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Overview
Challenging the conventional wisdom surrounding high oil prices, this compelling argument sheds an entirely new light on free-market industry fundamentals. By deciphering past, present, and future geopolitical events, it makes the case that oil pricing and availability have a long history of being employed as economic weapons by the United States. Despite ample world supplies and reserves, high prices are now being used to try to rein in China—a reverse of the low-price strategy used in the 1980s to deprive the Soviets of hard currency. Far from conspiracy theory, the debate notes how the U.S. has previously used the oil majors, the Saudis, and market intervention to move markets—and shows how this is happening again. This compact and unorthodox analysis will appeal to a broad audience—from energy consumers puzzled by intractably high oil prices to producers wondering how long windfall prices can defy gravity.
Product Details
| ISBN-13: | 9780984185863 |
|---|---|
| Publisher: | Trine Day |
| Publication date: | 07/22/2008 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 250 |
| File size: | 3 MB |
About the Author
Read an Excerpt
The Oil Card
Global Economic Warfare in the 21st Century
By James R. Norman
Trine Day LLC
Copyright © 2009 James R. NormanAll rights reserved.
ISBN: 978-0-9841858-6-3
CHAPTER 1
Breaking the Soviet Union with Oil Prices
Warfare in the future is going to be fought mainly through economic means.
--Jian Luming, National Defense University (China), 2001
Supreme excellence consists in breaking the enemy's resistance without fighting.
--Sun Tsu, The Art of War, 6th Century BC
In the age of nuclear-armed super-powers, war ain't like it used to be. Direct military confrontation by two countries has always been the least attractive and last resort of wise and prudent leaders. But with the risks now of rapid escalation to global thermonuclear missile exchanges, a tacit understanding seems to have emerged among nuclear-armed powers that head-to-head conflicts which could lead to overt shooting engagements are to be avoided at all costs. They are a no-win proposition.
That does not mean the Big Guys do not have serious differences, gripes and conflicting national interests. It just means that sanity requires these conflicts to be pursued by means other than direct military action between nuclear-armed states. Even if direct military conflict cannot be averted, its outcome is usually sealed years in advance in the relative economic strength and strategic political positioning of the belligerents.
Now, with the stakes so high in any great-power military conflict, much more emphasis is placed on non-military forms of coercion, dominance and conquest. This can include ideological or psychological warfare, covert operations, efforts to compromise or undermine an opponent regime, or the use of third-party or surrogate military or paramilitary groups aimed at creating havoc without overtly revealing the real adversary. Such may be the origins of "Al Qaeda" and any of the dozens of supposedly indigenous rebel and guerrilla organizations active to varying degrees around the world. What are the odds any such movement could long survive, let alone pull off elaborate terror events, without some form of state sponsorship?
But those kinds of peripheral, nuisance activities may have little real impact on a major nation state with internal controls and a strong military. What is instead gaining increasing attention in statecraft is the non-military equivalent of conventional attrition combat: large-scale economic warfare. In its overt form, this can include embargoes or blockades of strategic goods and commodities, tariffs, trade sanctions and legal battles under trade rules. But more corrosive over time could be the long-term effects of more subtle manipulation of currencies, interest rates, commodity prices and other markets, aimed at limiting an opponent country's economic growth and fomenting social unrest.
Like a skillful torture which leaves no visible bruise marks, clever application of such principles could make it appear that Adam Smith's free-market "invisible hand" was responsible for delivering the blows. Successfully waged by a strong opponent, long-term economic warfare could thwart an opponent's ability to amass the wealth and power needed to sustain direct military confrontation. It might even achieve relatively bloodless regime change in a weak rival state unable to keep its populace fed and employed.
That was the fate of the Union of Soviet Socialist Republics.
Popular perception, mostly promoted by American commentators, is that the USSR disappeared in 1991 due to the inherent weakness, contradictions and corruption of its totalitarian, collectivist and centrally-planned economic system. Some analysts credit the costly US Strategic Defense Initiative embarked on by conservative Republican President Ronald Reagan in the 1980s for outflanking and out-spending the Soviets to the point of bankruptcy and surrender. Others credit US diplomacy and arms agreements. Others laud US support for the Taliban in waging a costly, painful and humiliating guerrilla war against Soviet forces in Afghanistan.
No doubt all those factors had some role. But the most persuasive explanation of the mortal blow delivered to the USSR is revealed in a book written in 1994 by Hoover Institution fellow Peter Schweizer: Victory: The Reagan Administration's Secret Strategy that Hastened the Collapse of the Soviet Union. (Image 1.1)
The death of the USSR at the end of 1991 was not an accident, nor was it foreordained. It was the outcome of a long and hard-fought economic struggle. Citing three key national security directives signed by Reagan in 1982 and 1983, plus interviews with Reagan's top national security insiders, Schweizer detailed a concerted US and allied effort to pressure and ultimately collapse the Soviet Union by starving it for money and technology. The directives amount to a manifesto of economic war. The most important element of the strategy involved what Schweizer found to be "a campaign to reduce dramatically Soviet hard currency earnings by driving down the price of oil with Saudi cooperation and limiting natural gas exports to the West."
