OPEC is a powerful cartel. The member nations gather together and essentially decide among themselves what the global price of oil will be. They can do this because they control the production levels of by far the largest block of oil producers in the world.
So they decide how much they will produce, and how much they produce determines the worldwide price of oil. What they're doing is against international law, but nobody can do anything about it because a retaliation by OPEC could literally crash the world's economy. They've got us all over a barrel.The country with the most influence within OPEC is Saudi Arabia because their oil is the cheapest of any of them. Saudi Arabia can produce a barrel of oil for $1.50. That is not a typo. Not only is their oil the cheapest to produce, but they have the largest known reserves.
So if the cartel decides on a particular production quota for the member nations of OPEC, and one of the members decides to get greedy and exceeds their quota to take advantage of high oil prices, Saudi Arabia can raise their own oil production so dramatically that they crash world oil prices by glutting the market with excess oil. This doesn't hurt Saudi Arabia very much — they still make money because their oil is so cheap to produce. But it hurts all the rest of the member nations of OPEC.
So Saudi Arabia controls what OPEC does. And OPEC controls the global price of oil. And the price of oil controls the world's economy because 95% of all transportation in the world — planes, trains, ships, trucks, and cars — can run on nothing but oil. And transportation underlies the world's economy. If goods can't move around, the economy comes to a halt.
That means Saudi Arabia controls the world's economy. And they manipulate oil prices in a way that gives them the maximum amount of income, like a parasite that drains as much blood from its victim as it can, short of killing the host. Saudi Arabia has been reaping one bonanza after another for a long time. They are overflowing with money.
In Fiscal Year 2008, "Americans paid $900 billion for their oil supply," writes Robert Zubrin, "and the world as a whole paid $3.6 trillion. These petroleum costs were up by a factor of ten from what they were in FY 1999, and they represent a huge, highly regressive tax on the world economy."
And it continues to increase. Americans paid $80 billion for oil in 1999 and they paid $900 billion ten years later. This is equivalent to a "33 percent increase in income taxes across the board." And 60 percent of that money was handed over to foreign governments. The reason for this increase is OPEC's deliberate hiking of world oil prices.
"The resulting transfer of wealth," writes Gal Luft, "is already creating a structural shift in the global economy, causing oil importers economic dislocations such as swollen trade deficits, loss of jobs, sluggish economic growth, inflation and, if prices continue to soar, inevitable recessions. The impact on developing countries, many of which still carry debts from the previous oil shocks of the 1970's, is much more severe."
Adding to this transfer of wealth from the rest of the world to OPEC nations is terrorism. Al Qaeda has explicitly made attacking oil supplies their goal, calling oil "the provision line and the feeding to the artery of the life of the crusader's nation." From 2004 to 2008, attacks on oil fields in Iraq alone prevented one to two million barrels of oil from entering the world market, which kept the oil market $20-25 per barrel higher than it would have been otherwise.
This extra "tax" on the economies of Europe and the United States from terrorist attacks on oil facilities added up to an additional $65 to $85 billion dollars a year leaving Western economies. Terrorists have attempted to disable Abqaiq (in Saudi Arabia), the largest oil processing facility in the world. Several attempts to drive explosive-filled trucks and planes into Abqaiq were luckily thwarted. Had they been successful, they could have easily "sent oil to above $200 a barrel for an extended period of time," wrote Luft, "causing incalculable economic losses and a far greater transfer of wealth to Middle Eastern governments."
So OPEC's price-fixing manipulations and terrorists' attacks have given Saudi Arabia a rapidly increasing windfall. How has it used the money? And why should we care?
Saudi Arabia is home to Wahhabism, a strict, fundamentalist version of Islam that is hateful toward non-Muslims and seeks to dominate the West. Saudi Arabia spends its wealth on promoting Wahhabism around the world.
"Until the Saudis started racking up billions in inflated oil revenues in the 1970s," wrote Robert Zubrin, "the Wahhabi movement was regarded by Muslims the world over as little more than primitive insanity. Without rivers of treasure to feed its roots, this horrific movement could neither grow nor thrive." He writes,
It is the Saudis’ unlimited funds...that have allowed them to buy up the faculties of the Islamic world’s leading intellectual centers; to build or take over thousands of mosques; to establish thousands of radical madrassas, pay their instructors, and provide the free daily meals necessary to entice legions of poor village boys to attend. Those boys are indoctrinated with the idea that the way to get into paradise is to murder Christians, Jews, Buddhists, Taoists, and Hindus (not to mention moderate Muslims). Graduates of these academies are today killing American soldiers in Iraq. Meanwhile, Arab oil revenues have underwritten news outlets that propagandize hatefully against the United States and the West, supported training centers for terrorists, paid bounties to the families of suicide bombers, and funded the purchase of weapons and explosives. We have been subsidizing a war against ourselves.
Saudi Arabia comprises only one percent of the Muslim world, and yet they are financially responsible for an unbelievable 90 percent of all Islamic organizations in the world! Stuart Levey, the U.S. Undersecretary of the Treasury, in charge of combating terrorist financing, said, "If I could snap my fingers and cut off the funding from one country, it would be Saudi Arabia."
And there's more. "Iran is now using its petroleum lucre to fund its nuclear program and to insulate itself from economic sanctions imposed on it," wrote Zubrin. "Once produced, Iranian nuclear weapons could be used by the Iranian regime itself or be made available to terrorists to attack U.S., European, Russian, or Israeli targets. This is one of the gravest threats to international peace and stability — and, again, we are paying for it ourselves with oil revenue.
"Our responses to these provocations have been muted and hapless because any forceful action on our part against nations like Saudi Arabia and Iran could result in the disruption of oil supplies that the world economy is utterly dependent upon. We cannot stand up to our enemies because we rely upon them for the fuel that is our economic lifeblood. We pay them for their oil and they make war on us."
Former Secretary of State, Condoleezza Rice said, "We do have to do something about the energy problem. I can tell you that nothing has really taken me aback more, as Secretary of State, than the way that the politics of energy is...warping diplomacy around the world. It has given extraordinary power to some states that are using that power in not very good ways for the international system — states that would otherwise have very little power."
The United States relies on oil for transportation. A whopping 97 percent of our transportation vehicles can run on nothing but oil. Therefore our entire economic health is inextricably tied to the world price of a barrel of oil. So OPEC has de facto control over the American economy. This is a perfect formula for national insecurity.
But we can free our economy from OPEC's control with fuel competition. The almost total reliance of our transportation vehicles on oil alone will begin to diminish, and as it does, our economy's vulnerability to OPEC's price manipulations will diminish right along with it. Alcohol fuels will begin competing with gasoline, and the production of these fuels will be within our own control, not subject to OPEC's price manipulations.
It would actually be quick and easy with an open fuel standard. Find out here what true robust fuel competition could accomplish.
Adam Khan is the co-author with Klassy Evans of Fill Your Tank With Freedom and the author of Slotralogy and Self-Reliance, Translated. Follow his podcast, The Adam Bomb. You can email him here.
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