As the Bush Years Wind Down the New York Times Signals Hard Times Ahead for Russia, Venezuela, Iran

A lead article in yesterday's New York Times, "Three Oil-Rich Countries Face a Reckoning," focused on the problems being encountered by Russia, Venezuela and Iran because of dropping oil prices. Not touched upon was the fact that world's largest consumer's -- the United States -- days as the oil industry's doormat were coming to an end and what that might do to oil prices in the years ahead.

Never before in the nation's history has an administration been so beneficent to a given industry as the Bush administration's love affair with the oil industry. While Americans continue to see their dying and wounded in Iraq, their savings and retirements eviscerated, their houses being foreclosed while their nation is becoming scorned throughout the world, one industry has benefited as never before. That is of course the oil industry and its hangers on. And so too the petro-dictatorships the likes of Russia, Venezuela and Iran.

Against the interests of the nation this administration has permitted, even encouraged the dramatic transfer of wealth to oil interests in dimensions beyond the fondest dreams of Croesus. When Bush became President the price of oil was in the range of $20 a barrel at a daily cost to Americans of $420 millions a day ($20 x 21 million barrels daily consumption). At its apogee of $147/bbl the tab reached some $3 billion a day ($147 x 21m/bbl day). This was an administration that sat on its hands, nay, overtly encouraged the higher march of oil prices. What they did or didn't do can be cited as follows:

- Oil policies were formulated at the outset of the administration's investiture through VP Cheney's office, in deep consultation with the oil industry. Summaries of these meetings are still kept under lock and key invoking "executive privilege." Know that the head of Cheney's task force left government to become a lead lobbyist for the oil industry.

- Fielding a Department of Energy that became little more than a friendly embassy to oil interests here and abroad exemplified by the appointment of the good soul Sam Bodman as Secretary of Energy who had little or no experience in matters oil and in his innocence was to become an oil patch puppet ("its all about supply and demand," and to paraphrase, "we will continue filling the Strategic Petroleum Reserve irrespective of whatever").

- A CFTC that for the better part of the Bush years spent precious time seeing, hearing and speaking no evil, protecting the backsides of the speculators and asleep at the switch when it came to manipulation, until, at last, Congress forced them to become proactive earlier this year. Once they became serious the comfort level of the speculators began to wane and the price of oil began to crack.

- A Department of the Interior, filled by the administration with oil patch veterans more interested in partying, sex and games than demanding a serious accounting of oil industry royalty obligations to the enormous benefit of the oil industry and to the detriment of the public purse

- The blatant misuse of the Strategic Petroleum Reserve (STP), disconnecting purchases from economic realities, continuing to pour oil into caverns while the price of oil was marching ever upwards. Most fatefully, as the price of oil was retreating to $50/bbl in January 2007, announcing the doubling of the STP to 1.4 billion barrels in the President's State of the Union address thereby unleashing a price escalation that was to reach $147/bbl in little over a year and giving moral cover to OPEC production cuts (why, would be the inference, shouldn't they cut production if we are going to use even less of what we have)?

- Never, in a meaningful way, using our grim position as the largest consumer of oil in the world by far, as leverage to sit at a table of producers and consumers to work out mutually beneficial policies as would be the case in most every industry with important consumer /producer relationships. With this administration, whatever producers did to increase price was okay with only the most muted PR contrived reactions. With OPEC meeting currently to once again cut production to raise oil prices (in this country we used to call that "restraint of trade" with jail terms attached) Britain's PM Gordon Brown has weighed in heavily calling on OPEC to desist, while President Bush's silence on the issue speaks volumes.

- The administration's posture is especially well defined by its obdurate and senseless threat to veto any and all NOPEC legislation. NOPEC legislation was voted by Congress vacating the "sovereign immunity" extended to OPEC countries and their oil companies which would allow the Justice Department and possibly impacted industries and individuals to sue OPEC and their interests. Thus, much as they would have the right to sue any other industrial or commercial group acting as a cartel. Here, perhaps most clearly, the administration has shown its hand at being more interested in the wellbeing of oil interests than those of the electorate it was meant to serve.

- An administration spending some $100 million a day stationing a naval taskforce in the Persian Gulf purportedly protecting the Strait of Hormuz so that Saudi Arabia and others can safely ship their high-priced oil while in effect protecting Saudi Arabia and her coast line without ever asking for a serious quid pro quo, like "how about not cutting oil production, the world economy is bleeding enough."

