Posted on 11/14/2014 1:54:09 PM PST by Kaslin
In July of 1941, after Japan occupied French Indochina, the Roosevelt administration froze Japan's assets in the United States.
Denied hard cash, Japan could not buy the U.S. oil upon which the empire depended for survival. Seeing the Dutch East Indies as her only other source, Japan prepared to invade.
But first she had to eliminate the sole strategic threat to her occupation of the East Indies -- the U.S. battle fleet at Pearl Harbor.
FDR's cutoff of oil to Japan was thus a primary cause of WWII in the Pacific, which led to hundreds of thousands of U.S. war dead, the destruction of Japan, Mao's triumph in China and a U.S. war in Korea.
A second stunning use of the oil weapon came in 1973. Arab members of OPEC imposed an embargo in retaliation for Nixon's rescue of Israel with an airlift in the Yom Kippur war. Long gas lines helped to bring Nixon down.
Now the oil weapon appears to be back in America's hand.
Due to the substitution of natural gas for oil in heating homes and buildings, horizontal drilling, and hydraulic fracking, which enables us to bring oil and gas out of shale rock in places like North Dakota, U.S. production has exploded. We now produce more oil than Saudi Arabia and the benefits are not only economic, but geostrategic.
Cuba excepted, there is no more hostile regime in Latin America than Venezuela's Nicolas Maduro, the successor to Hugo Chavez. Oil accounts for 95 percent of his nation's exports. Iran is almost wholly dependent upon oil sales for hard currency. Russia is the oil and gas supplier for much of Europe.
With the price of oil having fallen from over $100 a barrel to below $80 this week, all three nations are suffering plunges in revenue. The United States and Europe are also punishing Russia and Iran with sanctions on their energy sectors.
Iran's production has fallen sharply. Oil-drilling equipment and the latest U.S. drilling technology that Russia has sought to bring on stream its vast Arctic reserves are being denied to her.
As the oil weapon was used by us against Imperial Japan and by the Saudis against us, we are now wielding this sword.
We should remember that it is double-edged.
While it would seem natural for Saudi Arabia, the largest producer in OPEC, to cut production to tighten the oil market and let prices firm up and rise, the Saudis have continued to pump as the price has fallen.
What is Riyadh's game?
Is the Saudi strategy to let prices fall to where it is no longer profitable for Americans to begin new fracking? Are the Saudis thinking of doing to the new oil-producing champion, USA, what we are doing to Venezuela, Russia and Iran?
Riyadh may want to let the price of oil sink below where it makes sense for energy companies to prospect for new sources of oil or invest more billions in expanding production.
Are the Saudis out to cripple us with an oil glut?
Today, not only are Iran and Iraq producing below potential, so, too, is Libya. And we have been bombing ISIS' oil facilities in Syria.
A contrarian's question: Would we not be better off if these countries not only restored oil production, but also expanded production and put more oil on the market than they do today?
Demand creates supply, and a world oil market where there is more supply than demand would seem to be to America's benefit. For we remain the world's largest consumer of petroleum products.
And surely it is to our benefit to enlarge both the reserves and production of oil and gas in North America.
Price pays a huge role in creating, and shrinking, supply. And price, Adam Smith notwithstanding, is something we can control and manipulate, even as China manipulates its currency.
In "America's New Oil Weapon" in National Review, Arthur Herman of the Hudson Institute urges the United States to take bold steps to increase our supplies of oil and gas.
We should relax the rules on drilling in Alaska's Arctic National Wildlife Refuge, which has 10 billion barrels of oil locked up. We should use as an economic weapon against OPEC the 700 million barrels in the Strategic Petroleum Reserve. We should allow the export of oil from the United States to enable us to cope with OPEC cutbacks. We should build the Keystone XL pipeline, and the other oil and gas pipelines between us and Canada now sitting in limbo.
What Herman is urging upon us is a new nationalism, a new way of thinking about international economics that puts the U.S. and its allies first, and uses our economic leverage to advance national rather than global interests.
Something the GOP Congress might think about when Barack Obama asks them to surrender their right to amend trade treaties with fast track.
FDR's action only affected the timing of the Japanese attack on Pearl Harbor. The Japanese had started contemplating an attack on Pearl as early as 1923 and by 1940 it was considered an inevitability at Etajima.
We should back ISIS in any attacks on Wahabbist Exporting SA.
A real mercantilist policy would open oil taps everywhere in America, permit the building of refineries, build all pipelines required and flood the world with oil and the results would be tumultuous. My exposure to Russians here in Germany tells me that they are panicking with oil just below $80 a barrel. The Russian economy fails with oil at $80 a barrel. Likewise, Venezuela, as mentioned by Buchanan, might actually go bankrupt to the point where it cannot survive.
