we now have China, which is a major player, demanding more and more of the world's oil, which leaves countries like Saudi Arabia, which has always been the country that in theory could pump as much oil as it wants to make up any shortfall in demand, is basically pumping as much oil as it can now just to meet the combined demand of the western world and the growing economies of India and China.

Ramona Koval: Raising fuel economy standards for new cars and light trucks to 40 miles per gallon you say could cut annual oil consumption by 1.5 million barrels a day within eight years. That's according to the Union of Concerned Scientists. And that could be helped by the adoption of hybrid automobiles using batteries and electric automobiles, I guess, as well as the petrol based automobiles. Is that likely to ever happen...at the moment?

Mathew Yeomans: Recently the Bush administration took a very small step in raising fuel economy standards by...I believe it was one or one-and-a-half miles per gallon. Not nearly enough to make the difference. The problem is that politically it's a really, really difficult notion and policy to sell to a population (we're talking the United States now) who drive thousands upon thousands of miles each year. It's not just selling it on a presidential level, it's got to be sold on a local level and it's basically a political kiss of death. There is still not the appetite, even though you'd would think, looking at all the factors and all the signs and all the dependency that we see, that there would be an understanding that there is a need to do something. There is still not the political will to really go and do something fundamentally to raise fuel economy standards which would save an enormous amount of fuel. As for hybrids; hybrids cover a wide range of different automobiles and cars, from perhaps the purest version that, as you say, is a mixture of a electric battery and a traditional combustion engine whereby the battery basically picks up a lot of the slack and really does save fuel economy, to a whole set of SUV hybrids that are now being made which are little more than dream washing (to use the parlance) whereby the automobile makers are releasing these cars and saying, yes, these are green, these are hybrids, but really it's just smoke and mirrors. So if you're out there trying to shop for a hybrid car, if you come across a hybrid SUV you should probably ask a few questions about it.

Ramona Koval: Mathew Yeomans, I hate to have the sound of our listeners slitting their wrists at the sound of all this...is there any hope of peace and environmental stability in the face of what you've been explaining to us this morning?

Mathew Yeomans: We all need a very large wakeup call. It's very easy sometimes to sit here and take pops at the United States and the government policy of the United States but this is a global issue, it's a global problem. It affects our economy, it affects our stability in terms of politics and peace and security, but of course it affects our environment in perhaps the most damaging and catastrophic way possible, through global warming. There are ways where we can mitigate this but the steps have to be taken right now. The number one thing needs to be conservation, we need to use less fuel, so we need to drive less, we need to fly less. That's a really tricky one that very few people have got their heads around at the moment; how do we tell people that they can't fly as much as they used to? Because they haven't come up with hybrid versions of jet planes at the moment.

Ramona Koval: But they have come up with enormous prices for air tickets which might stop a few people.

Mathew Yeomans: Maybe, and the whole issue of taxing and levying is one part of the equation that is, again, politically unpalatable but actually makes fairly good sense in constricting demand, and constricting demand in the short term is the most important part of controlling our dependency. But in the long term we need to be moving beyond oil, we need to be moving into cleaner fuels that we can produce ourselves, that actually are renewable. Within that there are these plans and initiatives to create hydrogen fuel, but there are also interesting ways of looking at solar and looking at wind generation, not for powering cars, hydrogen will probably be the answer for that, but it's all part of a much larger mix that we need to consider in this regard. But the question is...and actually the answer is we need to do it right now and there isn't the will. There's still far too many subsidies, frankly, for the fossil fuels that we continue to use and far too much incentive still to rely on fossil fuels and not to develop the future use of energy.

Ramona Koval: Mathew Yeomans, thank you so much for writing Oil: Anatomy of an Industry, published by the New Press, because it's opening my eyes to oil, its history and its future. Thanks for speaking to us this morning on The Book Show.

Mathew Yeomans: Thank you for having me.

Publications

Title: Oil: Anatomy Of An Industry

Author: Matthew Yeomans

Publisher: The New Press, 2004

Description: ISBN 1-565-84885-3