While watching General Petraeus' testimony before Congress yesterday, it became increasingly clear to me that United States' foreign, military and fiscal policies are in complete disarray.
Those of you familiar with my outspoken views on peak oil and the weak U.S. dollar will not be surprised at such a statement. However, before you conclude this article will bore you to death and switch to another, my angle of attack may peak your interest and make you some money.
As I am sure George Bush, Dick Cheney, and Donald Rumsfeld did, for a moment pretend the world is a giant Monopoly game. The U.S. has major opponents (China, Russia, etc.) of both an economic and military nature. We used to have friends (France, Germany, etc.) but it was decided by Rumsfeld that these were the countries of "old Europe" and so they were marginalized. Regardless, it was clear to the U.S. "brain trust", being oil men, that the world ran on oil and whoever had access to the cheapest and largest supplies would "win" the game.
True enough, I suppose, but what strategic moves shall we make on the world Monopoly board. Well, let's see .... where do the largest most easily accessible high quality oil reserves lie...hmm....oh, wow, Iraq! Ok, well, we can't wait for our turn to roll the dice and hope we "land" on Iraq, else we risk not passing "Go" and collecting our $200. So, let's whip up a "WMD strategy" so we can go directly there and, instead of buying a hotel, just steal the oil. Wait, no WMDs found? That makes us look bad....hmm...well, not to worry, we really wanted to topple Hussein and install democracy. Whatever, the PR strategy worked, and the American people in their post 9/11 furor to attack someone (anyone...), took the bait hook line and sinker.
Years later, it is clear that Iraq is this generation's Vietnam. Same old story, but with a twist: oil. Vietnam wasn't about oil - it was all about the military industrial complex taking money from taxpayers and disbursing it to the military and its contractors. That part of the Iraq story is the same, except the powers that be have gotten better at stealing taxpayer monies with the advent of "out-sourcing" every minor task and wasting billions of dollars in the process. That is, I suppose, to be expected in a country run by lobbyists. But what about the oil? Has U.S. policy in Iraq been good or bad for the U.S. in terms of more oil supply at better prices? After all, that was the strategic objective of the Monopoly strategy.
Obviously, in terms of the price of oil, U.S. policy in Iraq has been a complete disaster. When Bush started "Operation Iraqi Freedom" in March of 2003, oil was approximately $30/barrel. Today it closed at $107 and change. An increase of over 300% in 5 years. That can't be good for the world's largest user and importer of oil. Our economy is proof of that.
Perhaps the Iraq invasion was a foreign policy success? Nope, I don't think so. In a recent worldwide poll, it was the United States that was most frequently sited by the world community as being the biggest "terrorist threat". Interesting. As a result, most of our old allies have run for the hills. More problematic, the Russians and the Chinese knew exactly what the U.S. was after in Iraq. That's when Putin decided to play energy "hardball", and boy is he winning at that game. Russia is now the world's biggest oil producer and they have Europe by the short hairs when it comes to natural gas. Meanwhile, China is using its huge foreign currency reserves to buy up oil and other natural resources all over the planet. America is bogged down in Iraq and has its hands full just trying to keep the oil pipelines from being blown up every night.
Fiscally, one only has to look at the 45% drop in the value of the U.S. dollar since Bush took office to get a picture of what is happening. The precipitous drop in the dollar is accompanied by rising energy prices and thus rising inflation - a double whammy to the American middle class. That can't be good for a consumer oriented economy.
So what should the U.S. do? We can't very well just leave Iraq and let it descend into chaos (although many might argue it already IS chaotic). My answer is this: the U.S. should just come clean and tell the world we went to Iraq to steal the oil. Even Alan Greenspan admitted as much in his recent book, and every thinking person knows it's the truth anyway. So let's just say it! "Iraq has the largest untapped, easily accessible, highest quality crude oil in the world and we attacked them to obtain it." Period, end of statement.
