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The Great Oil Reserve Swindle

Written by Luke Burgess
Posted August 1, 2006

It's no secret at all that OPEC controls the lion's share of remaining conventional oil reserves on the planet.

OPEC is the true 800-pound gorilla of the oil game. The cartel is officially estimated to control over 887 billion barrels of proved oil reserves -- supposedly two-thirds of the world's remaining proven supplies.

But while these reserves seem massive, you have to realize one very important fact...

The "official" reserve estimates are reported by government-owned oil companies and are many times bloated to appease political and geopolitical interests.

The fact is, many OPEC governments see their respective country's oil reserves as more political than geological. And they can use the numbers as a way to add to the value of their stock within the geopolitical market.

No one's sure exactly how much more crude the OPEC's oil fields still contain. And there's strong evidence to suggest the official oil reserve numbers, put out by OPEC governments, have been fudged on purpose. Let me explain...

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The Great Oil Reserve Swindle of the 1980s
My publisher Brian Hicks looks back fondly on the 1980s. Hair bands, bad music, and the Generation X manifesto St. Elmo's Fire marked a decade of decadence. But the 1980s was also the decade of the greatest oil manipulation in history. And we're now paying the piper.

Let me explain...

Back in 1989, Saudi Arabia claimed to be sitting on a total of 170 billion barrels of oil reserves.

Only a year later -- and without the discovery of any new major oil fields -- the official reserve estimate unbelievably grew 51.2% to 257 billion barrels. Take a look:

Unbelievable indeed.

One has to wonder exactly how any country increases their oil reserves by 87 billion barrels without finding any major fields.

Fact is...there's no way they could. The truth of the matter is probably that this increase came from a little "creative accounting".

But wait...how can we be sure that these figures have been manipulated?

Well, get this -- Saudi Arabia wasn't the only country on the block to significantly -- and mysteriously -- add to their oil reserves.

Five other OPEC countries also magically added more reserves, virtually overnight. The UAE managed to increase their reserves by nearly 200%! Take a look:

Interesting, huh?

If it's true that OPEC really did manipulate their reserve estimates back in the late ‘80s, why would they do that?

Well, there's one theory out there that makes a very convincing argument.

Peter Schweizer, author of Victory: The Reagan Administration's Secret Strategy That Hastened the Collapse of the Soviet Union, believes that during his stint as President, Ronald Reagan met with... and secretly struck a deal with the late King Fahd of Saudi Arabia and other OPEC leaders.

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The deal called for OPEC to drastically increase their "official" oil reserves and flood the market with oil in order to crush crude prices.

Why would the Gipper want to send oil prices south?

Well, this was all taking place during the Cold War between the U.S. and Russia. And Reagan knew that if he could somehow drive oil prices down, the Russian economy would effectively be strangled.

The Soviets would then no longer be able to buy the technology needed to keep pace with the United States in the arms race, and the U.S. would come out of the squabble victorious. All without a single shot being fired.

And that's exactly what happened.

Oil prices fell from and average of $35 in 1981 to a low of about $10 in 1988 and the Russian economy lost over $5 billion in oil revenue.

Like I mentioned before, there's a lot of conjecture surrounding this theory. Nonetheless, I find it very hard to believe that Saudi Arabia and the rest of the OPEC crew was able to increase their oil reserves by so much without finding several major oil fields.

The Kuwaiti Case
Back in January, Petroleum Intelligence Weekly -- considered by many as the "Bible" of the international oil and gas industry -- published a report that said Kuwait's official estimate on the country's remaining oil reserves has been grossly overstated.
PIW claimed that they saw internal documents from state-run Kuwait Petroleum Corp. that said the true reserves are barely half the level of the official estimate.

According to data circulated in Kuwait Oil Co., the upstream arm of state Kuwait Petroleum Corp, Kuwait's remaining proven and non-proven oil reserves are only about 48 billion barrels -- not the 96.5 million that's officially estimated.

And what's more is that only 24 of the 48 billion barrels are so far only proven. The other 24 billion barrels of reserves are non-proven!

"...in a series of controversies revolving around the oil industry and its global implications, it has been revealed through certain individuals that the official figure is a mockery, since what has actually been accounted for is way below the official figures."

- Fouad Al-Obaid, Kuwait times

If what Petroleum Intelligence Weekly is claiming is true, then we've lost over 5% of the world's global oil reserves without even knowing it.

And that's the very last thing the world needs right now.

OPEC will continue to be the big tuna in the sea of oil producers. Yet we may not know how much oil they have left until it's too late.

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