Global Policy Forum

By Neela Banerjee

Even as talk of war with Iraq and the continuing fallout from Sept. 11 stoke concerns about American dependence on Persian Gulf oil, Western oil companies are showing no intentions of veering away from the Middle East, industry executives say.

The Bush administration has made broadening the sources of America's oil supplies a touchstone of its energy and foreign policies, but officials concede that progress has been slow.

"I believe that the administration's emphasis on increasing and diversifying global energy supplies is having a positive impact on investment decisions — but this impact is difficult to quantify," Spencer Abraham, the energy secretary, said in an interview.

Recently, the administration has encouraged efforts to import more Russian crude oil to the United States and announced plans to open a new consulate in oil-rich Equatorial Guinea. American oil companies say that they welcome such efforts.

But the proportion of United States oil imports flowing from the Middle East remains high — about 24 percent, down from levels during the oil crises of the 1970's, but up by a third over the last few years. And oil executives say that they have not markedly changed their plans for where to seek out, produce and purchase oil.

"Diversifying supply is important for any country, and the industry is looking at other things besides the Middle East," said Clarence P. Cazalot Jr., chief executive of the Marathon Oil Corporation, a Houston-based energy company pursuing projects in the Middle East, West Africa and most recently Russia.

"But at the end of the day, oil has to come from where oil is available, and most of the oil and gas in the world is in the Middle East," Mr. Cazalot added. "It's just an inescapable fact of life." American oil companies work in riskier places than they did a generation ago. In 1970, fields in the United States and the North Sea still held great promise. But production has been declining in those regions, and over the last 30 years, companies have plowed billions of dollars into countries like Nigeria, Angola, Brazil and Kazakhstan.

The American oil industry spends about a third of its exploration and production budget in developing countries, according to the American Petroleum Institute, a trade group. Over the next 20 years, it estimates, companies will allocate the biggest share of their exploration and production budgets to those regions.

American companies have invested comparatively little in the Middle East, largely because the area's state-run oil companies are only now mulling partnerships with foreign oil concerns for the first time in decades. Indeed, oil executives say that from their perspective, diversification means greater involvement in the Middle East, not less, and that the region's vast oil holdings overshadow its history of turbulence.

"We bought into Qatar and Oman to get a foothold in the Middle East," said Robert J. Allison Jr., chairman of the Anadarko Petroleum Corporation, an exploration and production company based outside Houston that has invested about $100 million in those countries.

"The exploration decisions we make today won't come into play for another 4, 5, 10 years," he said. "We need to position ourselves in the Middle East for when Iraq and Iran become part of the family of nations again."

The United States, the world's largest consumer of petroleum, imports most of its oil, a trend that has grown over the last 30 years as consumption ballooned and domestic production slipped. Oil from Canada, Mexico, Venezuela and Nigeria together accounts for more than 50 percent of imports. But the Bush administration wants to diversify even further. Over the last year, the administration has pushed hardest for getting more oil from Russia, the world's second- largest producer after Saudi Arabia.

At a Commerce Department conference in Houston this month, American and Russian oil executives discussed ways to get more Russian oil onto world markets. Marathon Oil and Rosneft, the Russian state oil company, announced an agreement at the conference that calls for Marathon to help Rosneft sell more oil in the United States while the companies jointly look for oil production projects in Russia.

Simon Kukes, chief executive of the Tyumen Oil Company in Russia, estimated that Russian exports could grow to 4.5 million barrels a day by 2010 from about 3.2 million barrels now. Saudi Arabia, in comparison, exports 6.6 million barrels a day.

But there are stumbling blocks. Most American refineries are not equipped to process Urals blend crude oil. And having revived the formerly moribund industry themselves, many Russian companies are reluctant to work with foreigners.

"We need them on some major projects, but we can live without American companies," Mr. Kukes said. Western oil executives are wary, too. "I have a philosophy that I won't go anywhere where I'm not sure of the rule of law, and Russia has a big problem with it," said Gwyn Morgan, chief executive of the EnCana Corporation, which is based in Calgary, Alberta. It is North America's largest independent oil and gas company.

The administration has also promoted Kazakhstan and Azerbaijan as stable sources of oil and gas for the West. Since the mid-90's, Western companies have invested more than $18 billion in the two Caspian nations, adding more than 600,000 barrels a day of production to world markets. But industry executives note that hopes of exporting Caspian oil to the West quickly become mired in the politics of running pipelines through the region, where the national interests of Russia, Iran, Turkey and other countries are often at odds with each other, and with those of the United States.

"The transportation issue needs to be solved before any substantial resources from the Caspian will be brought on market," said David J. Lesar, chief executive of the Halliburton Company, a big energy services and engineering company. Recently, Washington has paid growing attention, too, to the countries of West Africa, which already provide about 15 percent of America's crude oil imports.

In late summer, Secretary of State Colin L. Powell visited Angola and Gabon, two major oil producers. President Bush met with African leaders in New York this fall and is scheduled to tour Africa early next year. The new consulate in Equatorial Guinea could make doing business easier for American oil companies like Exxon Mobil, Amerada Hess and Marathon that are already active in the country, oil executives said, and might draw new investment there, as well.

But carving out a business in West Africa has meant constant struggle for Western oil companies, which have weathered everything from civil war in Angola to occupations of their operations by villagers in Nigeria. The proven reserves in all of West Africa are 32.1 billion barrels of oil, compared with 262 billion barrels in Saudi Arabia alone.

Many analysts and oil industry executives perceive the administration's oil diplomacy as a rebuke to Saudi Arabia, the biggest supplier of oil to the United States. In the wake of the Sept. 11 attacks, which were carried out mostly by Saudi citizens, strains have emerged in the long-friendly relationship between Washington and the Saudi regime.

Nonetheless, Western oil companies are lining up to get a toehold in Saudi Arabia, which nationalized foreign oil holdings in the 1970's. The Saudis are considering opening some of their natural gas fields to foreign investment. Though prospects for the gas project have grown cloudy, oil companies hope that the project will continue, because they see it as a step to reopening the oil sector to foreign development.

Middle Eastern oil producers are not panicked by the new urgency in the United States about diversification, one oil executive from the region said. He pointed out that even if the United States imported less oil from the Persian Gulf, it would remain indirectly dependent on Middle Eastern states to produce enough oil to keep world prices stable.

"Russia is not a worry," he said. "Over the long term, they can't sustain such high production. The reserves are not there under the ground. "As demand increases, there will be more reliance on our part of the world," this executive said, "that is, if we can show that dependence on the Middle East is not the same as vulnerability."