Dear Saudi: Stop Hogging Our Oil!

Raymond J. Learsy, author of Over a Barrel,is an idiot. How he managed to write a book will always be a mystery to me. Every time I read one of his screeds over at Huffington Post, I feel dumber afterward. Today’s is no exception:

As Oil Approaches $100, is Saudi Arabia Waging Resource Aggression Against the American People and the World Economy?!

Learsy is upset because Saudi won’t provide the U.S. oil at the price we like. He accuses them of therefore waging aggression against the U.S. I posted a comment following his essay, but they usually don’t post my comments. But what I said was to consider if the roles were reversed. Let’s say Saudi loves American timber. They love it so much that they buy it as fast as we can cut our trees down. But demand just keeps climbing, and we decide it isn’t a good idea to cut our trees down in an unsustainable fashion just so Saudi can have American timber at the price they like. In Learsy’s world, however, America would have the obligation to continue depleting our resources because Saudi can’t control their timber lust. To deny the Saudis their cheap American timber would be to wage aggression against them.

Can you imagine the idiocy of this position? We can’t control our demand, but we expect our supplier to hold prices down on our behalf. This is what we get for having an incoherent energy policy. The U.S., and the world for that matter, can’t rely on Saudi to deplete their resources at a speed that suits us. Those resources are non-renewable. Saudi has to manage them for future generations. If that means it costs more to fuel our SUVs, cry me a freaking river. That’s our problem.

Hey, here’s an idea. Let’s find some political leaders with the guts to implement policies that reduce our demand, and we won’t have to worry about what Saudi is doing with their oil.

20 thoughts on “Dear Saudi: Stop Hogging Our Oil!”

  1. Ha! Ask my wife, “I feel like my IQ dropped after reading/listening to that!” is a phrase I use far too much. And I am not a savant, just a normal, literate person who is curious.
    It seems common sense to me, no deep thinking is needed, yet ‘experts’ throw out ideas that at best baffle, and at worst polarize public thought on the subject. I was just back in eastern south dakota, and I can tell you that ag is STILL convinced ethanol is a good ideas, but will not connect the dots on why off-road diesel in getting expensive. It is strange to listen to normal folks tell me why intelligent design should be taught in public schools, but also think that ‘science’ will come up with SOMETHING to keep gas cheap! it has to be a liberal, gay, tree-hugger conspiracy according to some. Articles like the one you just panned are usually cited for what the ‘real problem’ is. I used to work in the solar industry, but left it became clear that the whole industry in CA was geared towards homeowners who had houses of $600,000+. That was not the problem, the problem seemed rather that the people in the industry thought that is was a solution to our energy problems. The same could be said of ethanol, nuclear power, alternative energy, biodiesel, sprawl, fleet MPG for US car, etc.. Maybe this is all a larger symptom of what happens to a first world country when education is ignored, scientific knowledge is shunned, and critical thinking is scarce.

  2. We should teach those Saudis a lesson and just stop buying their oil. That would show them.

    On a related note, did you see this?

    Saudi oil executive Sadad Al-Husseini, June 2007: “There has been a paradigm shift in the energy world whereby oil producers are no longer inclined to rapidly exhaust their resource for the sake of accelerating the misuse of a precious and finite commodity. This sentiment prevails inside and outside of OPEC countries, but has yet to be appreciated among the major energy-consuming countries of the world.”

  3. Unfortunately, thug states are regarded are bona fide sovereign nations, so I guess the globe has no alternative but to endure an oil shakedown.
    Even if thug states were legitimate, they would not be obligated to sell at a certain price (although they would be obligated to honor contracts).
    As it is, thug states do not honor contracts and will sell to us at the very highest price they can extract. So be it.
    I am a little more hawkish on this particualr point than RR. I do not think it is fair play to quintuple the price of a necessary commodity willfully, simply to make higher profits. Real harm to the developing world will be the result of this.
    Still, the oil thug states may have overplayed their hand this time (although much of their hand is played unwittingly; Mexico let its fields decline through self-indulgence, other thug oil nations are woefully corrupt or backward).
    What happens when oil demand starts falling, which it will? And when that decline in demand is sustained for years, and even decades?
    We are setting up for exactly such a situation. The charts showing 2.2 percent annual increase in demand assumed cheap oil. Oil demand fell 11 percent after the 1979 price spike – with 1970s technology. What is a reasonable expectation this time? It was 10 years — 1989 — when oil demand again rached 1979 evels, and then only when oil was cheap again.
    This may be the best time ever to buy some oil puts. Try out a few years, at $40 or $50 a barrel.
    No, KSA (leading financier of terrorism, and also a theology that subjects women) is not our friend. And we are in a period og Thug Oil, and possibly a backward bending supply curve. It is ugly.
    But, in time, the market works wonders. Wait and see.

