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I first want to thank Ambassador Dunbar and the Cleveland Council on World Affairs for the opportunity to speak to you today on this important and timely topic. Over the past 12 months, we've seen oil and, with it, the Persian Gulf region becomes once again the topic of intense media scrutiny. Less than 18 months ago, some OPEC members were sounding the death knell for OPEC cooperation. Yet, OPEC is once again in the news, to a degree unrivalled since the dark years of the Oil Shocks of the 1970s. The situation in the Middle East today, the current tight oil market conditions and projections for the future, and the fact that the United States is still finalizing its decision about its Commander-in-Chief for the next four years, will ensure plenty of media focus on this issue for the foreseeable future. What I would like to do today is to review briefly why economic facts dictate that we will remain heavily engaged in the Persian Gulf and how we have provided for contingencies of the future. However, the Gulf is not just a foreign-owned oil supply. It is also a mix of states with whom we have a complex and interwoven set of relationships. The Arab states of the Gulf Cooperation Council are a group of friends. They have stood with us in meeting many challenges, not only in the Middle East, but also in situations as diverse as sending troops and help to Kosovo and in funding North Korean oil supplies. They are a significant block of votes in UN reform issues, in world economic and environmental reform and more. Across the Gulf are Iran and Iraq, each posing a policy problem in its own right and each policy requires support and cooperation from the GCC states to achieve our goals. So, in brief form, I will touch on the challenges of this whole set of relationships; challenges that will confront the next Administration. Let me begin with a brief review of the importance of the Middle East to the world's energy picture. I. Importance of the Middle East Ensuring American access to Middle East energy resources has been a vital national interest of the United States since World War II. Arguments in favor of alternative energy sources or improvements in domestic supply, while important, cannot overcome the fundamental economics and geography of the world's oil markets. Two thirds of the world's proven oil reserves are in the Middle East - 261 billion barrels - more than one-fourth of the world total in Saudi Arabia alone. One third of the world's proven gas reserves are in the Middle East - 16 percent of these reserves are in Iran alone. While non-Middle East oil producers and non-OPEC producers are important, Middle East OPEC production, in particular that of Saudi Arabia, remains central to the world oil market. Middle East oil represents one third of U.S. oil imports - some 2.53 million barrels a day. And, while Canada is now our largest source of total petroleum imports, Saudi Arabia remains our single largest source of crude oil. If this data speaks persuasively of the Middle East's importance for the policymakers of today, it bodes even more so for the policymakers of tomorrow. On the world consumption side, global energy demand is rising. The Energy Information Administration (EIA) has projected global energy demand will increase by 50 percent between now and the year 2020. Of total world energy consumption in 2020, EIA predicts 37 percent will be oil, 29 percent will be gas, 23 percent will be coal and 11 percent will be from other sources. U.S. per capita oil consumption is the highest in the world, and total U.S. oil consumption is forecast to increase by 25 percent between now and the year 2020. [from 20 mbd to 25.1 mbd] During the last eight years, energy demand overall has grown by 14 percent. Demand is growing most rapidly in the developing world. A study completed earlier this year for the Center for Strategic and International Studies found that "by the year 2020, the developing countries of the world will be consuming more energy, in absolute amounts, than the industrialized countries of the world." While the share of oil, coal and nuclear power, in terms of total energy consumed, is expected to decline, the share of natural gas will increase. Chinese demand for oil is expected to nearly double in the next 10 years to 7.2 million barrels/day and 50 percent of this oil is expected to come from foreign imports by the end of the decade. International demand is on a steep incline. Proven oil reserves outside the Middle East are increasing due both to new technology and new investment. Not withstanding this, given the size of the Middle East oil reserves, the share of Middle East oil in world consumption will continue to grow. II. Military and Strategic Elements Ensuring a free flow of oil from the Persian Gulf region has been a consistent national security concern for at least 30 years and you can be assured that whoever occupies the Oval Office in January will inherit this concern as well. Perhaps, the most demonstrable example of this commitment to safeguarding access to Gulf oil was evident in our decision to re-flag Kuwaiti oil tankers in the late 1980s. Faced with a threat in the form of random attacks against its oil tankers by Iran in a dangerous escalation of their eight-year Iran-Iraq war, Kuwait solicited the active protection of the United States. Recognizing the implications for world oil supplies and the concomitant effect on the U.S. economy, we replied with an innovative policy of "re-flagging" Kuwaiti maritime vessels, and deployment of Carrier Battle Group and minesweeping equipment to defend the now American-flagged vessels. This commitment continued after the end of the Iran-Iraq War, its importance reaffirmed by our response to the Iraqi invasion of Kuwait on August 2, 1990. From its apex following the liberation of Kuwait by a coalition of forces led by the United States nearly 10 years ago today, the U.S. military presence in the Persian Gulf has naturally declined, but the U.S. remains highly capable of projecting its military influence and acting to ensure access to Gulf resources. Through pre-positioning of essential defensive equipment, the United States has ensured an ability to defend the Gulf against threats from others within the region. Readily available upon request from the United States, this equipment removes the need to airlift huge amounts of equipment for essential defense of the Gulf. Periodic deployment of U.S. forces to Kuwait, Bahrain, Qatar, Saudi Arabia, and the rest of the Gulf not only "ramps up" the U.S. presence and capability in the region, but also provides invaluable training in a