I just finished James Norman’s new book: The Oil Card: Global Economic Warfare in the 21st Century.
Norman makes the case that a suppressed oil price was the most important strategic variable in bringing down the Soviet Union two decades ago and that engineering an inflated oil price is now being used to keep China in check. He makes the case that the war in Iraq was driven first and foremost by the importance of keeping the oil price up and China out of a strategic position in the Middle East.
If you want to expand your understanding of the fundamental nature of the political economy and economic warfare in which we live, this is a very good read.
Jim:
I have a history of not finishing books on oil and oil industry geopolitics. Before I banned TV’s from my home in 1984, I also could not watch soap operas. I think there is a connection.
I could not put The Oil Card down. I tore through it and intend to read it again.
Thanks again,
Catherine
Catherine, thanks for inviting me to respond. You’ve stated the case well. I think Brad’s perspective is the broadly held and intuitive one these days. But a careful examination of the realities suggests a much different balance of power around oil.
With very high oil prices, the US gets a cold while China gets pneumonia. The PRC buys oil with a currency arguably 30% undervalued, from our friends (the Saudis, Kuwaitis, Angola, Nigeria mostly), ships it half way around the world at sky-high tanker rates in other people’s boats through waters controlled by the US Navy, refines it into a relatively low-value product slate and burns much of it to make electrical power (a very poor use of liquid hydrocarbons). The US buys with an arguably over-valued currency which we can print with abandon (up to some day of reckoning), mostly short-haul by pipe from neighbors Canada and Mexico (who we would be supporting or bailing out again in any case) and we refine it into high-value motor fuels. The US expends about 4% of its GDP on crude imports. That is less than half the share expended by the PRC, which imports roughly the same share of its crude needs (and rising fast).
Bottom line, the US and its allies can play this came all day and all night. If US GDP growth dips one or two percent, it is hardly the end of the world. If China fails to maintain at least 7% GDP growth (and preferably 10%), it faces a compounding problem with unemployment, inflation ad social unrest, which poses a massive internal security threat to what is a rather brittle and indeed fragil dictatorship by a tiny elite there.
The record is now clear as to how we broke the Soviets by driving down crude prices in the 80s and holding them there until the USSR was bankrupt, and went away without a shot fired. The purpose of the book is to note the large volume of evidence that the same mechanisms used to achieve that oil market management (downward) in the 80s are now at work in the opposite direction for the apparent purpose of stressing the PRC. Those include: Saudi (and now Russian) production restraint, zero-growth liquids output by the international oil majors (despite massive cash and technical resources) and huge fund flows into the oil futures market (diverted from the capital markets by a series of questionable US regulatory actions).
The book notes, for instance, the curious over-production of Exxon in the 1980s and contrasts it to the illogical no-growth liquids output of the past 10 years. God forbid we should regard ExxonMobil as a tool of US national security policy. But the Chinese actually regard it as a state-owned enterprise. Food for thought.
Not enough time or bandwidth here to argue the case in detail. The book is just $10 on Amazon. Love it or hate it, it will force you to re-examine much of the modern-day dogma about “free” markets. JN
Thanks, I’ll be ordering it now.
My “paradigm” has been that economic warfare has been going on for many centuries and that the dollar has been the global currency and weapon of choice since Post WWII, and now we’re seeing a shift away from the dollar and towards energy being the new currency, with new power blocs forming (Shangai Cooperative, etc.), and new alliances emerging (Russia/China/Iran/Venezuela) and the EU and US trying to remain relevant (and possibly willing to wage nuclear war).
What haunts me is that I do not fully understand how wide the Anglo-American cartel’s reach is… is its power collapsing or simply morphing into other realms? Are the Key Playaz sweating, or are they laughing behind different puppets, some of which we consider our enemy? I hope this book can help me understand a little more.
Brad:
Norman sounds skeptical of Peak Oil.
I think the Anglo-American cartel is much stronger than is apparent. Remember, the banks and corporations are not economic but the money that has been shifted out/stolen still exists and backs an even more powerful leadership and weaponry that is not widely understood.
I worked in the Energy Group for several years at Dillon Read. After doing so, I came to the conclusion that the price of oil was driven by politics and not by economics and that unless I was an expert and insider, it was a sector that I would shy away from.
So I do not consider myself qualified to decide if Norman is right on debate different points. What I do believe is that Norman is quite capable and that is demonstrated by the fact that he asks more questions than has answers. His hypothesis fits with what I am have seen and experienced — that the fundamental economic paradigm we are operating in is economic warfare.
Economic warfare has been going on for a long time. However, we have a new generation of weaponry, including information technology, which really does shift things in important ways that need to be better understood. Norman is someone is had contributed to this understanding on numerous occasions.
So, again, this is a very useful book and I recommend it to you.
Catherine
Catherine, am curious…does the author make the case that Peak Oil isn’t a legitimate concern and that we invaded Iraq to keep oil production down there (and thus keep global prices high)? I have a hard time seeing where Western powers control their own energy destiny at this point aside from brute force politics (Iraq invasion) or territorial “monopoly” (Georgia, Poland, NATO, etc.) politics…. China has the money to buy oil whereas we’re borrowing to get access. It feels more like Russia and OPEC have the energy trump cards and we’ve just positioned ourselves for a global war. Care to comment?
Tony:
Sounds like you are jumping to conclusions about what I think or Norman is saying.
First, I think the chances of deflation are higher than inflation. Planning to cope with a possible “onerous bout of deflation” is something I often recommend.
Second, Norman appears to think big drops are quite possible. Big rises and big drops are equally signs of an engineered market and prices.
One point that Norman makes well is that our domestic prices on oil (and I would say most commodities as well as capital) are very much a derivative of global economic warfare as opposed to fundamental supply and demand economics. I think Norman does a good job of taking us into this paradigm and walking around — albeit having to ask more questions than provide answers.
This is a paradigm I would like more of us exploring…
Catherine
Again Catherine, we have dramatically different perspectives on where the economy is heading.
There is a substantial likelihood that we face a collapse in consumer demand worldwide and an onerous bout of DEFLATION.
So for me, a regular follower of your blog, posting articles about “the engineered price rise of oil” carry little weight, as we see the oil (and gold) markets collapse with the probabilities weighted heavily that this crash will accelerate and continue.
Tony Buzan