- And then of course the wasted eight years with virtually nothing done to get us off the oil habit. First the arrogance of opting out of the Kyoto Accord which would have begun to focus our attention on the existential dangers of global warming and climate change. Then the lackluster sponsorship of alternative fuel programs (our out of sync Secretary of Energy Bodman proudly proclaimed that over $20 billion have been spent on alternative energy programs and research during the years of this administration -- Ladies and Gentlemen, that is less than the $29 billion our government committed over one weekend to bailing out Bear Stearns alone).

- While helping to impoverish our nation, this administration's policies have helped such as Saudi Arabia to reap riches beyond their wildest dreams, while standing idly by rendering only lip service tut-tuts as billions are channeled to religious schools, community centers and the support of clerics preaching hatred of Americans and much of Western civilization with its impact on our military budget and national security

- All the while Papa Bush, an old oil industry hand who traveled to Saudi Arabia back in 1986 as Vice President to convince the Saudis to revitalize OPEC in order to prop up oil prices, cheering from the sidelines raking in millions from his association with the Carlyle group, an investment company heavily funded by Saudi interests.

Let us hope that with a new administration our days as an oil industry doormat are at an end.

Comments

[TonyOnly]

"Oil policies were formulated at the outset of the administration's investiture through VP Cheney's office, in deep consultation with the oil industry. " You're ignoring the obvious point: the "deep consultation was accompanied by a deep connection of both Cheney and Bush to the oil industry. I'm sorry, but I don't believe in coincidence and everything happens by accident. I believe Cheney / Bush were hand picked appointments, to run for the presidency, by the oil industry. They figured out why pay lobbyists to influence the politicians when you could just be the politicians. I don't have any proof, of course, but if it looks like a duck and quacks like a duck, I don't need someone to prove to me it's a duck. And it would explain the thinking behind all the other points you made, which are all accurate.

[KingofChing]

Raymond--excellent post!

[TXfemmom]

I think that Obama should rescind all the leases which have not been drilled by the multi-national oil companies. Two years ago, oil reserves which far surpasthat of Saudi Arabia were found in the Dakotas and Eastern Wyoming. With directional drilling,the technology which exists today could double our output in two years. No Arctic or offshore needed, and it is too expensive, anyway. The data which they have is available from the National Geographical Bureau and this oil can be pumped at $16 a barrel.

The U. S. should start a fund, somewhat like that of other countries but for all citziens and the proceeds from drilling and production should go to this Fund, belonging to and used for the citizens of the United States. It should used to pay off the debt, initiate energy production of non-greenhouse sources such as wind, solar, and geothermal, and stimulate technology which is patented and manufactured here, and used for infrastructure, JOBS, and health care.

We send $800 a year overseas for oil, cut our usage by twenty percent in three years, bring this production on line, and then use LNG for cars, electric for cars, hybrids for cars, and fuel efficient cars and lower our usage and keep that money for CITIZENS of this country. The oil in this country is a national resource which belongs to the country and we should use it for the benefit of the country.

[MeDonut]

Hey Davidrusso - What's "unreasoned" about Learsey's analysis? Do you deny Bush/Cheney have been 200% pro-oil at the expense of every other American interest. I think you've been on the wrong side of trades and the bitterness shows. Better find another commodity to speculate in. Oil interests will never be allowed such power again.

[hope4flowers]

"Better find another commodity to speculate in. Oil interests will never be allowed such power again."

that's wishful thinking...but i hope you're right.I HOPE Obama is serious about alternative energy and energy efficiency!

Grow a Garden!

[breezyholler]

Perhaps this has all been painfully beneficial to us and our future ..WE do know now that we must nurture alternative energy research....We must give wind and solar a chance to grow....perhaps we can pull within for a while ...stop causing pain and suffering in other places and try to get the real American Spirit lifted up again ...I am 65 yrs. old and I remember back when America was respected around the world...I'd like to see that again before i leave this world...

Let's elect OBAMA/BIDEN and GIVE PEACE A CHANCE...LET'S CLEAN UP THE EARTH..

[headstrong]

I've said for years that if I didn't know better, I'd swear that Bush, Cheney and the rest were acting as subversive agents to destroy the U.S. from within.
It seems to have worked pretty well. Very interesting.

[breezyholler]

HEY HEADSTRONG ...are you old enough to remember when Alexander Solzhenitsyn came to the US back in 1969... he was asked by a reporter to assess the Soviet threat to America ..He said then , and i paraphrase ..."that the US would not be defeated by a foreign power ...but would be subverted from within " ...I don't remember that he mentioned a source of that subversion...but i think we can see clearly now that it is our own government that has brought us to our knees...Perhaps while we are on our knees ..we can pray for righteous leadership..

OBAMA/BIDEN ...peace@wellness to all..

