The Federal Reserve of Oil

10/25/2011 11:54 am ET | Updated Dec 25, 2011

Spending a lot of time in DC can make you a cynic, but the thing about power is that you can never really keep up with just how cynical power brokers actually are. I think my favorite example of cynicism comes from a man intertwined with the politics of oil, a liberal Democratic power broker named Fred Dutton who came up with the idea of Earth Day when in the administration of John F. Kennedy. Dutton later helped manage Bobby Kennedy's 1968 Presidential campaign (and was heavily involved in McGovern's in 1972), but on the day Bobby Kennedy was shot, he said "the lights went out" for him.

In the 1970s, Dutton opened a lobbying firm, with primary clients Mobil Oil and the Kingdom of Saudi Arabia. He helped invent the "advertorial" for Mobil, so those paid editorials you see in newspapers preaching the benefits of oil. Yeah, that was Dutton. Just think about what this means - the originator of Earth Day, the primordial symbol of the environmental movement, went on to be the ultimate protector oil's place in the American order. Now that's true cynicism, how the pros do it. I bet in China, you'd find power brokers as savvy and cynical as Dutton, only they are building their power and influence around solar panels and wind farms, and access to minerals like zinc.

Oil and the petro-politics are pervasive in our politics, and not just in the ways that you would expect. In the summer of 2009, I went to Saudi Arabia as part of a Congressional delegation exploring weaknesses in the financial system as they related to oil (here's the WikiLeak cable of one of the meetings I was in). One embassy official told me that the nickname people use for the country is the "Federal Reserve of Oil". This is because, like the Fed which controls the marginal supply of the critical resource known as dollars, the Saudis control the marginal supply of that critical resource known as oil. As such, many people come to Saudis asking for them to fund their projects, off-book. Think Charlie Wilson's War, when the Saudis bought weapons for the Taliban to fight the Soviets more than 25 years ago, at the behest of an American Congressman.

"You'd be surprised", this American official stationed in Saudi Arabia concluded, "that a theocratic kingdom and a democracy would have so much in common." The idea that the largest global buyer of oil and the largest global seller of oil would have a well-defined mutually advantageous relationship isn't surprising in the least. Political differences in the form of democracy, theocracy, whatever, aren't necessarily as important as access to resources and power.

When you fast forward a few decades, it seems like our foreign policy is made without regard for democratic debate. And this is truly how oil corrupts our politics, by subverting democracy, by subverting our control over our government. It isn't just the lobbyists and the money, though that is the shield they use. It is the very dysfunction of the system that helps oil grab and retain control. Just who benefits from Congressional dysfunction that we rail about? And the answer is, anyone who funds government operations off the books. That is to say, anyone who gets their money not from Congress, but from the Federal Reserve, from the hidden national security state, or from Saudi Arabia.

We saw this during the financial crisis, when the Federal Reserve essentially financed trillions of dollars of bailouts in collaboration with the executive branch. The Fed took a quasi-fiscal role, leading former central bankers like Willem Buiter to basically say, paraphrased, that these actions were flat-out unconstitutional. It is Congress that appropriates money, not the executive branch. But there are many routes to funding off-books operations. The CIA and the national security state are largely shielded from Congressional overview. And much government contracting is done to avoid Congressional review - if the government doesn't know, then Congress can't intervene. But it is also through the Federal Reserve of Oil, Saudi Arabia, that control and power flows.

This is the system we are trying to fight. It is a system guarded by PR, by rivers of political money, and by profound policy biases in favor of our reliance on oil. In China, they are building their politics around a post-oil energy system, because their leaders understand that this globe is going to run out of oil. But in addition, they don't have a massive oil infrastructure to defend, so their status quo interests are in some ways easier to overcome.

Fred Dutton was not just a lawyer, and a lobbyist, and political operative. He was an architect of a system. And it's a system we better understand, not in the tired language of partisan wrestling, but in real terms. Because that's how we can make the world he was imaging when he penned that memo to the President on Earth Day, and not the world he brought forth when on the payroll of the Saudis.

Matt Stoller is a former financial services staffer for Rep. Alan Grayson. He is currently a fellow at the Roosevelt Institute. You can follow him on twitter at @matthewstoller