Oil, Oil, Oil
The Gathering Storm, July 15, 2008
July 15, 2008
The Huffington Post, of all places, published recently an article by Doug Schoen and Michael Rowan (the former an advisor in the Clinton White House) on the coordinated efforts by Venezuela's Hugo Chavez and Iran's Mahmoud Ahmadinejad to weaken the U.S. by inflicting a recession by manipulating the supply of oil.
They write:
Before Chavez took power in 1999, Venezuela planned to increase production from 3.6 million barrels per day (mbd) to 5.5mbd by 2008. Instead, Chavez has reduced Venezuela's output to 2.3mbd and is lying to the world that he is producing more. Even Iraq at war is producing more oil than Venezuela at peace and with reportedly as many reserves as Saudi Arabia.
There's reason to this madness. The 3.2mbd missing from Venezuela, if added to the 85mbd produced and consumed in the world today, would plunge the oil price to a fraction of $140, even in the face of rising demand from China and India that had increased world consumption by 10mbd since 1998. That is the opposite of what Chavez wants....
....Chavez also convinced the Organization of Petroleum Exporting Countries to follow suit. In 2000, Venezuela and Iran - oil price hawks -- defeated Saudi Arabia's position that a high oil price causes global recessions and is thus self-defeating for OPEC.
The Saudis were right. Global recessions had followed the Arab oil embargo after the Yom Kippur war in 1973, the Iranian revolution in 1979, and the Persian Gulf War in 1990. But a global recession was precisely what Venezuela and Iran secretly wanted. A weakened American superpower held the promise of Iranian hegemony in the Middle East and Venezuelan hegemony in Latin America.
The authors go on to describe the various partnerships between the two countries and vulnerability Chavez has to a U.S. embargo. They call for Americans to do something about it: boycott Venezuelan-owned CITGO.
Last Sunday Chavez touted Petrocaribe, an agreement that delivers Venezuelan oil to 17 Latin American and Caribbean countries under very preferential terms, including interest rates of 1% stretched over 25 years. "We're in a political battle," Chavez said, adding Petrocaribe "helps countries not only economically, but also frees them from the blackmail of big international companies." The pact has been accurately described as "bribery diplomacy."
Better late than never, the Bush Administration ended the ban on offshore drilling. A move that, in the long term, might help offset the oil partnerships of Chavez, Ahmadinejad, and others.