  4. The thing is, BC, that if we base our energy policy on another country’s foreign policy, we deserve what we get. We can’t count on Saudi to provide for us. For crying out loud, they could have a coup and completely turn off the taps. Where would we be then? If we had leaders with guts, and citizens who were less self-centered, we could formulate an energy policy that would benefit future generations. But the politicians don’t have guts, and they know they will get tossed out if gas prices rise on their watch. By God, we are entitled to cheap gas! I think it’s in the Constitution.

    As it is, we twiddle our thumbs and remain dependent upon a lot of countries that don’t like us – countries we are transferring massive wealth to – because we don’t want to be inconvenienced with higher prices. Pathetic.

  5. Of course, the reason that there isn’t a coup there is because we insist on propping them up so that we can get at the oil. To be charitable to Learsy’s idiocy, one could construct an argument along the lines that the House of Saud wouldn’t be where it is today if the West hadn’t propped it up, so they ‘owe’ us.

    Needless to say, that’s not a view that I espouse – but I do think that it’s the subtext behind a lot of these idiotic comments. Essentially, Learsy and his ilk are mourning the loss of American power – the power that meant, for a brief period, that the US could twist arms effectively. Nowadays, the Saudis are pretty confident that if the US doesn’t buy its oil, Asia – China in particular – will. So they don’t have to be deferential any more. People like Learsy can’t get used to that.

  6. Bravo for RR! There are so few people who have the good sense and courage to point out the obvious. The idea that other countries are obligated to supply the US with lots of cheap resources and energy is part of the American sense of entitlement. In other words, Americans believe they are entitled to profligacy at low prices, and when they don’t get it, other countries are to blame. Sorry to say, I think this is going to be America’s downfall.

  7. i agree with your position on mr. learsy’s capacity as writer and the content of his book offering. after trying my way thru several chapters, i just quit. his communication content/style ,in person, as evidenced on kudlow’s CNBC program[ hyping said book] his performance was equally poor.

    i tried”over a..” after reading rogers[hot commodities], deffeyes[beyond oil], simmons[twilight…], leeb[the coming economic…], tertzakian[ a thousand …thanks be that i got a good start on others, lest my career in oil/commodities be short lived.


  8. RR-
    It is sort of a trap. We could try to become energy independent. I think we should. Although I can just hear the howlers, saying we do not believe in free trade and we are isolationist, and we are not sophisticated enough to understand how world trade and international relations works.
    In becoming energy independent, we would probably collapse the price of oil – and then people would cry, “We want out cheap oil back, and 50-cent gas.”
    I wholeheartedly concur that transferring gobs of wealth to oiilt thug states is folly times 100.
    Yes, we need to tax gasoline at the pump hard and heavy. Who has the guts to call for it?
    Although I think we might be able to get pols to agree on a tax that slides into view – say a 50-cent a gallon tax, which rises by 50 cents every year for eight years.
    Then you would get all sorts of idiot pols running on a platform to cut the gas tax.
    It does look grim right now. But remember — God loves drunks, fools and the United States.

  9. RR – I have posted some reasoned and referenced critiques of Learsy to Huffington Post too, only to have them rejected. Apparently, the Huff Post can dish it out but they can’t take it at all. So much for the real “liberal media,” eh?

    “Nobody ever went broke underestimating the intelligence of the American public.”
    H. L. Mencken, US editor (1880 – 1956)

    (Odograph: “They took our earl!” was LOL good.)


  10. I agree that it is idiotic to think that the Saudis should pump more oil because we want a lower price. But (there is always a but) I wouldn’t go so far as to think the government/politicians should be in the position to choose what the alternative energy supply mix will become . I deal with the DOE a lot, and I don’t want them picking which technologies should be developed. Sorry, but I think that is a recipe for disaster. The market will figure out the best alternatives as long as the government doesn’t get in the way.

  11. But (there is always a but) I wouldn’t go so far as to think the government/politicians should be in the position to choose what the alternative energy supply mix will become.

    Oh no, I don’t mean that at all. I have come out firmly against the government attempting to pick technology winners. What I would like to see them do is crank up the price of fossil fuels – in a controlled fasion – and see if some alternatives can’t rise to the top of the heap. But I think people don’t appreciate the prices it will take. We have $7+ gasoline in Europe, and alternatives aren’t making much of a dent. So, $7 isn’t the price point.

