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18 Mar 2003 : Column 195WH—continued

International Oil Reserves

11 am

Norman Baker (Lewes): I am very pleased to have the opportunity to introduce a debate today on foreign policy objectives relating to international oil reserves. Given the international situation, this short debate this morning is timely. It will perhaps constitute a light breakfast before the main meal in the Chamber later.

The central thesis that I want to put to the Minister today is that it is in Britain's interests, and should be a foreign policy objective, to diminish reliance on oil in this country's economic activity, partly for diplomatic reasons. It makes no sense, and is dangerous, to continue our present reliance. I want an assurance from the Minister that he recognises the importance of moving away from oil and towards other methods of powering the economy.

I mention first the environmental aspect of oil production. The British Government have signed up to Kyoto, which we are all pleased about. They have set themselves a tough target, which the Minister for the Environment and others say that they are on line to meet. That is good news, although it is not the case with all the world's countries; most notably, the United States and Russia are currently outside the Kyoto protocol. However, it is difficult for this country and other western democracies to argue that Kyoto is vital if we make no attempt to reduce our dependency on oil.

I remind the Minister that the British Government predict that, by 2080, 94 million people around the world will be at risk from flooding every year as a result of global warming and that, by 2025, increasing incidences of drought will mean that up to 5 billion people will lack sufficient water. Those are startling figures, which should cause concern not only from a humanitarian viewpoint but in terms of the world's stability, a central concern of the Foreign Office.

Oil is a major pollutant. Between 1978 and 1999, the Advisory Committee on Protection of the Sea recorded 12,746 oil pollution incidents. They occur every day. Yesterday, I was on the beach at Newhaven in my constituency and saw birds, covered in oil, dead on the beach. There are environmental implications of oil, on a grand and on a lesser scale. The other environmental aspect is that oil is a finite resource. It will run out, and it is rather selfish of this generation and the preceding one to have used oil in such a cavalier way, knowing that it will be exhausted before very long. That will lead to all sorts of problems for the world.

The reply that I had from the Minister for Energy and Construction earlier this year said that there are thought to be 959 billion barrels of proven oil reserves and 939 billion barrels of undiscovered resources across the world. That might sound like an enormous amount, but even that Department of Trade and Industry answer recognised that, at the present rate of consumption, we will face problems by 2030—that is the Department's date—unless we find new sources of oil, a finite resource, or, more appropriately, we move towards an alternative solution that breaks our reliance on oil. I very much hope that we will take that second course.

Oil has built up over billions of years and we, as a human race, are proposing to use the entire resource in a period of some 200 years, the bulk of it at the end of

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that time. The Minister will recognise that instability will flow from the increasing consumption of oil, a decreasing resource; that is happening globally at the moment. That could lead, first, to increased economic costs and, secondly, to a destabilised world in which nations fight over the remaining oil. We must try to build a system that avoids a catastrophe in 20 or 30 years' time.

In Britain, oil production has peaked and is declining. That is also the case in other western countries, such as Norway and the United States. In the years ahead, the countries that peak last in terms of production will be the most unstable countries in the world, including Saudi Arabia and Iraq. We do not want a situation in which we are dependent on unstable regimes for an essential commodity such as oil.

The United States consumes over 25 per cent. of the oil produced worldwide, but US production of oil has long since peaked and is in serious decline, which makes it more dependent than ever on imports. That would be the case even if we were talking about satisfying a steady demand, never mind one that continues to increase. The Bush Administration's 2001 energy plan predicted that an increased demand for oil was inevitable, with oil imports needing to rise from 10.4 million barrels per day at present to 16.7 million barrels per day by 2020. That is a huge increase of some 60 per cent. over the first two decades of the century, yet the resource is declining. The US currently spends $100 billion a year on oil.

We know why US demand is high; it is related to the standard of living, the cavalier attitude that the Bush Administration in particular have towards the environment and the refusal to go along with Kyoto or to recognise the need to have sensible pricing regimes for, for example, fuel for vehicles. The price of gas, as they call it, is extraordinarily, artificially and irresponsibly low.

The reliance on oil that we and the US exhibit in our behaviour can have significant economic consequences, including short-term consequences. We know, for example, that oil shocks can act as catalysts for substantial damage to western economies, as they did in 1973–74, 1979–80 and 1990–91. The interplay between the economy, the environment and security of supply is an increasingly central issue to the Foreign Office, as the debate over Britain's nuclear energy and gas has demonstrated. Oil shocks damage oil-importing countries because they simultaneously depress demand and raise prices. All three shocks to which I referred were caused by, or were a catalyst for, a serious downturn in western economies.