The next step, legalize drugs in America and further strengthen our geopolitical situation.
That should have been part of the GWOT. The shallow thinking of our dear leaders never put into place such actions to benefit our long view. Opening up refineries and such would have been a basic tenet for a 'authorization of force' vote.
I wonder, could Saudi contributions to Democrat politicians be causing the lack of development of oil and gas resources in this country?
If Russia is on the verge of going bankrupt...
The Chicoms will buy more oil for their reserves (its probably a safer investment that loaning $$ to Uncle Sam anyway).
And as Pat mentions, nations around the globe, from Venzuela to Iran depend on oil sales....not to mention all the Arab nations that have absolutely no other export other than oil, and happen to be in the midst of popular uprisings/civil war/ISIS threat. They can’t hold out for long with the lower prices. I don’t think the Saudis are going to be able to pull it off this time.
And which President moved the Pacific Fleet to Hawaii?
Why, FDR of course!
We cannot be destroyed by cheap oil. Some small oil companies may go under and be bought by larger companies with deeper pockets, but the rest of our more diversified economy will benefit from low oil prices. In contrast, OPEC and Russia will be hurt more, because they have undiversified economies.
But Pat is wrong here: “Are the Saudis thinking of doing to the new oil-producing champion, USA, what we are doing to Venezuela, Russia and Iran? “
It’s the Saudis who are ‘doing it’ to Venezuela, Russia and Iran (and Nigeria, Ecuador, Libya and US)!
It’s mercantilism at it’s finest: drive down the value of oil production assets and purchase them. They’ve wisely saved the money to do this- we certainly haven’t.
It was a symbolic gesture. But the tone should have been set on 9/12 for oil exploration and deregulation.
Wars tend to get rid of regs and permits. Not this time.
Purchasing anything in Venezuela, Russia, or Iran is a bad choice. It will be nationalized at the convenience of the current dictator.
$80 oil is bad news for Russian AND American producers. The Saudis are rich and can afford to give away free or nearly free oil for years in order to break the Russians, the US frackers, XL pipeline builders, etc.
Let's not forget the new oil exporters in the ME, ISIS. They took over Syria's wells and are plowing the revenues into building their Caliphate. Their long-range goal is to control ALL the ME (and all the oil in it, too). This can't make the Saudis real comfortable.
They have sovereign wealth funds worth at least 1 year's GDP. They can ride out $50 oil by producing more barrels of something that costs them $10-$25 per barrel to extract. Oil service companies involved in fracking and deep water projects that were going full throttle with large debt issues and dividend payouts will go bust.
Now, you might say that new oil service companies will sprout like mushrooms when oil prices start rising again, so the Arabs will have wasted their ammo. The reality, however, is that the rebirth of these companies - via the veterans of the ones that went bust - will take time. Financiers will be leery of jumping in until they're confident the Arabs are done punishing them. In that interval, Arab producers will recover much of what they lost during the price war.
Then we will rule the world!
You’re right about that!
Most countries would pay “protection money” to the Saudis in the form of partnership deals.
The Saudis could buy a portion of an overleveraged fracking firm or of ‘sovereign’ producers in centralized nations for dimes on the dollar.
The Saudis would still have the threat of low prices to hold over them in the future.
Mercantilism IS pretty cool.
It made no sense to house it in the PI. Too far from resupply, which was mainly why MacArthur had to say "I shall return". And if it had been based in CA, Hawaii would have spent the war in Japanese hands.
Not that I care for Islam at all - but having ISIS go in and burn Riyadh to the ground and strip the king of his robes while executing his family would be a “how does it feel you bastards” after seeing the violence enacted towards us while in Iraq....I saw it first hand from 2003-08...Saudi, Kuwait, Bahrain, UAE, and the others all donating towards Wahhabi insurgent groups streaming in through Syria...let the animals have their spoiled meat - let them devour Saudi!
Re: “Keystone Pipeline”
I read an interesting article yesterday at CNBC.
The Keystone Pipeline will pump mostly oil from the Canadian Tar Sands.
The break even point for Tar Sands oil is $95-$100 per barrel.
Today, the price of oil closed around $75 per barrel.
Also, the break even point for new fracking wells in the North Dakota Bakken Shale fields is $78 per barrel.
If the price of oil stays at $75 for an extended period, we can wave goodbye to the Pipeline and to the Bakken Shale.
Exactly. Bring on cheap oil you Saudi bastards!
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