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Oil Relationships

Reader comment on item: Symposium: The Geopolitics of U.S. Energy Independence
in response to reader comment: Comments from an oil patch geoscientist

Submitted by Sigmund (United States), Nov 22, 2013 at 22:09

Your comments are very thoughtful. Though I do not have a professional background in geoscience I have followed these topics and I appreciate your astute analysis. I agree on your first point but I different somewhat on the others.

On point two I think that a key element of Dr. Pipes comments may be the phrase "perceived strength." I agree that it has been a long time since the Saudis and others have used "the oil weapon" directly. But a lot of this is psychological. The world has been beaten over the head a couple times with this oil weapon. Back (just a few years ago to show how fast times change) when folks were bemoaning "peak oil", the fact that the Arabs controlled the largest stocks of oil around gave them great importance. Of course, they still have a lot of oil and they still are important. But soon the world will have enough that the Arab states probably will not find their oil revenues sufficient unless they can compete better for the world's business (and that's hard to do with a commodity which is largely identical everywhere). So, moving to the third point, I think that gradually the mind-set will change from us having to "kow tow" to them to them having to win our favor as customers. This will gradually change the psychological relationship.

I see point three as having two ideas. The "kow towing" idea but also implicit in it is the idea of relative power or relative strength. In my view the oil revenues have over empowered the Arab world (not to mention Venezuela), insulating them from the typical burdens of productivity. If you inherit a pile of money, you don't really have to be nice to a whole lot of people. But if you must earn it, you start learning about human relations rather quickly. For a country, if your revenues mainly come from the oil that Western firms have found for you and which you at a certain point expropriated, and if the world is short of oil you never have to learn how to be nice to other countries. You just get your money, buy riches for the upper classes, the latest weapons for the Army and the heck with everybody else. The dirty little secret of the Arabs, and indeed the whole Muslim world, is that they have very low productivity aside from pumping oil out of the ground. This makes them economically vulnerable and it leads to hostilities. Once the Arabs have more competition for their oil. I think that we may gradually sense a different tone from them. The Saudis have been warming up to us for some time, at least until current foreign relations bungling.

For the United States, our new energy reserves may induce a little isolationism, but remember that energy is still just one component of our huge productive economy. Unless excessive and heavy handed government regulations destroy our best business models, we still will want to and need to relate to the rest of the world. The business of the United States is still business and that's a good thing. The fact that our businesses may now get oil relatively more cheaply than if we did not have fracking, new gas deposits and other new resources will ultimately strengthen us in relation to the rest of the world. At least I hope so.


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