    What we are going to do is sit around and let those high prices just overtake us, and some long-lead alternatives may not have a chance to get off the ground before the economy is simply crushed.

  12. I understand your point, but (there it is again) I think your underestimating the market. The US economy has on a whole handled the increase in oil price fairly well. If you would have told me a couple years ago that the oil prices would be above $80 and the economy was still growing I would have thought you were nuts. Even with that, alternative are showing up. Besides the bio-fuels there are a number of places planning on new coal to liquid plants and even nuclear may be finally starting to make a comeback. Additionally, Europe may be more tolerant to higher fuel prices due to their greater amount of regulation. Tolerant isn’t the right word, but their options are limited by regulation. But even there the market has adapted. Hence smaller diesel powered cars being much more prevalent.

  13. Oh, I think $7 a gallon makes a dent, more on the demand side. The Euros drive much more efficient cars.
    True, the biofuels are just starting. I hold out hope for E3’s second-gen plant, and also jatropha.
    I am also interested in a tree that gets no recognition (except hatred among horticulturists): Chinese Tallow. This tree is a weed, and can produce biofuel heavily, without tilling the earth every year, etc.
    I wonder if we are all expecting too much too soon. The PHEV and sustainable biofuels make take 10 years. It seems like an eternity now.
    But in the longer scope of history (is my bald head showing?) 10 years will be but a blip, especially if it leads us to a cleaner and more prosperous future (which I think it will).
    I now rank the PHEV up there with the Internet, winged aircraft and the internal combustion engine as a device/ which will transform our lives.
    Think about it: No fossil fuels needed for most commutes. A car which can be powered by wind, solar, geothermal, nukes. It is transformative.
    The Volt is three years away, says GM (if GM survices). If not GM, then someone else, if not 2010, then 2015.
    The pont is, it will happen, and it will change our way of life, much for the better.

  14. Benjamin: I think PHEVs will be transformative too. But let’s not get carried away: How long will it take to manufacture 210 million replacement cars, two decades? How much energy and materials? Can it be done within our future energy and materials budgets?

  15. Sofc Dude, you can’t apply free market logic to oil because the bulk of supply is controlled by a cartel. This creates huge distortions.

    Free market logic dictates that if you can produce an alternative to a $100 commodity for only $50, you will win. At first you price just under $100 and make huge profits. You reinvest these profits plus the additional capital they attract into growth. As you add supply to the market prices fall toward $50, causing the $100 producers to go bankrupt and cease production. You take over their market, and you and your investors become obscenely rich.

    This logic does not work with oil. If alternatives succeed enough to drive oil back to $50 OPEC will not go bankrupt and cease production, because oil is not truly a $100 product. It’s a $35 product being squeezed to $100 by artificial supply constraints.

    This presents an intractable problem for alternatives — they can play around the edges and profit at a small scale, but large-scale investment in a $50/bbl alternative is doomed. It’s the exact opposite of a free market outcome — as prices fall it’s not the $100 supplier who goes bankrupt, but the $50 alternative! This perversion of free markets is a massive disincentive to investment.

    I’m a free market zealot, but it’s folly to apply free market logic to controlled markets. This is a struggle between nations, with ramifications to US national security. Learsy’s phrasing may be over the top, but his point is correct. OPEC members ARE perverting the free market to advance their national aims. US response needs to be in kind, and needs to be driven at the Federal level.

  16. dog – BINGO!

    This is what I’ve been saying all along. There needs to be some floor price to protect investors from low prices. In the 1990s OPEC had about 2 million barrels per day spare capacity on line. This was enough to drive prices down below $10 per barrel. Imagine what happens when the US replaces even 10-20% of its 20 million barrel daily gasoline habit with something else.

    Set the floor price as an oil import fee now when prices are high. I think $50 per barrel would do it. Sure, when prices crash some businesses will complain that US pays more than the world price, but we use petroleum primarily for transportation.

  17. Chris nelder-

    I think the price mechanism, and some luck, will allow us a smooth transition to a PHEV-based transportation system.
    World demand for fossil crude will be about flat this year, probably start going down next year. It will take a generation to replace our fleet of cars, trucks.
    The price mechanism will dampen demand enough to allow us to make the transition. I hthink.

  18. yeah, those damn saudis … how dare they sell us their OIL …

    Saudi Arabia has done nothing but increase its oil production to meet world demand, if Iran is gearing up for a fight with the US raises the oil price what the hell are we supposed to do?

    if the US would stop picking fights all the time then that area of the world might not be so volatile and prices will go down

Comments are closed.