Using oil as a geopolitical economic weapon is not new. It is well recognized that the single most provocative factor prompting the Japanese attack on Pearl Harbor in 1941, officially bringing the US into World War II, was the de facto oil embargo imposed on Japan by the US. After Japan occupied Northern Indochina in 1940, the US had embargoed exports of iron, steel and scrap to Japan. When the Vichy French allowed Japan to also occupy Southern Indochina in 1941, the Roosevelt Administration froze Japanese assets in the US. That became a de facto oil embargo after July 25 of that year, because the US, then providing upwards of two-thirds of Japanese oil product imports, balked at issuing export licenses that would let the The Origins of the Second World War in Asia and in the Pacific (New York blocked funds be used for payment. Japan then shifted from a plan to attack the Russian East to a southward move on oil-rich Indonesia, including hits on the Philippines and Hawaii in December 1941.
Oil was also used as an economic bludgeon in the 1970s by Arab exporting states to punish the US and allies with what became a five-month embargo for their support of Israel in its 1973 war with Egypt and Syria. That ushered in a decade of economic turmoil, inflation, currency gyrations and major global energy policy changes that put pressure on the oil-hungry US, and created a windfall for the crude-exporting Soviets.
Oil and energy would next figure prominently in the Reagan Administration's retaliatory campaign to bust the Soviet "Evil Empire." Of the three major covert policy decrees Reagan signed to launch the anti-Soviet campaign, Schweizer cites National Security Decision Directive-66 as most pivotal in launching the oil price war against Moscow. Its main author, then-National Security Council staffer Roger W. Robinson, described it in Victory as "tantamount to a secret declaration of economic war on the Soviet Union." It was signed by Reagan on November 29, 1982.
A six-page version of NSDD-66 was declassified in 1995, a year after Victory was published. It discloses that after meetings with then Secretary of State George Shultz, the US and allies Canada, Germany, France, Italy, Japan and the UK had agreed on a framework of "security-minded principles that will govern East-West economic relations for the remainder of this decade and beyond." It listed four "principal objectives":
- No new contracts to buy Russian natural gas beyond the first strand of a new Siberian pipeline and accelerate development of alternate Western energy supplies (especially Norwegian gas).
- Expand the list of technology and equipment banned for the USSR under COCOM controls, with better enforcement.
- Beyond COCOM, restrict sales of other advanced technology and oil and gas equipment.
- "Substantially" raise interest rates on credit to the USSR, requiring higher down-payments and shorter maturities.
Note that nowhere in the declassified document is there specific mention of driving down oil prices or enlisting the aid of the Saudis. Indeed, an attached "summary of conclusions" reached by the allies specifically notes "it is not their purpose to engage in economic warfare against the Soviet Union" and "trade with the USSR must proceed on the basis of a strict balance of advantages." Knowing the document was likely to soon reach Soviet hands, the official wording may have been intentionally misleading. Robinson's "economic war" declaration is no doubt a better characterization of what NSDD-66 was really all about, with the devil in the details of more secure follow-on documents. Certainly, economic war is what it spawned.
NSDD-66 launched a huge effort, which marshaled the CIA, the Pentagon, Treasury and other government agencies to devise ways to increase economic pressure on the Soviets. It gave rise to a series of studies aimed at identifying and exploiting Soviet economic weakness. Among them, Schweizer found, was a "massive secret study on international oil pricing" concluded by the US Treasury Department in early 1983. Based on an oil price of $34/barrel, the study found the US was paying $183 billion for 5.5 billion barrels a year, of which 1.6 billion barrels were imports. A price drop to $20/barrel, Treasury concluded, would save $71.5 billion a year. It would be like a huge tax cut, benefiting the entire US economy except, of course, the upstream oil industry.
More importantly, Victory claims that Treasury calculated the Soviets would be devastated, relying as they did on oil for as much as half their hard-currency earnings. Each $1/bbl change in the oil price meant $500 million to $1 billion a year for the Russians. They would be crippled by a price drop to $20. In addition, the stymieing of construction and expansion of the Soviets' planned new Siberian natural-gas export pipeline to Europe would have a serious effect. By various means, including probably sabotage, US policy managed to delay startup of that Yamal line's first pipe by two years, depriving the cash-strapped Russians of up to $20 billion of hard-currency revenue. Its second pipe, which would have doubled those revenues, was delayed for more than a decade. Moreover, Washington was able to thwart over-funding of the Yamal line's construction by Western banks. Previously, the Soviets had been able to borrow twice the cost of an initial gas line to Europe, the Orenburg Pipeline, and divert the excess cash to other party uses.