[wrd2255]

Tom Tomorrow did a brilliant comic on this a few years back: http://dir.salon.com/story/comics/tomo/2005/09/19/tomo/

[JackMehoffer]

Oil prices didn't decline due to any investigations of trading activity, rather oil declined-as did all commodities as well as stocks due to recessionary fears. As well Saudi Arabia has been selling all the oil it could for decades as well as recycling that money by investing in US markets (not to mention buying expensive but useless advanced weapons systems from the US. Frankly it's Supergiant oil field, the world's largest, the Ghawar field is 50 years old and likely in decline

[davidrusso]

Jack, save your breath. This isn't the place for reasoned, correct analysis.

Learsey has been screaming the same tune for years. He fancies himself and insider, but his anger comes from being on the wrong side of the trade and really have no real depth or breadth of knowledge.

Just smile and nod as he repeats "oil patch" a few dozen times.

In 2009 when the complex rises again due to the overwhleming reality of global populatio growth, he'll still be there screaming it's all the specs.

[Kassandra]

Well, how's this affect the Republican meme of "drill,baby, drill"?
I hope this is good news as I would really like to stop worrying about climate change and get off oil altogether except for recyclable plastics.

I'm looking forward to the day that I can solarize my house, sell back to the grid and plug my nifty new electric car into the house for the night. Is that so wrong?

I, like Russia, save for a rainy day. And I don't want to think of these countries, who govern differently than we do, as "enemies". I think Hugo Chavez is a pretty good guy. I know the corporations don't like him anymore than they do/did Castro. The corporations and the oligarchs really bit it when these countries threw them out and stopped them from taking everything....sorta like is happening in America today, ya know?

[Craig]

Unless I missed it, you forgot two important significant factors:

1--Runaway government spending resulting in a decling dollar and the spectacular rise in crude and other dollar-based commodities. The rise in grains can be caused also by foreign aid allocations based in dollar amounts, which sends less with a decling dollar--resulting in marginal price increases.

2--The invasion/occupation of Iraq for no apparant good reason, causing a geopolitical premium. In other words, what is to stop any country from invading and occupying an oil-rich country of their choice and not knowing the real intensions (eg, removing oil from the market to prop up prices or exploiting their resources for their own economic benefit)?

[BottomLine2008]

It doesn't cost them much to produce that oil. It's all profit, just less profit.

[jonlester]

I would expect the Russians to find ways to diversify their sources of revenue, beginning with their tremendous wealth of other mineral resources. Iran's economy is being run into the ground by Ahmadinejad more than external factors. Hugo will be gone from Venezuelan government in 4 years and they'll have to deal with reality, themselves, at some point.

If anything, American conservation and allocation of alternative fuels will do these nations a favor in the long run by forcing them towards economic stability and away from dependence on oil sales alone.

[JPHR]

The NYT article was a kind of reverse gloating. Perceived enemies also in difficulty?. Yes Venezuela and Iran are in dire need of that money and do not have much reserves. The use of "perceived enemies" is intentional. Nobody in his right mind can call Iran, Venezuela or Iraq for that matter a serious threat to the US. It is the US aggressive stance which is source of this animosity. Look back who has been involved in regime change over the last decades for instance in Iran. US policies and most probably US corporations in South America have achieved a unprecedented level animosity. One really ought to address the question why?
Russia however is different case with some 500 billion US$ wisely set aside for more difficult times. Also the NYT seems to legitimize this for Russia with Mechel (engaged in monopolistic activities on the domestic market) Georgia (a US supported adventurer attacked a region under a peacekeeping mission since the dissolution of the USSR in 1991) and Shell (which lost a very profitable PSA dating from those robber paradise of the early 90'). The core of the matter is that Russia simply does not accept the NEOCON aggressive expansion anymore. That invoked the standard Neocon demonisation reflex.

[DAE]

This new meme that falling oil prices will devastate the economies of major producers like Russia, Venezuela and Iran is just plain silly. The artificially high oil prices only came on scene over the last year or so due to unbridled speculation and have now settled down to a more realistic market levels as long predicted they would. Remember at the height of the oil price inflation critics were saying the market price based on supply and demand should be around $60/barrel. Well, its now at $70/barrel, more or less the market driven price. That price is more than enough for major producers to continue to reap good profits.

[Hyvno]

While the current prices gives a rather high profit margin for developed fields(especially landbased ones) it wont cover the cost of exploration and development of the more expensive fields that really borders current technological capabilities.

Essentially deep water drilling like you are seeing more and more of both off the coast of brazil and out in the north sea.

As current fields dry out it will over time lead to lower output and a new round of pricehikes. Ofcourse it will take years to see production drop more but it is going down slowly by all statistics. There is a reason why many analysts predicted $200++ per barrel and while it will take time as demand increases and supplies dwindle we will get there.