As I mentioned, the reserves of oil are being held in the world's unstable regimes. The US relies hugely on imports from countries that cannot guarantee a stable flow over a long period of time. Venezuela, the fourth biggest supplier to the US, virtually halted oil exports to the US when the turmoil occurred there last year. Saudi Arabia may have been seen as a stable regime, in some ways, over the past 20 or 30 years, but we cannot guarantee that it will be so in the years ahead; particularly if the middle east is destabilised as a consequence of activities likely to begin shortly.

If the US and others were able to secure control over some of the remaining oil reserves in what are presently unstable regimes, it would provide a short-term

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breathing space. Iraq is sitting on 11 per cent. of the world's oil reserves, or 112 billion barrels, making Iraq second only to Saudi Arabia in terms of its oil reserves. There are 16 years' worth of US oil consumption in Iraq alone. The US Department of Energy recently confirmed that. In its Iraq country analysis brief of October 2002, it was stated that:

I am not saying that we are seeing the events that are unfolding in the world today simply because there is a drive for oil. There are clearly other factors at play. However, oil is undoubtedly a factor, because the price, availability and regular supply of oil affect the economies of the west, and the US and UK in particular. Clearly, the US Administration have signed up to deal with the oil problem, as they see it, in Iraq. A letter to President Clinton in 1998 from Donald Rumsfeld, Richard Perle, Paul Wolfowitz and Richard Armitage said:

Those authors are now, with one exception, in the US Administration. Larry Lindsey, President Bush's economic adviser said in September 2002:

Oil is not necessarily the only factor, but it is clearly a factor.

There is a problem with the logic being employed in some quarters. The assumption is that Iraq's capacity can be increased. That will increase the flow of oil around the world, which will lead to more competition and a more stable supply. There are two problems with that. First, as the Minister and his colleagues will recognise, attacking a middle east country has the potential to destabilise the region, particularly in Saudi Arabia where there is a clear element that is unhappy with any pro-western association. That could lead to a situation in which Iraq was gained and Saudi Arabia was lost, which would not be a sensible outcome.

Secondly, there are economic consequences to such an attack if it leads to Iraq producing higher quantities of oil. In the short term, if Iraqi production were raised markedly it would lead to a glut of oil in the world market, which would depress the price of oil. That may be seen as a good thing, but it would depress the gross domestic product and income of Saudi Arabia, which is hugely reliant on oil, and could also have a destabilising effect on that regime. It is perfectly possible that through efforts to increase oil supply, the opposite could occur.

That leads me to conclude that is not sensible for the world as a whole, and the west in particular, to rely on oil as the lubricant for the worldwide economy. We have to move away from oil and invest far more in alternatives, as BP and Shell are doing. Those British companies are leading the way in developing alternatives. "Beyond petroleum" is BP's new title and it recognises that we cannot be reliant on oil. In that sense,

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industry is ahead of Government. I am not just talking about this Government—I am not making a party-political point—but Governments in the west in general.

The attitude of those companies is in stark contrast with Exxon Mobil, which is doing everything it can to snuff out renewable technologies and keep the oil pumping. The Government have a key role in encouraging BP and Shell to develop alternative technologies and ensuring that the west, and the world in general, is not dependent on oil. When we look for the lubricant for our economic engine in years to come, we do not want to face a small number of countries, many of which are unstable, controlling the price at a level not helpful to us and holding us to ransom, which may engender a military response from a nation, or nations. That is not a healthy situation, and we need to avoid it. We are on the cusp of it now.

I should like to raise a further point—the environmental consequences of any oil-related activities that occur in the next month or so in Iraq. The point is serious, and I have raised it with the Prime Minister. When I asked what assessment he had made of environmental damage and what steps had been taken to prepare for it, he simply said that there was no war with Iraq. Strangely, I was aware of that when I asked the question—it had not bypassed me—but his answer did not help.

I say to the Minister that we are facing a potential environmental catastrophe, assuming that action starts. We know that because we experienced an environmental catastrophe during the 1991 Gulf war. What happened then, and what could happen again now, is the release of huge amounts of carbon dioxide into the atmosphere; something like a million tonnes a day could come out of the oil wells, if Saddam Hussein sets fire to them, as he may well do, or if they are struck by bombing from the UK or US. Huge amounts of carbon dioxide could be released. The temperature could drop by 10°, as happened last time, because of the cloud cover from oil pollution. Many birds and much other wildlife were badly affected and killed as a result of the deliberate destruction of oil wells that Saddam Hussein embarked on in 1991, and human health was massively affected as air pollution levels rocketed.

