Runaway Oil


Runaway Oil

May 24th, 2008 4 min read

Director, CENRG and Senior Fellow, IAGS

Ariel served as the Director of the CENRG and Senior Fellow for IAGS
Many oil producing countries benefit greatly from the rising oil prices. Oil at $135 a barrel brings them windfall profits and allows social and economic development unlike anything people can remember.

Yet, there is a downside to the skyrocketing oil prices, which hurts the United States, Western Europe, China, Japan, and a slew of developing countries without significant hydrocarbon resources.

From Russia to Iran to Venezuela, America's and the West's adversaries are splurging on oil windfalls. But oil big bucks also are allowing the oil sultans and dictators to intimidate U.S. allies, buy politicians and academics, and purchase election outcomes.

Oil prices are going up partly because of supply shortages and speculation. But part of the reason they are skyrocketing is that governments of the OPEC cartel, and the non-cartel producers like Russia, are making sure that international oil companies do not develop or own reserves in the ground.

Exxon, for instance, spent only 4 percent of its exploration budget in the Middle East last year - local governments do not allow Western companies to take control of their own destiny. Yet, study after study all over the world have indicated that government ownership is always less effective and less transparent than private ownership of productive assets.

Thus, the global oil production is at the mercy of opaque and corrupt national oil companies, while the governments that own them enjoy skyrocketing oil prices and the growing, mind-boggling wealth.

The revenues of the major oil producing countries have quadrupled in three years. Since Sept. 11, 2001, oil prices have more than quintupled: from $20/barrel to $135/barrel. This year Europe and the United States will spend approximately $2 trillion on imported oil, while the world will spend close to $3 trillion.

This money recycles back to the United States and the West, often in the most legitimate ways. Sovereign Investment Funds have acquired large chunks of America's financial flagships: Citigroup, Merrill Lynch, Morgan Stanley, Blackstone and the Carlyle Group.

However, a foreign government acquiring a serious stake in U.S. corporate gems can influence U.S. policies in the Middle East and elsewhere. The oil sheikhs can "tweak" attitudes toward extremism and terrorism, and buy access to politicians through lobbying and campaign contributions.

In the future, these funds may acquire defense and technology flagships: Boeing, General Electric, Lockheed Martin and others, or go after primary media assets, from CNN to FOX.

Yet, oil revenues may be used in much more sinister ways. Money can buy nuclear weapons programs, ballistic missile arsenals, and other arms. It can also pay for terrorist armies.

The recent attempt to overthrow the democratically elected government in Lebanon is bankrolled by Iran. Hezbollah is a wholly-owned Iranian subsidiary. Its chief has the official title of the "representative of Iran's Supreme Leader" in Lebanon. Iran paid for the 27,000 rockets Hezbollah has aimed at Israel.

Iran also buys Hamas weapons and popularity in Gaza. In a recent children's TV broadcast by Hamas' Al-Aqsa TV, a boy from Hamas is shown assassinating President George W. Bush in the Oval Office and declaring that the White House will be turned into a mosque. Money may not buy you love, but it sure pays for propaganda.

Al-Jazeera, the Qatari Arabic and English language TV is a propaganda arm with global reach. At times viciously anti-American, it talks to tens of millions of Arabic speaking Muslims worldwide, as well as audiences in Pakistan, India, London and Detroit. Yet Qataris are behind their big neighbor in funding the "War of the Word".

Saudi Arabia, the cradle of Salafi-jihadi ideology known as Wahhabism, is financing hundreds of religious seminaries (madrassas), many of which are educating generations of U.S.- and Christian-hating and anti-Semitic extremists from Michigan to Manila. Some of them will pick up arms to fight the United States and its allies in Iraq and Afghanistan.

The militant Salafis deny other religions the right to exist in dignity, as a recent religious ruling (fatwa) in Saudi Arabia demonstrated. Two journalists who argued for tolerance were sentenced to death. A professor "caught" talking with his female graduate student without a male escort, will receive a corporal punishment of 150 lashes.

In the United States a majority of mosques partake of Saudi and Gulf largesse. The Saudis often provide religious leaders (imams), textbooks and curricula, to Muslim communities and schools. There is little to no control around the world as far as the content of the teachings or school books, but a Freedom House study found that many are anti-Christian, anti-Jewish, anti-Shiite, and anti-American.

Despite trips by Bush and U.S. Vice President Dick Cheney, who pleaded with Saudi's King Abdullah I, the kingdom refuses to increase output - and why would they? Instead, Riyadh employs an army of lobbyists and other "influencers" in Washington, London, Brussels and elsewhere around the world. These public relations mercenaries promote a benign image for the kingdom while tweaking policies of their home countries.

They appear on TV, direct university programs on Islamic or Middle Eastern studies, open doors in high places - all that for top billable hours. Saudi princes have poured tens of millions into prestigious universities, from Georgetown and Harvard to Cambridge and Edinburgh, to tweak and twist the ways their version of Islam is taught and their kingdom is glorified.

Former senior government officials and ambassadors are on the royal payroll influencing their colleagues in the diplomatic service. This is how the Saudi "peace plan" calling for undermining Israel through a massive influx of Palestinian "refugees" received U.S. support at the highest levels.

This is how the Carter Center in Atlanta ended up taking millions in Gulf oil money. This is why Jimmy Carter looks like he's shilling for the Iranian-Saudi client, Hamas.

With oil at $135 a barrel, the West, China, India, and the developing world are facing a clear and present danger. Oil today is a global commodity. Problems with its supply cannot be resolved only at home.

International oil companies¸ producing and consuming governments need to engage in a broad-ranging policy discussion to prevent the world economy from going into a tailspin.

They need to come up with policies that would expand oil and gas production quickly and efficiently, including expanding private sector access to oil and gas reserve in the most important oil producing countries.

In addition, at current energy prices, alternative sources of transportation fuel and energy are also becoming more attractive. Governments should encourage energy diversification, technological information dissemination, and conservation - without interfering with the markets and throwing the economic baby with the bathwater.

Most importantly, governments and elites need to wake up and recognize the national security consequences of increasing dependence on unstable, anti-democratic, and often anti-Western petro-states, and be fully aware and their ideological and propaganda subsidiaries.

Ariel Cohen, Ph.D., is senior research fellow in the Russian and Eurasian Studies and International Energy Security at the Heritage Foundation. Dr. Lajos Szaszdi has contributed to the production of this article.

First Appeared in the Middle East Times