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The Second Law Of Petropolitics
OIL'S UPS AND DOWNS -- The Second Law of Petropolitics can be put as follows: The level of Western aggression in oil producing regions and the global price of oil always move in the same direction. (Newscom)
By ARMAN KALBAYEV
Published: October 15, 2008
Oil really means many things. It has a magic power. Dictatorship is usually considered a country's internal affair. But if that country has oil reserves, the picture changes to the inverse. Oil places dictators at the leading edge of world policy. Moreover, it helps them retain power longer than usual, fattening their supporters and arming police against malcontents.
Two years ago, Tom Friedman, columnist for the New York Times, promulgated the First Law of Petropolitics. According to it, the price of oil moves in inverse proportion to the level of freedom in the oil producing countries. Though the presidents of Russia , Iran and Venezuela disagree with this law, statistics and intuition seem to speak in favor of it.
So, does everything really only depend on the level of democracy in petrostates? And if so, has all been lost? I believe, to think so means to attach undeservedly great importance to the Persian Gulf monarchs and to autocrats like Venezuelan President Hugo Chavez .
Do oil price fluctuations really occur from the whims of the oil exporting countries only? And oil consumers cannot influence the prices? Why not? They can. And they even try to do this.
This is the Second Law of Petropolitics. The more active the war policy of the West in oil producing regions of the world, the higher the oil price rises, and vice versa.
Oil consumers definitely have an influence on oil prices. The desire to influence prices is a natural reaction of consumers now forced to give away $8 billion per day for oil. Only active actions of the oil importing countries' governments are, however, of significance. Passive adaptation is not counted. So though the European Union and Japan are extremely interested in acceptable prices for oil, these players would rather prefer just to watch how the dice are played.
The only oil importing country which actively influences the world oil market is the United States . The foreign policy of this country (or rather, the White House) is a very influential factor, which can sometimes outweigh the actions of the oil exporting countries. If the United States interferes in the affairs of the Middle East , oil prices often go up. If U.S. action takes place in countries where there is not a drop of oil, the prices usually fall.
In turn, the pattern of U.S. foreign policy can be foreseen, knowing to what party the White House master belongs. The dispassionate statistics of the last 20 years show which trends oil prices attain during a Republican or Democratic administration of the White House. Therefore, practical formulation of the Second Law of Petropolitics is this: Oil prices go down if the U.S. president is a Democrat, and they go up if a Republican.
The explanation of this phenomenon lays, probably, in the existing strong link between war policy and party affiliation of the U.S. president. So it has developed that Democrats diligently bypass oil producing regions in foreign policy. Republicans, on the contrary, do not experience doubts before shaking the bludgeon of the war machine near oil wells.
In the 1990s, the Bill Clinton administration used diplomacy only in relations with Iraq and Russia , but actively advanced U.S. interests in such countries as Yugoslavia and Somalia . But there is no oil in Serbia and Somaliland . As a result, the oil prices fell to historical lows. The George W. Bush administration, on the other hand, did not hesitate before intruding into Iraq , thus having raised tensions in the whole region of the Persian Gulf . As a result, a record $145.31 for a barrel of oil.
Speaking figuratively, the White House has a "magic button" by which it is possible to influence oil prices. The Pentagon's war actions play the role of the button. The finger pressing this button is managed not only by a specific man – the president of the United States , but also by the party standing behind him.
In turn this sought out lever of influence is widely used by winners of U.S. presidential races. No wonder therefore the White House often follows the interests of the business circles that are closest to the winning party.
In general it is not reprehensible for the U.S. president to act in the interests of the U.S. oil companies. There should be some limit, however. The high oil prices help oilers earn hundreds of billions, but the point is that the whole American economy loses more. The above-mentioned billions in profits are mostly taken out of the pockets of millions of American households.
So, whose interests are more important? One million shareholders and the employees of the oil corporations or 300 million other U.S. inhabitants who only consume oil?
The solution is not in the United States , but global. The oil consumers should not be misled by ineffective measures like U.S. offshore drilling or the announcement of a $300 million prize for the invention of an alternative energy source. Such measures give practically nothing and only divert attention. The real mechanisms of oil price decreases are in the Middle East .
So, what to do? One can state it like this: Forget about the Persian Gulf and oil prices will go down. Let the sheikhs just earn money and do not interfere in their affairs. And then the prices will go down.
This is a paradoxical but only solution.
And what about Russia and Venezuela , you ask? They, you see, use oil money to strengthen political influence (political, not economic – this is their difference from sheikhs). However, the West can do nothing with them with such oil prices. There is a single tool for reducing their influence on world policy – falling oil prices. It is enough to lower the prices by half from the present and you can forget about the serious influence of Russia or Venezuela .
As you can see, the Second Law of Petropolitics has several consequences and, more importantly, it can soon snap into action yet again. A variable in the right part of the equation can change it. And consequently, both possible oil trends and much more in this world really depend on the one who will make the presidential inauguration speech on the third Wednesday of January 2009.
Arman Kalbayev is an energy economist working in the oil industry. His previous experiences include five years in the presidential administration of Kazakhstan with concentration on energy issues.
Source: The Middle East Times