I warn the Government that there will be a serious environmental pollution problem if we have a war with Iraq. I hope that they have some scheme for dealing with it and that preparatory work has been done to ensure that damage to the environment can be prevented or, if not, will be minimised and put right as soon as possible.

Finally, I refer the Minister to article 55, which states that part of any war activity is a duty on each party to protect the environment. I very much hope that the Government keep that in mind in the days ahead.

11.15 am

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr. Bill Rammell) : I am most grateful to the hon. Member for Lewes (Norman Baker) for raising such an important issue at this time. As usual, he spoke with great clarity and conviction. The security of international energy supplies is a matter of concern to all countries, including the United Kingdom. Energy policy is a prime example of the increasing interdependence between foreign and domestic policy.

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I wish to begin by referring to the hon. Gentleman's comments about the Kyoto protocol. He rightly referred to the fact that the UK is, justifiably, a signatory to the protocol, whereas the United States of America is not. We are entering a period in which our relationship with the USA will be a matter of some debate. We are right to work with the Americans on the Iraq crisis, but there is a significant difference of opinion on the Kyoto protocol, and we will continue to offer arguments about it to our American partners.

The Government are very conscious of the need for a radical new approach to energy policy. That was clearly set out in the energy White Paper that was published on 24 February, which marks a departure by setting energy policy firmly in the context of environmental challenges, particularly those of the global environment. I welcome its clear strategy to reduce carbon dioxide emissions by some 60 per cent. in the next 50 years. That is a radical ambition, which we are right to put forward. We are encouraging the development of renewable energy in the UK and greater progress in energy efficiency, which are central to achieving that aim. I certainly concur with the hon. Gentleman's points about our need to cut oil consumption. We must do that if we are to meet the ambitious targets that have been set by the Kyoto protocol.

The policy to which we have committed ourselves is based firmly on four pillars—protecting the environment— promoting competitive markets in the UK and beyond; tackling fuel poverty at home, which is crucial; and, last but not least, maintaining the reliability of our energy supplies. Energy is vital for the world's economic prosperity and development. At present, oil accounts for some 40 per cent. of world energy consumption, mainly in the transport sector. That is why it is important that we enact the measures in the Kyoto arrangements.

To put our dependence on oil in context, as a country we have been a net exporter of energy, with significant imports and exports, for the past two decades, following the successful development of North sea oil. However, as the hon. Gentleman pointed out, that will certainly change. Forecasts vary, but it is commonly agreed that UK oil and gas production will decline significantly in coming years. On an annual basis, it is likely that the UK will become a net importer of gas by about 2006 and of oil by about 2010.

By 2020, we are likely to import about three quarters of our primary energy needs and therefore need to rethink and to respond. We value the contribution of our world-class energy companies to the successful development of our oil and gas reserves. We will continue to give a high priority to developing the UK continental shelf, and the Pilot scheme is central to that work. The Pilot scheme, which is now in its third year, is an initiative based on promoting industry co-operation with the Government to enhance the economically efficient recovery of the UK's oil and gas resources to prolong our indigenous supplies.

As well as promoting energy efficiency to help us address the challenge of climate change, consuming countries also need to explore alternatives to mitigate our dependence on fossil fuels, especially and importantly within the transport sector. Mobilising innovative science and technology is a major theme in the White Paper to which I earlier referred. We need not

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only to use our science and technology base but to multiply its effectiveness through international collaboration. We are focusing on that in our public expenditure priorities, particular on energy research, development and innovation. The Department of Trade and Industry spent about £40 million supporting sustainable energy-related research and technological development in 2001–02. We have already put in place a substantial renewables support programme worth some £250 million between now and 2005–06.

We are not acting in isolation. I took some of the hon. Gentleman's points about the actions of the United States of America, but there is an indication that movement is beginning. The development of hybrid vehicles, which could dramatically cut fuel consumption, is beginning to be looked at in the United States, which is welcome.

We need to put into context the fact that we will move from being a net exporter to being a net importer. Relying on imports need not be a problem. Import dependency, especially for oil, has long been a fact of life for all the G7 countries, except for Canada and the UK. Having said that, the economic health of all countries depends on the stability of the international energy markets. World population growth and economic expansion suggest that demand for oil will significantly increase over the next 20 years, so we have to get it right by seeking to create stability.

