Lottery Post Journal

Staring Down a Barrel

This is a piece posted in the NJ Star-Ledger today, Sept. 11, 2005, and is one of the best articles written in a long time about the oil situation.

Somebody should give Raymond J. Learsy a Gold Star for his wonderful column.  As you will see when you read it, it is especially fitting given the anniversary date of the September 11th attacks by the Saudi Arabian terrorists.

Staring down a barrel

Sunday, September 11, 2005

Just imagine, for a moment, the firestorm of indignation that would erupt if someone discovered that the world's major grain exporters (the United States and Canada, for instance) were conspiring to triple or quadruple the price of such basic foodstuffs as soybeans, wheat and corn -- and then using the vast profits derived from this conspiracy to fund a worldwide network of schools, missionaries and fifth columns, all designed to undermine the beliefs and stability of the Muslim world and, where necessary, to spill blood.

This is fantasy, perhaps, but the flip side of this scenario is all too real. The conspiracy lurks in our midst and literally has the world over a barrel. It is, of course, OPEC.

OPEC, an assortment of eleven nations including Saudi Arabia, Kuwait, Nigeria, Libya, Iran and Venezuela, controls some 40 percent of the world's oil production. These countries have struggled valiantly to persuade us they are doing all they can to meet the world's growing oil needs. And much of the world believes them.

The problem with this is no one outside of OPEC knows for sure how much the cartel members can produce and the actual size of their reserves. They won't tell us.

"Western nations are not dealing with oil producers as partners. Why should they have the advantage of knowing details of oil producers' reserves? Data on reserves is information, and information is power," Ishan Bu-Hulaiga, an economist and adviser to the Saudi government, was quick to declare after the group of industrialized nations known as the G-7 met in February and called for greater transparency among oil producers.

There are, however, some facts that we do know:

  • In 1970, OPEC reserves were estimated at 412 billion barrels. In the 33 years that followed, OPEC produced 307 billion barrels and, at the end of that period, reserves had grown to 819 billion barrels. It would seem that as more oil is pumped, more reserves become available.
  • The Saudis have identified 80 important reservoirs of oil in their country, but to this day are tapping less than 15 of those basins.
  • With production at about 30 million barrels per day, OPEC claims to be at the limit of its pumping capacity. But production reached 31 million barrels per day in 1979. Apparently, we are supposed to believe that in more than a quarter of a century no additional capacity was added. If that's true, we can only conclude that it was intentional, in order to foster the illusion of shortage and strained capacity.

By colluding to restrict production and to manipulate price, OPEC blatantly violates the spirit of free trade as well as the rules of the World Trade Organization. And it is enormously successful. At $65 per barrel, we are being hoodwinked into paying the equivalent of $25 for an ice cream cone.

It costs the major Middle East producers less than $1.50 to pump one barrel of oil. At $65 per barrel, if the same economic relationships applied, Detroit would be selling the Ford Taurus at $300,000 or more. We would not stand for a $25 ice cream cone or a $300,000 Taurus. And we should not stand for oil at $65 a barrel.

To those who argue that oil is still cheap compared to inflation- adjusted prices in 1981, I would counsel running, not walking, to the nearest jewelry store, and buying every gold bracelet, gold necklace and gold tie pin in sight. In 1981, gold was selling for about $800 an ounce and, adjusted for inflation, it should be selling for $1,700 an ounce today. Given today's price of $450 per ounce, it's clearly a bargain that can't be passed up.

But it's not only our economic future that is in jeopardy. Our national security is also at grave risk.

Prominent members of OPEC openly work to undermine democratic ideals in the United States and other Western countries. Billions of dollars flow from Saudi Arabia and Kuwait to finance schools, mosques and supposedly charitable organizations around the world that actively promote the virulently anti-Western Wahhabi strain of Islam.

Ironies abound -- not least that we supply the money at the gas pump that buys the textbooks and prayer books stuffed with venomous words designed to bury us.

In light of all this, it's imperative that we become more self-reliant for our energy needs. Steps must be taken to control demand as OPEC controls supply. This could be achieved in many ways.

One suggestion is to establish a voucher-based gas distribution program based on a national quarterly target of gas consumption per consumer. It would be comparable to the Bush administration's Clear Skies Program, which allows less- polluting power companies to sell emission credits to heavier polluters.

This plan would let heavier gasoline users buy the rights to what less-thirsty consumers don't use. It would put a cap on consumption, but it would not be regressive. (An across-the-board gasoline tax, by contrast, would punish the poor and those who live in areas with fewer mass transit options.) It would give all Americans a chance to join in the fight against OPEC, at a time when so many of our soldiers are making the ultimate sacrifice.

There are other options. The Senate, for instance, voted this summer to allow the government to sue the OPEC oil cartel on antitrust grounds, giving authority to the Federal Trade Commission and the Department of Justice to pursue legal action. The bill died in negotiations with the House, but this idea should be revisited immediately.

Similarly, the U.S. government should challenge OPEC before the World Trade Organization, whose statutes prohibit setting quantitative restrictions on imports and exports and flatly ban conspiracies to rig markets.

In the short term, a portion of the U.S. strategic petroleum reserve (now nearly 700 million barrels) should be used to dampen the runaway price of crude oil -- which, at current levels, presents an imminent danger to our economy. A release of just 50 million barrels, though marginal in terms of quantity, would send the signal that the government will be vigilant in maintaining fair prices for such a basic raw material. (President Bush agreed to release a portion of the strategic reserve after the devastation of Hurricane Katrina, but he did not go far enough.)

Then there is the nuclear option. France produces 80 percent of its electrical energy from nuclear power plants and China plans to quintuple its nuclear energy production over the next 15 years (calling for some 40 new nuclear plants). We have not built a nuclear power plant since the 1970's. What is it that the French and Chinese know that we do not?

It's time for us to act so that we can escape our shameful dependence on OPEC oil and break OPEC's extraordinary grip on the world's economy. We must dampen consumption as OPEC constricts production and become truly serious about alternative sources of energy.

We can no longer permit the unfettered consumption of oil. Our national honor and security depend on it.

Raymond J. Learsy is the author of the new book "Over a Barrel: Breaking the Middle East Oil Cartel."


  • Good article.

    By Rip Snorter, at 10:10 PM

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