Tuesday, February 8, 2011

Is Big Oil Sabotaging the US Economic Recovery?

Just as it looks like the US is crawling out of the worst recession in years, oil prices, and as expected, gasoline prices have begun to rise dramatically. The question is why and there are a lot of answers from a lot of people. Thomas Friedman’s “law of Petropolitics” suggests that there is a negative correlation between the “price of oil and pace of freedom,” which “always move in opposite directions in oil-rich petrolist states.” In other words there is direct link in the evolution of freedom and the price of oil. There are a lot of opinions about Friedman’s theory, but if you correlate oil prices and the growth of democratic progress in the oil rich states there is an inverse correlation. As oil prices go up the opportunities for the development of democratic institutions in countries benefitting from increased oil revenues seem to decrease.
So the question is how that might relate to current conditions in the US. It is certainly true that the economic conditions of the last few years have garnered the attention of both political parties. Much of their efforts to resolve domestic economic issues continue to be akin to a mating dance of two large birds as they try to develop polices that will work and support their political objectives. All of this activity tends to pull the politicians away from the international scene and cause them to focus on domestic issues. You know, it’s the economy stupid.
Big oil, as we like to refer to it, is really nothing more than a distribution system for a product, crude oil, produced in the Mideast by many of the countries that dislike us the most. Big oil is a surrogate for these governments who produce crude oil and then use the enormous transfer of wealth caused by America’s demand for oil into revenue streams that, using Friedman’s theory of Petropolitics, restrict the development of freedom. With the US totally distracted by its own economic woes, these same countries have been able to continue to create crisis after crisis in the Mideast and elsewhere stretching US military resources to the breaking point and raising the fear level here at home while we are trying to resurrect a struggling economy.
With some pinging and testing, OPEC has discovered that they can quickly affect the rate of economic recovery in the US by merely adjusting crude oil prices. More accurately by increasing or restricting production. Their other big asset, the US commodities market, gives a big assist by manipulating crude oil futures prices in an often near panic as the oil rich puff and posture about oil production. The Mideast oil Barons have the US economy in the palm of their hands. In other words, using Big Oil, the Mideast crude oil producers can speed up or slow down the US economy almost at will.
Once again as the US economy begins to look positive, oil prices suddenly begin to rise. Market pundits and followers blame the Fed’s monetary policy saying oil is a commodity and merely adjusts its price to make up for diluted weaker dollar. Maybe, but what about this theory? If the US economy really did pick up steam and the public became less frightened and more positive, would the Obama administration be likely to turn more of their attention to international concerns and start putting more pressure on the Mideast regimes that are thwarting the freedom of their own people (Petropolitics) and threatening our security? It seems logical that a really strong US economy may not be in Big Oil’s best interest. Demand for gasoline and petroleum based products is remaining very strong in the US and so raising the price may slightly reduce unit sales but total revenues rise. Remember marginal returns from Econ 101?
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