Some videos come pretty easy, and today’s video is one of them. I really like it when new ways of looking at stuff pop into my head. The more I think about it though, there are other aspects to this I should have included. The shift in the oil market here is pretty extraordinary. It’s actually the birth of a sort of “Super OPEC”. It’s also an OPEC that’s a lot more dangerous for its members. With a US president in charge, especially a US president listening to Texas oilmen, military operations become a potent tool of market making.
The world, and the US, used to have a minimal investment in the stability of petro-states. In the long term, these places should be happier without US supported perma-leaders, but the short term looks increasingly grim. As oil demand peaks, the ballooning US petroleum industry will need to be protected. The US can do this by knocking off competitors one by one. This could be an underappreciated aspect of Libya’s permanent oil crisis since 2011. Petro-states on each side of the conflict have no incentive to get their proxies on the same page and producing more. Venezuela is being knocked out. So is Iran. Destabilizing Iraq would be very easy. Saudi Arabia is super shaky. A broader war in the Middle East would be horrible, but it would be pretty great for the new head of OPEC… The US president.
Video Transcript after the jump…
Ladies and gentlemen, the United States has joined OPEC. Now, of course the United States will never officially join the Organization of Petroleum Exporting Countries. There’s actually legislation against that price inflating cartel working through the US Congress right now. But if you look at Donald Trump’s policy choices over the past year, and especially the past month, it looks a lot like he is trying to drive up the price of petroleum. Most OPEC countries can only limit their own production. The US can actually destroy the competition.
The world produces something like 84 million barrels of oil a day depending on how you measure it. That’s a very big number, but until the electric cars really get going it needs to go up to keep prices stable. A fall in that number by as little as half a million barrels of oil can send prices into the stratosphere, which is the sort of thing that makes OPEC very happy. Over his two years in power Donald Trump’s foreign policy has forced millions of barrels off international markets and actions this week are attempting to block millions more.
Now don’t hold me to the exact numbers in this video. They are estimates. This is complex stuff. A significant amount of every country’s production is consumed in its own economy, and black markets can keep oil flowing from the most comprehensively sanctioned and destroyed countries. But it’s clear that crushing world oil production is one of the themes of Donald Trump’s foreign policy. Actually it may be the only consistent theme of Donald Trump’s foreign policy. Let’s start small and move up.
Last week I talked about Libya, a country with a small population and outsized oil production. Back in 2010 Libya contributed 1.65 million barrels of oil a day to the world market. Then in 2011 the US and NATO destroyed Libya’s government. As of April 4th, thanks to a fragile peace, oil production had crawled back up to 1.2 million barrels of oil a day, for the first time since 2014. Then Saudi Arabia’s puppet general Khalifa Haftar attacked the UN approved government and production is expected to plummet again.
At the end of last week’s video I said that all the US government had to do was speak forcefully in support of Libya’s US approved central government. Well it turns out that Trump did the exact opposite. He had a phone call with Saudi Arabia’s general, and he supports the return of full civil war to Libya. This has already led to a spike in oil prices.
Next up Venezuela. This one isn’t just Trump’s fault of course. The current Venezuelan government has no idea what it takes to run an oil industry. Between 1990 and 2017 Venezuelan production fell from 3.4 million barrels a day to just over 2 million barrels. As I explained in another video, this decline was helped along by opposition from US banking and legal systems. But even the second Bush, a guy who is generally thought to have approved a coup against Hugo Chavez, never tried to directly disrupt the flow of oil from Venezuela to the United States. Earlier this year, Trump did exactly that. Between just February and March, this took half a million barrels of Venezuelan oil off the world Market.
Now to the big one. After the signing of 2015’s massively multi-lateral Iran Nuclear Deal, Iran’s oil production surged, reaching as high as 4 million barrels of oil a day. In May of 2017, Trump unilaterally took the US out of the agreement and restarted sanctions in the fall. Because of pushback over what this was doing to the oil price Trump agreed to give waivers to some of Iran’s biggest clients. On Monday the US announced the end of those waivers. This is a tremendously risky move. Iran sanctions policy has already prompted a sort of declaration of independence from the EU, and revoking the waivers may lead to the formation of a more serious anti-US alliance. But in the short term it’s great for the oil price. What explains this insanity?
The conspiracy theory is obvious. Everybody who isn’t blinded by partisanship knows that Saudi Arabia has bought an American president. Most media focuses on his shameful covering up for Saudi atrocities in Yemen and the murder of Jamal Khashoggi. But the Trump moves described in this video are much more important for Saudi Arabia’s bottom line. Being very anti-Trump, and very anti-Saudi, I like this conspiracy story, but I think the truth is both less exciting and a whole lot sadder than that.
The world’s largest producer of oil is now the United States of America. We can’t actually join OPEC after complaining about it for so long. But we are now just naturally acting more in accordance with the oil industry’s interests. The New York Times reports that Republicans from oil happy Texas were a key part of the Iran waiver decision. We are killing people in Libya, starving people in Venezuela, and seriously endangering US power with Iran policy, not because we are being bribed by oil money, but because we now are the oil money.
We are the cartel now. Our disgusting actions to pump up the oil price really do fit some perverse idea of national interest. United States foreign policy has been the main driver of oil price hikes for at least two years now. We are OPEC. Yuck.