In general people believe the present oil crisis is the fault of that cabal of evil and injustice, OPEC (Organization of Petroleum Exporting Countries) and specifically, Saudi Arabia.
In order for me to get a grasp on this admittedly complex subject I went to a mentor I respect. He’s a chemical engineer and an established and successful business person. According to him the problem’s relatively simple to understand.
We, as Americans, have metaphorically shot ourselves in the foot.
Ever since we found oil in the ground in Pennsylvania we’ve actively searched for, found, negotiated with and outright sold our economic souls to whoever it was had the greatest stores of petroleum. America’s thirst for oil is insatiable. One of our greatest allies and suppliers has been Saudi Arabia. Prior to World War I, Saudi Arabia was a loosely banded and tenuously bonded group of interacting Bedouin Tribes not really aware of the resources they had beneath the deserts of the region.
But, boy-oh-boy did they climb that learning curve quickly and efficiently to the point of economic expertise. They’re a major propellant and conductor of petro-chemical policy in the world today. This shows they aren’t stupid. I wish I could say the same for OUR policy makers, shakers and movers and political operatives in Washington.
In reality there are only three major reasons for the elevated cost of oil on the market. Together they create a Perfect Storm of economic direction in the world.
Number 1: Oil is sold in U.S. Dollars.
The Saudis are economic masters and therefore are not stupid when it comes to the reality of currency exchanges. The United States has printed approximately 1.2 Trillion Dollars over the last 2 years. This effectively doubled the supply of cash and devalued the dollar overall; worldwide. The Saudis, understanding the problem simply moved to protect their profit margin. They doubled the unit cost of a barrel of oil. They can also maintain this profit margin by holding oil production down thus driving the price up.
Number 2: The Obama Administration (as well as others before it) have pursued an Energy Policy demanding we Import oil rather than Produce it from available domestic resources. This policy was pursued on a Diplomatic and business basis by insiders in the industry moving the chess pieces known as Presidents, Cabinet members and advisors.
Number 3: There’s been NO “ground-up” construction of Petro-Chemical Refineries in the last 40 years. Therefore there’s no real possibility of increased oil refinery product. These result in the creation of the Perfect Storm mentioned above:
a) Declining refinery capacity
b) Declining domestic production
c) Declining value of the U.S. Dollar
The Saudis are business people. They have an absolute control of their product’s supply. Americans in the Petro-Chemical Industry follow the same principles. Supply and Demand are directly connected in their effect on each other. They’re not the problem.
Politicians of both parties are the problem. They posture, preen and prevaricate to hide their overarching ignorance of real-time economic issues in a vital industry. In order to exercise their illusion of power, they accept direction from special-interests to pass laws and create regulations effectively constraining and stunting the practical growth of the industry.
Many Presidents have been hand-puppets. Special interest groups have their hand so far up their backside the puppets’ breath smells like a methane discharge. Presidents are no more than talking heads parroting the policy and statistics they have no more knowledge about than the average citizen. To top it off they’re normally ideologues accepting ONLY the advice and information presented by supporters of similar ideologies.
Adding to the problem now is the theory alternative energy sources can be developed virtually overnight to take the place of the oil industry. It can’t happen. Nobody can mount a Windmill on an SUV and make it work efficiently. The present administration is noted for its proclamations we should Hope for Change in the future. But, it sees no need to change so we have more hope of solutions to problems we suffer from now.
This Perfect Storm is destroying America politically, economically and fiscally in world economics today.
Thanks for listening.