Before NSDD-66, Reagan had signed NSDD-32 in March 1982. Partially declassified in 1996, it included various anti-Soviet goals, eg.: "contain and reverse the expansion of Soviet control," "increase the cost of Soviet support and use of proxy, terrorist and subversive forces," and "neutralize the efforts of the USSR to increase its influence."
The third key anti-Soviet document, signed by Reagan in January 1983, was NSDD-75. Like its predecessor NSDDs, a nine-page version of that document declassified in 1994 makes no specific mention of forcing down oil prices. But authored primarily by former Harvard Russian history professor Richard Pipes, it lays out the most aggressive blueprint to that date for not merely containing, but even rolling back Russian influence. It declared US policy would be to loosen the Soviet hold on Eastern Europe and "promote ... the process of change in the Soviet Union toward a more pluralistic political and economic system in which the power of the privileged ruling elite is gradually reduced."
In what seems to be a mandate for at least defensive market intervention in European gas, and world oil, prices against the Russians, NSDD-75 set out to "minimize the potential for Soviet exercise of reverse leverage on Western countries based on trade, energy supply and financial relationships."
Moscow promptly obtained the wording of NSDD-75 and within two months, a few days after Reagan's noted "Evil Empire" speech, began openly railing against such an aggressive US posture. But the meatier details of the new US policy may have been reserved for more secretive supporting documents, including oil price aspects of the economic war. As former Reagan National Security Advisor John Poindexter, perhaps coyly, told Victory's Schweizer, "I would be surprised if in NSDD-75, an NSDD after that, or a covert action finding about Saudi Arabia there wasn't something ... to reduce the foreign price of oil because of the effect that it has on the free world economy but also the impact on the Soviet Union."
After NSDD-75, according to Victory, at least one more national security decision directive involving economic warfare against the Soviets was drafted and signed by Reagan, in April 1984. There is no record of such an NSDD on that subject at that time, according to an inventory maintained by the Federation of American Scientists. But there was an NSDD-139 signed April 5 of that year relating to contingency planning for a step-up in the Iran-Iraq war. A partially declassified version was released in 1994 with several redacted sections, including blacked-out portions regarding a "plan of action designed to avert an Iraqi collapse." A second Iran-Iraq war NSDD-141 was signed in late May, and remains entirely classified.
Victory says the April 1984 NSDD was drawn up particularly to respond to the threat that oil prices might jump again that year. Assigned once more to draft it was Roger Robinson, along with oil expert William Martin. They were tasked by National Security Advisor Robert McFarlane to "outline an alliance-wide strategy that would send the right signals to the market to prevent a sudden rise" in oil prices. Among its recommendations if prices threatened to run up: a concerted plan for early release of strategic crude stockpiles by key allied countries in order to flood the market. "Speculators were going to be thrashed this time around," Robinson told Schweizer.* Reagan never did have to resort to releasing crude from the US Strategic Petroleum Reserve, which had been set up after the mid-1970s Arab oil embargo and was budgeted to hold 750 million barrels by 1990. Instead, word of the implied threat to do so was spread generously around the oil markets to ward off bullish speculators and encourage the bears. It appears to have been mainly a jawboning effort, Victory says, with US officials "dispatched to keep markets calm."
[* It is interesting to note that Roger W. Robinson Jr., the primary author of NSDD-66 while a member of the Reagan National Security Council, went on to become chairman of the Congressional US-China Economic and Security Review Commission (www.USCC.gov). Formerly the loan portfolio manager for Chase Manhattan Bank in the Soviet Union, Central and Eastern Europe, Robinson was also personal assistant to former Chase Chairman David Rockefeller. Under Reagan he was Senior Director of International Economic Affairs at the NSC from March 1982 to September 1985. Robinson now heads private investment risk analysis firm Conflict Securities Advisory Group, which monitors corporate involvement in rogue states like Iran, Sudan, North Korea and Syria. In presenting the USCC's strongly worded and highly critical 2005 report to Congress, Robinson seemed to echoNSDD-66 by urging the US to "reach out more creatively and involve its allies – such as Japan and the European Union – in addressing mutual trade- and security-related concerns with China." He noted the need for "meaningful upward revaluation of the Chinese currency" and proof China is really a "market status economy." He initially agreed to be interviewed by this writer about NSDD-66 but later declined.]
But as early as 1983 the Reagan Administration cut by one-third its crude purchases going into the SPR, to 145,000b/d. That had the effect of adding more barrels to an already increasingly sloppy crude market, indicating there was a more active and multi-faceted effort afoot beyond mere talk to push down oil prices. We will look further at the uses of strategic reserves in oil price manipulation in a later chapter.
(Continues...)
Excerpted from The Oil Card by James R. Norman. Copyright © 2009 James R. Norman. Excerpted by permission of Trine Day LLC.
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