Sunday, December 14, 2014

Because Clearly Geopolitical Analysis Is Not Our Strong Suit... (OPEC)

So, just recently, I've seen people doing something that's making me grit my teeth.

I'm here to make you knock it off.

If you hear me out, you may find yourself agreeing with me.

So, thus far, my personal opinion of the Obama Administration has been much like my opinion on the Bush Administration: the people who hate him, hate him for the wrong reasons, and the people who love him have the same problem.

There were a lot of reasons to hate Bush 2; there are a lot of equally valid reasons to hate Obama, and some of them are, frustratingly, the same ones.

But this is a new thing, and nobody in the media seems to be calling it right.

Whoa, whoa, back up.

History Lesson Time.

So, a long time ago - literally, 55 years - an organization some of you may have heard of was formed, called OPEC.

OPEC stands for Organization of Petroleum Exporting Countries, and its entire purpose is economic warfare.

No, seriously. It's an organization which exists to fix oil prices and use oil prices to shape public policy in their larger, otherwise stronger trade partners.

The members as of 2014 are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, The United Arab Emirates, and Venezuela.

If you read that list and thought to yourself, "Gee, most of those nations have been historically overtly hostile to the U.S.," give yourself a gold star for passing high school history.

At the time when OPEC was formed, the main leaders - Venezuela, Iraq, Kuwait, Iran, and Saudi Arabia - were upset with what they saw as absentee landlordism by the multinational oil companies, who affected their economies by changing the price of oil without warning, or increasing or decreasing production.

There is some legitimacy to that view.

However, those nations pulled together a large roster of other small countries whose main export was oil, not to protect themselves as their rhetoric would present, but rather to co-opt the tool of oil production as a means of forcing national policy shifts on their economic enemies.

This was first demonstrated on a massive international scale during the Yom Kippur war in 1973, when they reacted to U.S. support of Israel by steeply raising oil prices. The result of the oil embargo was gas rationing in the United States, a global economic recession, and the first moves in the United States towards fuel efficient vehicles. (Also the establishment of the Strategic Petroluem Reserve, which is one of our primary tools against this kind of attack.)

In the 1980s, the United States and other industrialized nations were taking steps to reduce their dependence on foreign oil, having begun the climb out of the recession, and were beginning to explore alternatives to oil, as well as renewable resources.

OPEC's response to this was to flood the market with oil, increasing production until the price dropped so far that efforts to find alternatives were abandoned, because they were unable to compete economically with petroleum usage.

Bear that part in mind, as you wonder why U.S. energy policy has flailed around so dramatically for decades, and why renewables haven't been an option a long time ago. We're going to come back to that.

Oil prices have been OPEC's tool of choice for five decades.

So, just recently, oil prices have started to drop. This is quickly becoming evident at the pump; gas prices are down to their lowest point in years.

And now we come to it: I've been hearing people cheer on the Obama Administration for this.

"Yay, Obama! I can afford gas now!"

But the problem with that is that it displays a near-cataclysmic ignorance of the world situation.

Amusingly, the folks who have been saying that, are typically the ones who are heavily invested (at least emotionally,) into environmentalism, and renewable resources.

So.

The Obama Administration's efforts at an energy policy have been a mixed bag. He's supported renewables, which everyone pretty much agrees is a good thing, but they've mostly supported the wrong ones.

Not ethanol, dummy, which is a net pollution producer, but biodiesel, which is a net pollution reducer. But good try, at least.

Not "clean coal," whatever that even means, wind, or solar, but nuclear, because despite all the flim-flam, nuclear technology has continued to advance, and modern nuclear plants bear about as much resemblance to the ones from the 50's as a Prius does to a Ford Edsel. But at least it's something.

It's SOMETHING.

And very quietly, Obama has done one thing behind the scenes that may be the one thing he's gotten really right in his Administration: he's pushed for greater domestic oil production, through shale and hydraulic fracturing. ("Fracking," if you can only handle the sound bites.)

