Tuesday, April 19, 2011

Libya's real question: Who benefits from Mid-East turmoil and skyrocketing oil prices?

    I've noted before that America's unprovoked attacks on Libya are destabilizing the entire Middle East. Those who would overthrow the governments of Egypt (both old and new), Yemen, Syria, Iran, and yes, Saudi Arabia, look at the world's support for Libya's criminal rebels as a sign that they, too, shoud try to overthrow their governments. Much of the world's oil supply is in danger of disruption.
    These people want new governments, not necessarily democracy. And if you listen to what they tell reporters, the reason they want new governments is that the prices of food and energy are too high and economic opportunities are frequently limited. Does anyone really believe that pouring more money into fuel and food subsidies will create a more vibrant economy?
    It's begun to seep out that the United States has been actively supporting efforts to destabilize Syria for several years. Americans played a big role in the overthrow of the Egyptian government. I suspect America is working to destabilize the entire region.
    Nations act out of self-interest. For France, Britain and the United States to make the decision so quickly to seek sanctions and to attack Libya suggest some motive other than concern for that country's citizens. NATO's decision to use just enough force to keep the government from restoring order suggests a desire to forment a long-term civil war, which should keep the entire region in turmoil for some time, thus endangering the region's oil production.
    Here's the bottom line: The United States and its allies seem remarkably willing to take actions that put the entire Middle East oil supply at risk. The question the cynical observer should ask is "How does the United States and Western Europe benefit from the disruption of the world oil supply and dramatically higher oil prices?"
    Europe is well-prepared for higher oil prices. Britain gets most of its oil from Norway and the North Sea; only two percent comes from the Middle East. Only small fraction of American oil consumption comes from the Mid-East.
    Although the United States currently imports 60 percent of its oil, almost 40 percent of that comes from Canada and Mexico. Hostile Venezuela provides 12 percent, but its crude is of such low quality that only a few refineries in the U.S. can use it. Thus a small drop in consumption will go a long way towards eliminating much of the U.S. need for imported oil.
    Add to this the fact that America has lots of oil, particularly oil which can be recovered in "stripper" wells producing two to 20 barrels per day. When oil hits $200 per barrel, look for these wells to start producing. And the liberals will have to "give in" and allow production in the Alaska wasteland and offshore.
    This huge price jump is going to create "obscene" profits for the oil companies, so look for some type of Jimmy-Carter-type windfall profits tax on old oil production. Thus high oil prices will generate real revenue for the government. A $50 per barrel tax on old oil production, for example, would produce about $200 billion per year in tax revenue, which covers a good chunk of the budget deficit. A gasoline tax would do the same thing, but that would be seen as a tax on the middle class. Pushing oil prices higher and then taxing the oil companies is seen as a tax on the "rich."
    This oil shock, should it happen, is likely to be extremely painful. Even though the United States oil supply isn't in much danger, high prices certainly will do harm to the American standard of living, at least on a short-term basis. So now the question is, who gets hurt worse? Why are we willing to do this to ourselves?
    Aha! China currently gets 50 percent of its oil from the Mid-East. By 2015 that figure is expected to rise to 70 percent, assuming the Mid-East is still pumping. China has few oil reserves and only half as much coal as the U.S. It has no oil shale while the U.S. has by far the world's largest oil shale reserves. Cutting off China's oil and skyrocketing prices will bring its economy to a grinding and crashing halt and allow the United States to maintain its position as the world's leading economy.
    There's an old story about the character of the Russian people in which a farmer finds a magic lamp, rubs it, and out pops a genie. The genie tells the farmer he can have anything he wishes for, but his neighbor will get double. After much agony, the farmer blurts out, "Poke out one of my eyes."
    Our Mid-East policy right now doesn't seem very wise. We're likely to take a poke in the eye from it. But count on this: Whatever bad thing happens to the United States and the West from all of this turmoil, China will get double. And don't kid yourself; this is by design.

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