desert environment for U.S. forces. Deployments have included a complete Armored Task Force (armor, artillery, and mechanized infantry) to Kuwait, an Air Expeditionary Wing to Bahrain, and the continuous deployment of a Carrier Battle Group - through careful rotation of crews and assets - in the Gulf since the end of the Gulf War. One alternative has been our effort to enhance regional defensive capabilities through Peninsula Shield, the Gulf Cooperation Council's military alliance. Through joint exercises and regularly scheduled military consultations, we have helped develop the GCC's own defensive capabilities, reducing the need for a continuous U.S. presence Yet in all candor, I cannot foresee a period when GCC defenses will be wholly adequate to this task without us. There are important considerations regarding the deployment of U.S. forces to the Gulf region. We must be conscious of Gulf domestic concerns - quite healthy in their skepticism - that question the value of having U.S. forces stationed on Muslim soil. We must carefully weigh the trade-off between operational efficiency and becoming a political lightning rod for those who call for an end to the foreign military presence and preservation of traditional lifestyles. Terrorism will remain a fact of life. For many reasons, our presence in the region must be streamlined, managed, and carefully rotated to satisfy these domestic and international concerns. How we balance the desires and needs of engagement with the regional risks is something the next Administration needs to consider soon. If, or more likely, when there is another terrorist attack, they should be prepared to defend their decision. III. Political, Economic, and Diplomatic Elements As I said at the beginning, the Gulf is not just a problem of how we attempt to protect access to the region's oil reserves. We are engaged more than ever with the states of the region on a political, economic, and diplomatic level. Promoting and maintaining internal stability has been a major objective of our policy amongst the Gulf states. Stability is important to us both because of our interests and because the GCC states are friends we have been able to count on in a variety of situations. But stability leads us into issues of greater popular representation and economic reform. To push too strongly on these issues is not only to risk destabilization and interference in sovereign states, but also to damage essential relationships and risk rebuff at the same time. Not to engage in these issues is to ignore potential problems, risk being branded as hypocrites, jeopardize our respect from today's young who will be tomorrow's regional leaders, and forfeit our potential leadership. There are no easy answers but I want to touch on two particular areas of concern. One element is promoting increased popular participation in government. This is a difficult issue in friendly and traditional states. Our answer to date has been that while we are not evangelists or revolutionaries for democracy we will support and try to protect advances toward greater popular participation when states choose to move in that direction. In Kuwait, a popularly elected parliament exercises considerable authority over government expenditure; in addition, a lively debate over the enfranchisement of women began over a year ago. We have worked strongly and consistently to protect the role of this Parliament. In Qatar, women have already been granted the right to vote and run for municipal elections. Although no women were elected in the last elections, Qatari women are already planning their grassroots efforts for the next election. In Bahrain, the new Amir has pledged to hold popular elections for municipal councils with real authority over land use. We are encouraging and supporting this approach. In Oman, we are providing support for drafting new legal and commercial codes. Although modest, these advances represent progress. They also mark a significant issue for the next Administration. Should we increase these efforts? How is this to be done without undercutting our other interests? Insofar as funding is required, including for additional staff to work on these issues, where is it to come from in the current, miserable, budget situation? Economic reform is at least as critical. All of the GCC states are facing significant problems in creating jobs. Several are finding it difficult to maintain the basic social compact, even with the current increase in oil revenue. We believe that greater private investment is essential for future economic stability. This, in turn, requires major and difficult changes in transparency, dispute settlement, and protection of intellectual property rights as well as greater openness to the world economy. We have made a start on such policies. Through the U.S.-GCC Economic Council, we maintain a healthy exchange on regional economic issues and investment promotion. This involvement and the normal interaction of U.S. commercial interests in the region has yielded some important successes: We recently signed a Bilateral Investment Treaty and a Civil Aviation Agreement with Bahrain, and are exploring these possibilities with other regional states. In Bahrain, Oman, Qatar and UAE there has been longstanding support for investor participation from other countries in their respective oil and gas industries. Qatar has also taken important steps toward privatization, including the formation earlier this year of the Qatar General Electricity and Water Corp (QGEWC) and the public offering in December 1998 of the telecommunications company Q-tel -- the largest initial public offering ever placed in a GCC state. A number of U.S. companies are working with Qatar on projects that will help meet growing world demand for more environmentally friendly natural gas throughout the region in the years to come. On-going discussions and negotiations related to energy transportation arrangements in the area will help push forward the important agenda of regional economic integration in the Gulf. Finally, in Saudi Arabia and Kuwait, there have been some important steps toward greater openness including: Kuwait's encouragement of international oil companies to participate in the further development of its oil sector, especially in the northern fields; and Saudi Arabia's decision to solicit proposals from investors eager to participate in the Kingdom's upstream gas development and related downstream projects in power, petrochemicals, and desalination plants. These steps are encouraging. But, much more is needed. Diversification will go far to help guarantee longer-term economic growth in Middle East producer countries