Liberalguy

OPEC (SAUDIS) AMONGST THE OIL SPECULATORS By Judith A. Klinghoffer (bio)

On Sunday, author of Zoom and Economist reporter, Vijay Vaitheeswaran told the nation’s governors that pampered oil companies R&D budget is a meager 1/3% compared to 15% of a technology company. Why so? Because under the current protected conditions they are doing fine and see no reason to change. They are not sure that there is a real energy shortage and, therefore, they worry that the moment their investment in new technologies is going to bear fruit, the Saudis will pull the rug from under them by flooding the market with cheap oil in the manner they did in the Eighties and earlier this decade. I heard a similar assessment from a top Exxon officials a couple of years ago. Apparently, oil executives see little reason to change their minds. Intrigued, Governor Corzine asked: “How can you explain the rise of oil from $64 a barrel to $145 in a year. Vaitheeswaran’s answer was speculation. Corzine perceptively asked whether the term speculators includes OPEC? “Yes,” came the answer. Corzine nodded as if saying I thought so. I felt the same way. For quite sometime I suspected that to survive the Bin Laden challenge, the Arab royal families set out to prove that they can promote the cause of Islam and inflict harsher punishment on infidels using economic weapons than Al Qaeda can do using terror. Oil has long been their weapon of choice but it’s use was limited by the importance of the Western customers. The appearance of the Chinese and Indian customers solved that problem and enabled it’s greater use. At the same time, sovereign wealth funds improved the ability of the oil rich kingdoms to protect their assets from eaten up by inflation. Nothing demonstrates to Muslims the success of this economic warfare than the new grand building projects dotting the landscape. Nor do the Western cries of pain fall on death ears. In other words, if the terror weapon is getting less and less popular, it is because economic weapons seem so much more effective. What should be done? Some argue the answer is to flood the market with oil by tapping into non OPEC resources. In other words, drill here and drill now. Others retort that such drilling would only serve as a temporary solution. The right thing to do is to put an artificial floor bellow oil prices to make sure that the Saudis would not be able to repeat their 1980’s gambit and reduce prices so as to kill off emerging alternatives. The cap and trade legislation is offered as a politically acceptable way to build such a floor. Logically, drilling may help fill the gap while alternatives are developed. That is the direction McCain is moving. It should work provided we know we are at a different kind of war and remember that as in all wars, victory is to the swift. Vijay says he is optimistic and so we must all be. The road ahead is sure to be bumpy but building Muslims are far superior to bombing ones especially if Iran and Pakistan join the pack.