Worldwide, fossil fuel resources are large and there are sufficient oil reserves to meet projected demand for around 30 years. If we look to the development of non-conventional reserves such as Canadian oil shales and Venezuelan heavy crudes, as well as improvements in technology, oil reserves could last for twice as long.

Also, the bulk of conventional oil reserves are, as the hon. Gentleman has pointed out, located in the middle east, which currently supplies about 25 per cent. of Europe's imports; a situation that is likely to continue for a considerable time. However—I want to make this point strongly—there are also significant oil reserves in north and south America, Russia, the countries of the Caspian basin and Africa. The Caspian basin, for example, may hold as much as 5 per cent. of global oil reserves and is likely to produce 3 million barrels of oil a day by the end of this decade, which is about 3 per cent. of the world's oil needs.

The picture is complicated and we need to look at all its aspects. Exploring the development of diverse oil reserves helps us to stabilise the market and, crucially, to underpin the security of supply. The Government certainly regard such a development as a high priority, as we have clearly set out in the energy White Paper.

We also need producers and consumers to work together to produce an effective trade in energy products. For more than a decade, oil and gas producing and consuming countries have been engaged in a dialogue on both a bilateral and, through the international energy forum, a multilateral basis. The UK has been an active supporter and participant in that process.

The hon. Gentleman referred to the need to secure regional stability in the key oil producing areas. He flirted with the argument that the current action on which we will be voting in the House of Commons this evening is driven by the need for oil. That is the least

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persuasive argument in all the current debates on that subject. I genuinely and profoundly do not believe that committing ourselves to military action in Iraq, if that is what happens this evening, is about oil. I believe that it is about weapons of mass destruction and a regime that has consistently and defiantly flouted the will of the international community for the past 12 years.

If oil were the only issue, we could simply cut a deal with Saddam Hussein, as has been made clear many times, and allow him to continue to hold and develop his weapons of mass destruction in return for access to his oil reserves. I am sure that he would sign up to such an agreement within moments. The argument about oil is not persuasive.

It is worth putting into context the scale of Iraqi oil production. Iraq may be a major oil producer, but that should not be overstated. Iraq currently produces around 2.4 million barrels a day—the same as the UK—which puts the matter into realistic context. It is arguable that oil may be a stronger influence on Russian and French policy as we have seen it developing during the past few weeks, because they have a much more significant strategic interest in Iraq's oil reserves compared with the overall size of their economies. With respect, the picture is much more complicated than the hon. Gentleman suggested.

Norman Baker : Could I put it on the record that I suggested that oil was a factor? I did not say that the situation was only about oil. I am prepared to accept that the Prime Minister is driven by a messianic zeal in his approach, but the same cannot be said of President Bush, who, with his colleagues, is steeped in oil.

Mr. Rammell : The hon. Gentleman's argument about oil was not made with conviction. If he has any genuine doubt, I hope that he was reassured by the announcement made at the weekend in the Government's "Vision for the Iraqi people", in which we made it clear that we would work with the international community in the event of military action

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We suggested a UN trust to administer that. There is no vestige of credibility in the argument that we and the Americans are driven by the need for oil.

The hon. Gentleman referred to the Prime Minister's messianic zeal, but most people are coming to the conclusion that he has a sincere and genuine conviction of principle. People do not recognise principle and conviction in the somersaults of the leader of the Liberal Democrats on the issue and on the need for a second UN resolution during the past several months. They recognise opportunism during the most extraordinary and difficult situation that this country has faced for many a year.

Securing stability for oil supplies requires the resolution of the middle east peace problem. It is a credit to the Government that they have been at the international forefront in striving to achieve that. We welcome President Arafat's decision to appoint Abu Mazen as Prime Minister, which is an important step forward. We are pleased that that was followed up by President Bush's statement on 14 March reiterating his commitment to the implementation of the road map. It is clear that the British Government and our Prime Minister have pushed most strongly and passionately on that important issue.

Demand for oil is likely to increase and the role of the middle east in supplying oil to world markets will become even more important. That reinforces the need for us to move the important issue of the middle east process forward.

In conclusion, the need for secure energy supplies throughout the world is complicated and a changing picture. It is important that we get it right. That requires the development of new energy markets, growth and dependence on renewable energy, to which the Government have strongly committed themselves. If anyone was in any doubt about that, the fact that publication of the energy White Paper at a difficult and challenging time for the Government has been widely welcomed across the political spectrum underlines that. I welcome the fact that the hon. Gentleman secured this debate today to enable us to discuss those important issues.

Sitting suspended until Two o'clock.

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