Now, before you all say "Hey, Fitzman, have you completely lost your marbles?" I say, as Seinfeld once said, "Una momento por favor!". I speak to you in Spanish because I will soon explain to you how our policies have affected U.S. treatment in countries like Venezuela and Brazil. Yes my friends, we would be much better off telling the world, hey, we invaded Iraq because Sadam Hussein was incapable of increasing his country's oil supply, and the world needs it, and needs it now. However, instead of telling the world we were planning on keeping all the oil ourselves, and letting only U.S. oil companies drill for it, the U.S. is going to let ALL the countries of the world and all multinational oil companies participate in Iraqi oil exploitation. Oh, and by the way, the PEOPLE of Iraq will also benefit handsomely from the royalties due from the production of oil from their ground. Guarantee this wealth, document it, and start delivering it to the people of Iraq. That will stop the fighting. THIS is the way to solve the Iraqi problem. Besides, the way the oil market works, the entire world is sharing in Iraq's production today as it truly is (for the most part) a global market.
But the U.S. has not followed my suggestion. The result is the world oil market is running scared. Not just on peak oil fundamentals (which it very well should be anxious about...), but on geo-political risks. The Russians, Chinese, and OPEC wonder what surprises the next U.S. roll on the Monopoly board will lead to. When will they say "ENOUGH!"? After we attack Iran? I mean, can you blame Venezuela's Chavez for acting the way he does? Can anyone really blame Iran for wanting to obtain a nuclear weapon as they watch on TV every night what has happened to the neighbor Iraq because of U.S. shock and awe "policy".
I remember the response of a Brazilian man I saw on TV when asked what he thought about Petrobras' (PBR) recent huge offshore oil discovery: "I wish they'd quit finding oil....it's just a matter of time before the Americans will invade us!" After I quit laughing, I realized the guy was truly petrofied (pun intended) at the thought!
So, the results of our disastrous "oil policy" is that Exxon (XOM) and Conoco Philips (COP) have been kicked out of Venezuela and are in arbitration. That can't be good for American oil interests. Russia has found ways to reduce British Petroleum's (BP) reserves in the region, and that can't be good for American interests (remember, BP is a major player in the U.S. after their takeovers of U.S. companies Amoco and Atlantic Richfield). Also, has anyone noticed recently how foreign oil majors like StatOil (STO), Total (TOT) and Eni SPA (E) have been getting more and more business from Russia, Venezuela, and other oil rich regions at the expense of the American oil majors? This is proof that Bush's policies have been a total failure in the one area where he and his buddy Dick Cheney were supposed to be experts: OIL.
My friends, I believe honesty to be the best policy and it's time the U.S. came clean on Iraq so we can settle the mess and get the hell out of there before it completely bankrupts us financially (it already has morally and spiritually). This brilliant (if I do say so myself) foreign policy move, combined with my energy policy to address peak oil (see my previous article on the subject), is the only rational way forward. Think of the benefits: it would be good for all the world's energy companies; it would reduce the price of oil by reducing the baked-in risk premiums; it would be good for the world economy while reducing the U.S.'s huge oil centric trade deficit; it would restore some of America's lost prestige on the world stage; it would perhaps even strengthen the poor U.S. currency; and it would surely allow the U.S. to use its treasures at home instead of in Iraq where the resources are blown up just about as quickly as they can be built.
But seldom is the Fitzman's recommendations followed by the American government or covered by the U.S. media. In the meantime, you Seeking Alpha investors can benefit from my musings by loading up foreign oil companies like STO, TOT, and E. For you ETF fans: buy PowerShares DB Oil Fund (DBO) or IPath ETN Crude Oil (OIL). Over the long term, these investments should shine even if U.S. policy makers were to take the steps I have put forth in this article. Even more so if they do not.
Disclosures: The author is long STO. He does not own TOT, E, DBO, or OIL except as they may be owned by various energy related mutual funds in which he does have long positions.