Those who took to the oil markets following the great energy and financial crisis of 1973 – in a decade when former President Nixon stopped shoring up the dollar with gold and when international foreign debt experienced a sharp rise – are now taken aback by the current prices of crude.
White House concerns at that time differed from those of the present day in that the US had reached a peak in its oil production with its wells almost run dry – which pushed them in 1975 to take the decision to ban oil exports to protect their remaining reserves.
This fuel scarcity was very dangerous for an economy dependent on oil and natural gas and it was vital that controls be placed on American multinationals from transporting, refining and trading crude; and in particular that international wells supplying the US from abroad were protected from forces hostile to US interests.
It was a fact that the political elite were anxious and the upper echelons of Pentagon leadership, responsible for looking after oil sites abroad, clearly stressed.
With huge amounts of money – called ‘petrodollars, which formed the basis for unstoppable and incalculable Third World debt – being issued by the Federal Reserve (FED or central bank) back then, the US infected the globe with galloping hyperinflation.
The most famous case was that of Serbia where its dinar experienced five thousand quadrillion % of hyperinflation. In Latin America, it lasted from 1972 to 1987 and the highest rates where experienced in Bolivia, Peru, Argentina and Mexico – the worst of which was more than 3,000 %.
However, this hyperinflation allowed the multinationals to capture these southern markets using alarming albeit generous loans and through the imposition by the IMF of reformative neo-liberal economic domestic policies in these countries.
All the then experts were of the same opinion: that the high prices were there to stay and this is indeed how things remained for the next almost four decades.
The sharp rise in crude prices began to gain momentum at the precise time the US first invaded Afghanistan and Iraq and continued on this upward trend, with ups and downs, until 2010 when the advent of fracking put a halt to this and the allure of this new technology courted the reserves of dollars amassed as a result of the previously expensive oil.
Now in 2016 the US is succeeding in doing the unthinkable: it is once again an exporter of oil thanks to fracking technology and is dispelling concerns over the scarcity of crude and gas – which is a central motive behind the invasions of Afghanistan and Iraq and is at the root of current political, economic and military unrest in the Middle East in particular Libya and Syria.
Until the economic crisis of 2008 – the general characteristics of which are still in evidence – no one in the world had dared to disturb the bituminous shale in the subsoil for fear of the potential harm that extracting the oil and gas trapped in these lutaceous rocks can cause to the environment and in particular to subterranean aquifers.
It is a fact that following 2010, fracking has allowed the US to increase its production of natural gas by 35% since 2005 and to eliminate the need for imports.
Regarding the production of oil this figure is 45% which has turned the US once again into the world’s second oil producer.
Unconventional fuels already contribute $430 billion to the US GDP and create 2.7 million jobs whose salaries are double that of the US average.
However, the human and environmental harm associated with these fuels has neither been investigated nor quantified and there is huge disagreement between those who are for and against the technology; with some of the more scrupulous countries with shale reserves choosing to ban fracking and social movements against the technology forming in Canada and the US.
On the other hand it is abundantly clear that White House and Pentagon strategists see the technology as playing an important part in America’s re-emergence as the world’s second oil producer second only to Saudi Arabia one of its closest allies in the Middle East.
Whilst the objective in 1973 was to increase prices and depreciate the value of the dollar the aim in 2016 is quite the opposite : to lower its quoted price and appreciate the dollar’s value against Russian and Chinese currencies and indeed the Euro; to lower rivals’ receipts such as those of Moscow or Caracas as part of a geopolitical strategy to control the world’s oil and gas markets (currently being implemented in the Middle East, especially Syria and Libya); and to revive US dominance on the world’s financial and monetary stage.
Just a few days ago President Putin urged the Russian government to be ready for any changes in the economic situation and to respond professionally to any problems in reference to the financial and oil markets.
It is no secret that Russia’s federal budget is heavily dependent on the price of oil and gas which represent a half of all its resources.
It was precisely as a result of this factor that there was a decline in Russia’s economic growth in 2015 with a contraction of 3.8% of its GDP being recorded.
Putin’s government is raising the alarm, announcing to the world that it is preparing itself for a scenario of envisaged crude prices of $25 a barrel, a scenario further exacerbated by an appreciation of the dollar against the rouble.
These warnings are evidence of America’s geopolitical use of fracking against Russia, Venezuela and other countries and it is the reason for which Washington has continued to subsidise the industry in the face of the economic losses involved in extracting bituminous oil at high cost whose current daily projected production of 9.5 million barrels is almost double that in 2008.
It is on the face of it illogical: domestically, there is no longer the capacity to refine or store such large fuel reserves; and internationally, the markets are saturated with supply far outstripping demand.
How long then will the US be able to subsidise fracking? According to the American Petroleum Institute’s stipulations producing a barrel of traditional American oil costs in the region of $80 compared to this year’s $25 scenario which Russia is preparing itself for.
American oil companies and even British ones operating in the North Sea lowered their estimation of the viability of oil extraction and this has been in the negative with prices of $40 and $45 per barrel for some months now. By all rights, Brent drilling stations should have closed down some time ago and even more so now that a barrel of Brent is listed at just $30. (PL)
(Photos from Pixabay and Wikimedia)
(Translated by Nigel Conibear – Diptrans IoLET ACIL – firstname.lastname@example.org)