Oil, Iraq and U.S. Foreign Policy: A Way Forward 19 comments
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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.
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This article has 19 comments:
JK
Also Iraq is as much about water is it is about oil. Access to water resources is the most impending natural resource war coming soon to you neighborhood. It's kind of two bagger. Easy flowing crude and the most important source of water in the ME.
Also, the fight to secure natural gas reserves in the Caspian and norther Iran are reaching the boiling point. Our military seems to be coincidentally positioned in a most strategic position if this war should break out.
The solution to all of this is to "CHANGE", for real. Change the way we use energy, the way we make energy and the rate a which we grow our society and economy. Be leaders for real.
Stop hating and I think you have alot of Cajones criticizing everything about this Presidency. The idea that you might have the intel and knowledge that the military does and DOD does is again obsurd. It frustrates me beyond belief
STOLI: yes, apparently Mr. Dempsey believes otherwise.
RBC: could you be more specific please?
Candidus: I believe you may be under the impression I am suggesting we leave the country. Not true. We made the disaster, now we must "manage" it as best we could. What I attempted to suggest was that we "come clean" on the oil objective, declare Iraq a "world oil resource" to be managed fairly on a global bases by US forces, and begin oil royalty payments to the Iraqi citizens to make them as rich as their Arab brothers in the rest of the middle east. It is the only workable solution I see with the US keeping a presence there. If the other countries of the world benefit from this policy by lower oil prices and their energy & energy services companies participating in Iraqi oil production and delivery, perhaps we can get some allies on our side. Currently, we are viewed by the rest of the world as trying to steal the oil for our own purposes. That is why the rest of the world dislikes the US so much. If this solution doesn't work, we either a) go bankrupt and lose more soldiers at the same time or b) leave and the place goes to hell in a hurry, taking the entire middle east along with it. I don't like those two options.
Mr Dempsey: Iran is trying to get nuclear weapons because they want to protect themselves from similar US invasion of Iraq which they have witnessed first hand. What if Russia had come in and "shock and awed" Mexico? Don't you think if the US had no nuclear weapon we would want one real quick like? The greenback's weakness is stuctural, and therefore I respectfully disagree that its demise is "temporary". The Bush administration's policies could not have weakened the currency any more if they had tried. Which leads me to believe it was exactly as intended. I don't "hate" Mr Dempsey. I am attempting to address US economic weakness at the source: idiotic fiscal, foreign, and military policy. If you believe that the only source of intelligence is the US military, the I feel very sorry for you. We have already lost the war by default in that, if you listened closely by General Patraeus's testimony, all our future moves are based on what the "enemy" does. This might be a "strategy" you are comfortable with, but any scholar of military history knows that successul military campaigns usually go to the power which inflicts its will on its opponent, not the other way around. We are stuck in a quagmire that has no ends, and if you cannot see the parallels with Vietnam, then perhaps a few more years of deficits, higher oil prices, higher inflation, and a lowering of your country's standard of living will convince you. if we get McCain in office (God help us), I'll check back with you in 4 more years....
Your solution would seem to be satisfactory only if other countries put soldiers on the ground AND paid the US government compensation for a portion of our cost of occupation. Moreover given Peak Oil and the turn around time required for oil field production the price drop would likely be dramatically less than expected. While such a move would have better benefits than our current status quo I do not think they would be as large as you envision.
Peak oil is just beginning, oil prices are going to skyrocket in the next five years. Necessity will be the mother of innovation to deal with the coming oil crisis. We will be forced to find a substitute or an alternative to oil powered machines.
Mr. Fitzsimmons is correct that we just need to come clean and spell out why we went to Iraq in the first place. Let the Iraqis know it is their oil to sell to us, however, how to keep the Chinese from out bidding the US and driving oil costs even higher is another issue.
The tragedy is that this WAR is costing us much much more than the $3 trillion we will spend on "stability" in the middle east.
Some of the costs: 1) Lower dollar, 2) Higher taxes for decades to pay the debt, 3) deeper recession, 4) higher oil prices, 5) the US overall is less prosperous than otherwise, 6) the US is less free than otherwise 7) terrorism is undeterred and does not make the US safer 8) loss of more than 4000 American lives 9) erosion of civil liberties in the US, and 10) We ARE STILL DEPENDENT ON OIL with no real energy policy. Is this not naive?
Supporters of the Bush policy claim that detractors are naive, but does anyone really believe that we will establish democracy in Iraq when it is not in their culture, history, or inclination?
I don't think that this war was only about oil, but I do think that the planners were (or non planners) were naive to not take into account the full costs. It was stated that the war would cost $50 billion and that later the war would pay for itself. Is that not naive?
Instead we have the first MBA president ignoring cost benefit analysis, rational decision making, and instead takes America to war on his faith and gut instincts that this is an epic struggle between good and evil. Is this not naive?
I watched Beowulf the other night. Great movie. But it was not real, and I recognized it as a fable. The Bushies have not recognized that their dream turned nightmare in Iraq is a fable, and not real.
I mean to say the war is real, but the epic-struggle rationalization of why we went to war, what the costs would be, how soon we would be home, and how it would be fought, with the US coming out of it the vanquishing hero is not real.
This is the very essence of nievte.
This time its the left and the middle that are steering America back to Real Politick. Love is blind. Patriotism is love. Patriotism is blind. But please wake up to the reality of the nightmare.
Listen; The central World Headquarters of Islamist-Fascism is within the murderous Iranian Regime. Decapitate it, and the rest of its many terrorist arms: Hamas, Hezbollah, Ghods Force in Iraq, Syrian lackey regime, Iran-supported wing of Al-Qaeda (altho Sunni, but Shhite Iran works with them against the common enemy: USA) will shrivel and dry out a natural death.
Enough is enough. Iranian regime must be 'terminated', Iranian people are great, intelligent people and deserve much better, they will pick it up and finish off that abominable regime which they despise.
The sooner oil spikes (up to $175?) during Judgment Days for Iranian regime, the sooner it will come crashing down afterwards.
Let's Roll.
Now believe or not if the Iraqi Government wants to do some large contracts to help its people once they are signed and the Iraqi Government funds them the U.S. Government blocks the funds until they decide its okay.
The cost to develop long term increased production is the cost of one or two months of the war. Providing not dividends in the sense of cas hh but in electricity, housing , food and energy will stop the conflict cold if we also disarm all militias of heavy weapons and stop Iran training them in new equipment.
The only "pain" of non -military in this war has been increased energy prices and the only winner of this increase has been the oil majors. Lets change it and get something for both the American and Iraqi people.
After we are done invading and establishing democracy in Iran, and Iraq, and Saudi Arabia--we seriously need to invade Russia for its noncompliance of our world agenda.
Is everyone ready to sign up?