Now, especially since his public rhetoric has been slanted quite heavily against domestic oil production, why would he do that?

Why put pressure on Congress to allow continued growth of domestic oil, despite your professed agenda?

...Remember, I'm giving him points for this one, because it's a nifty sort of jiujitsu; he's doing it because of his professed agenda.

See, as long as domestic oil production remains high enough to keep prices low enough that the citizenry doesn't revolt against gas taxes, the folks working on renewable resources for power generation and fuels have the most important thing they can have: time.

Does your TV today look like the ones on store shelves ten or fifteen years ago?

I'd bet the answer was a laugh, and "nope."

Because the technology improved.

Now, you can get a ginormous tv set for a pittance, compared with how big a chunk of your pay it would have taken to get a much less impressive device ten years ago.

A fifty inch TV ten years ago would have cost you $3000, weighed about 400 pounds, and required a team to get it into your house.

By comparison, a fifty inch TV today weighs about 25 pounds, costs between $300 and $500, and is, well, frankly a lot more affordable - and in high def, too!

What this has to do with oil prices is that technology advances. A typical symptom of that advance is falling costs; the better we get at making something, the more efficiently we learn to do it, so it gets cheaper over time.

Obama knows, or someone on his team knows, that if the renewable energy people are left to work on their tech for long enough, the winners and losers will be screechingly evident, because the winners will be much, much cheaper than they are today, and the losers...

...won't.

So, how do you buy them time? By increasing domestic oil production, thus reducing our economic reliance on nations who have directly attacked us using this very tool in the past.

Well played, sir.

Except...

...

...We're not yet at the point when those technological advances have happened. Renewables are still economically nonviable for the most part, and OPEC is watching.

They aren't happy.

So, they're driving production as high as they can, because they know this tool works; drop the price of oil far enough long enough, and even the shale producers and frackers will go out of business. At this point, we're not there yet, but it's an arms race; we're trying to improve our fracking and shale extraction processes faster than OPEC can bankrupt the companies doing it.

They're not even hiding it well, because they know Americans have only the vaguest knowledge of events beyond their own immediate body bubble. They actually did the math to determine how long they could hold out - knowing their budgets require oil prices to be at a certain level to balance - without having to cut production or increase prices. They began this attack in full and certain knowledge that without U.S. governmental intervention, the shale oil producers will cave first, full stop.

It's like the cold equations, except with more economic warfare and less pathos.

The current oil price war is just that; it is a sustained, direct attack on U.S. economic interests, by an external entity whose goal is to keep us forever addicted to foreign oil, and by extension to block those technological advances so key for realistic, viable renewable energy sources from ever happening...

...At least, within the United States.

Nobody should be saying "go Obama!" because of low gas prices.

They should be saying "how will the U.S. respond to end this direct attack on our interests?"

It's quite possible this attack will work.

We should not be cheering for the success of our enemies. However polite and diplomatic they may be. Our best hope, at this point, is that we prove more economically resilient than OPEC is.

...You know how people have been blasting questions about why the Obama Administration isn't acting more directly against ISIS, no matter how depraved and horrible they are?

It's because Iraq, Iran, and Kuwait are all endangered by ISIS's antics, under siege, and unlikely to remain able to support this price war when they need funds desperately to remain viable as governments.

When their tools of waging this war are directly occupied.




Qatar, Saudi Arabia, and the UAE are right next door; their pipelines are all interconnected, and thus ISIS is a huge problem for all of them, which leaves half of OPEC's member nations endangered in large or small measure by this group's efforts.




Obama likes to play indirect games of brinksmanship; he is betting that the pressure those OPEC nations are under from ISIS will cause them to cave before he is forced to act - on their behalf, no less - due to pressure at home.

For once, I think we should support Obama entirely in his endeavor.

It doesn't matter if he's on a different political spectrum than half of America. He's still sort of an American, however you feel about his politics or decision-making.

And on this one, he's doing exactly the right thing.