and is as much in the interest of consumers, such as the United States, as it is for producers themselves. We can assist these internal processes by continuing to insist on worldwide economic policies on trade, services, and intellectual property through the World Trade Organization and other multilateral bodies. Together with quiet bilateral pressure for transparency and other reforms that are basic to investment, these efforts can help ensure long-term stability and prosperity throughout the region. But the next administration will have to decide how hard and fast to push such policies, what frictions to tolerate or avoid, and whether or not a more coordinated approach is necessary or possible. IV. Iraq and Iran It is not my purpose now to speak in detail on policies toward Iran and Iraq, each worthy of a speech of it's own. However, the plain fact is that it is threats from these states that have brought our forces into the Gulf and changed the nature of our relationship with our friends. And it is equally a fact that much of what we do in the Gulf to implement our policies requires support, military and political from our friends. Our policies toward both Iraq and Iran have some similarities but they are by no means the same, whatever catch phrases are used to describe them. We are not hostile toward Iran as a state but are concerned by certain policies it pursues. We are open to dialogue but firm in our determination to oppose actions we find highly dangerous to our interests and to regional stability as a whole. Many in the GCC states view Iran as more of an imperial problem than a religious one, although GCC views are far from united on either the problem or what to do about it. Careful dialogue with our friends will be necessary as a new administration thinks through how it will approach the Iranian problem. If we decide on changes then careful explanation and reassurance will be necessary. Iraqi issues are even more complex and more dependent on Gulf support. We do not believe there can be peace or stability in the Gulf while Saddam Hussein remains in power. We are determined to restrain his quest for nuclear weapons and dangerous technologies. The next Administration will have to grapple with the issue and decide on the right mix of policies. But it will have to do so in the context of Arab governments that increasingly doubt our ability to bring about overthrow and Arab populations increasingly resentful of the suffering of the Iraqi people. Furthermore, if the bloodshed of Israelis and Palestinians continues it will increasingly poison the political atmosphere in the Gulf and complicate our ability to win publicly visible support against Iraq. A Gulf embittered by Arab-Israeli violence will also make our overall approach to stability and economic reform harder to bring about. V. More Energy Issues The next Administration is unlikely to change our energy priorities or our primary modalities for achieving them. There are, however, certain things we can undertake to ensure the long-term security of Gulf reserves and our short-to-medium-term economic prosperity. First, we need to continue to refine the integration of Gulf issues with our broader energy policy. Secretary of Energy Bill Richardson made an interesting foray in this regard through his efforts to increase understanding of the need for greater oil production this year. He, along with Secretary Albright and even the President underscored the severity of the oil pricing situation and the need to put more oil on the market in an expedited manner. Thanks in part to the leadership of major producers, including Saudi Arabia, 3.5 million more b/d are on the market than there were last year. Through the experience of the recent production shortages, we have seen the ability, and the limits, for consumer nations to exercise their influence on producers. One potential avenue for the next Administration could be developing this groundwork into a formalized consultation process amongst consumer governments on how to handle future production shortages. This issue was heavily discussed in the 1970's but has been largely out of the public view since then, although a broad structure of policies and mechanisms, such as the International Energy Agency remains in being. How and whether these mechanisms are to be used and enhanced will be an important part of a worldwide energy policy in the next Administration. This Administration has sought to consolidate the nascent exchange with petroleum producers by sending Secretary Richardson to the Producer-Consumer Dialogue in Riyadh, Saudi Arabia on November 17th. A primary objective of this forum was to strengthen the partnership among energy producers and consumers and to study the links between energy, environment and economic development. This was the first summit of its kind attended by a U.S. Secretary of Energy and represented a new U.S. approach to cooperation in this area. It was fitting that this summit took place in Saudi Arabia, which has proven to be a consistent, reliable - and responsive - supplier. The next Administration will have to decide whether such a dialogue is to be pursued, what aims it will have, and how we will articulate them. VI. Conclusion The importance of the Middle East and, especially the Gulf region, to international markets will not diminish in the near future, nor will our commitment to ensure access to the region's critical oil reserves and our heavy involvement in a broad variety of economic and political relationships. Our objectives of stability and openness in the Gulf are likewise important, perhaps essential to encouraging the development of the additional oil and gas production capacity needed in this new century. Through a multifaceted and flexible policy of military deterrence, diplomatic engagement, and long-term promotion of democratic and economic reforms, we have managed to make the region - and the rest of the world to which it is inextricably linked - a safer and more prosperous place. However, the challenges are as broad and as complex as ever. What I have tried to do is to give you not only an idea of what we are doing in diverse areas, but to suggest how these themes of economic, political, and security policy are interwoven. When a new Administration is ready to think about the Gulf, or more likely when a new crisis compels it to do so, this thinking will need to be on multiple levels. Equally, it will need a public comprehension of these inter relationships. I hope our discussion will help to build that awareness for the future. Thank you. [end of document] Peace Process | Near Eastern Affairs | Department of State | Secretary of State |
