Turning OPEC into CPEC
Turning OPEC into CPEC
It is clear that US energy production is now the driving force in the world oil market. Oil prices have gone down dramatically and there is no end in sight. The Organization of Petroleum Exporting Countries (OPEC) under the leadership of Saudi Arabia has adopted a strategy of continuing high levels of production in order to drive down prices in an attempt to bankrupt the new sources of supply from America. As a low cost producer, this strategy makes a lot of sense for Saudi Arabia but it has a very different impact on other producers. Higher cost producers like Venezuela and Ecuador are facing significant losses that will impact their economic strategies and financing capabilities. Other producers facing sanctions, such as Russia and Iran, will find those sanctions biting much harder.
The falling oil prices also are pinching oil companies from Texas to North Dakota. New production has ground to halt and many of these companies face bankruptcy. Saudi Arabia and other low cost producers are hoping that they can drive these new interlopers out from what they consider their proprietary market.
The lower oil price provides a strategic benefit to the United States. Previous oil price declines were temporary because the United States consumed far more energy than it produced, contributing to a very large trade deficit. But more than deficits, the lack of US production made us dependent on foreign oil and this affected (or rather infected) our formulation of foreign policy. Dependency on foreign oil has kept us kowtowing to oppressive regimes, medieval monarchies and tin-pot dictators for far too long. It is time for the United States to take hold of its energy future and resist the attempt to bankrupt our energy independence.
The US Strategic Petroleum Reserve (SPR) was designed to protect us from temporary supply disruptions, usually caused by political events such as the Arab Oil Embargo of the seventies. But with a reserve of only around 40 days’ supply, the SPR is hardly strategic. It is more a tactical reserve that was designed to assuage the concerns of US consumers than a strategic ability to control our own energy future. As noted above, OPEC is trying to drive US shale oil producers bankrupt and with it our energy independence. As such, OPEC under Saudi leadership is acting in direct contravention to US strategic interests. We cannot allow this to happen.
But the US does not need to produce energy in order to be energy independent. We need only the ability to produce the energy. Even if all the shale oil producers go bankrupt, the oil and gas is still locked up within those shale formations. The US should acquire the shares of these failing companies in order to protect our production capabilities. The price should offer a reasonable return to the owners as they have provided the United States a vital strategic capability and deserve reasonable compensation for their service.
This would appear to go against our free market principles; however, oil is being used as a weapon against US strategic interests by other countries while we have floundered for years without an energy policy to protect ourselves. The government should not allow OPEC (which is run by other governments) to attack the interests of our private sector, especially when that private sector is providing so much strategic value. War is no longer a matter of planes, ships and tanks; it is also cyber-attacks, non-state militants and economics.
The ability to turn the shale oil spigot on or off would make the United State the price leader for the international oil market. We would replace the Organization of Petroleum Exporting Countries (OPEC) with the Controlling Petroleum Exporting Country (CPEC). This would liberate us from the shackles of the Middle East. We would be free from having to ingratiate ourselves to kings and sheiks that use the money from oil exports to fund the export of fundamentalist Wahhabi Islam and the financing of terrorism. Without oil money these petty princes might have to join the twenty-first century, offering their citizens productive employment instead of oil entitlements. It would also limit the ability of countries opposed to our foreign policy that use oil windfall profits to threaten our allies and undermine the spread of democratic institutions around the world. We would be able to base our foreign policy on American democratic principles rather than economic necessity.
It will take bold action to seize this opportunity that has fallen into the lap of the current administration, an administration not known for taking decisive action on the foreign stage. If the current administration does not move to take advantage of this opportunity, Republicans should pass the enabling legislation to move forward on this matter. I would like to see how President Obama could justify vetoing such legislation.