Big Oil and Economic Warfare


The global oil reserves are shrinking as more and more oil is being extracted with every passing day and on the other hand there is constant increase in the demand for fossil fuels. Petroleum products are used for heating, transportation, electricity and are prime raw materials for chemicals, fertilizers and plastics. So with shrinking reserves and increased demand the price of petroleum is supposed to rise. But during the last few years the price of oil is constantly falling thus severely affecting the countries whose national budget depends upon oil revenues like Venezuela, Russia and Iran. Irrespective of falling oil prices the “Oil and Petroleum Exporting Countries (OPEC)” have refused to cut their production and US has boosted its production by 66% during last five years by employing unconventional methods of extraction known as “fracking”. The breakeven prices for oil production in Saudi Arabia, Qatar, Iran, Russia and Venezuela are $105, $77, $131, $105 and $117 respectively, which are very high as compared to current price of $45 to $55 per barrel in the international market. Thus the lower oil prices are putting strain on oil economies. The fracking technique employed by US, has severely affected the environment. The fracking fluid used for extracting oil during a single operation contains about two hundred thousand tons of chemicals, 8 million liters of water and several thousand tons of sand. It has caused a severe contamination of ground water. Till now no long term study has been conducted on this subject. The chemicals used in fracking include benzoyl, formic acid and other unknown constituents which are extremely toxic and carcinogenic in nature. So things are not so simple as far as falling oil prices are concerned. Why are countries like US and Saudi Arabia risking the global economy and environment for lowering the oil prices? Falling oil price is not only an economic issue but rather a geo political game being played at a global level.
There is a simple mechanism which is being used for manipulating oil prices. When supply increases and demand remains same price of oil falls. It has been observed that a 1% increase in supply can cause 25% decrease in oil price. Second tool used for manipulating oil price is by altering the value of US dollar, as it is the only currency used for international oil trade. When dollar appreciates it becomes costlier for other countries to import oil, so the demand falls. When demand decreases ultimately the price will fall. US corporations like Exxon, chevron, Kinder Morgan etc. have monopolized various processes of oil production. So by exploiting status of dollar, monopoly position of oi companies and allied exporters the price of oil can be easily manipulated by US government.
According to “Dean Henderson” the author of the book “The Big Oil and Their Bankers in Persian Gulf” Saudi Arabia and US have negotiated a secret deal regarding oil prices. Both the countries have agreed to increase the production of oil irrespective of falling prices in order to inflict harm on Iran, Russia and Venezuela. By huge revenues from oil exports Russia and Iran are building their infrastructure and enhancing military strength. The multilateral “New Development Bank (NDB)” established by BRICS countries is threatening the interests of western bankers is also a reason for economic aggression against Russia. United States is also trying to over throw the government of Venezuela. Thus United States with the help of Saudi Arabia has launched an economic aggression against its rivals.
During 1990s, Venezuela liberalized its economy and acquired membership of world trade organization. Liberalization of service, manufacturing and oil industry have significantly changed their mode of operation. The average foreign direct investment in Venezuela from 1997 up to 2014 was $654.65 million. Foreign companies from USA and Europe invested huge sums of money into the country, but in 2000 the Government of Venezuela decided to increase taxes on foreign oil companies amid to high breakeven oil price which is about $117 per barrel. The increased tax rate on foreign oil companies deteriorated the relationship between USA and Venezuela, so United States threatened Venezuela by imposing economic sanctions. In March 2016 Barak Obama in a press conference considered Venezuela as an extraordinary threat to the national security of USA. Because of Economic sanctions and lower oil prices foreign investors, financial institution and corporations lost their confidence in the government of Venezuela. So they started to pull back their money which caused hyperinflation. The country is now in a total chaos. There is a severe shortage of essential medicines, food and drinking water. About 95% budget of Venezuela comes from oil sales. It can maintain its expenditures only when the price of oil will touch about $180 per barrel, which seems very difficult as the oil market is flooded with supply from US and Saudi Arabia.
Oil and natural gas export act like a backbone for Russian economy. About 45% of Russian budget depends upon oil revenues. Economic sanctions and lower oil prices are causing financial hardships for Russian government. The recent drop in oil price resulted in the biggest one day decline in the Russian currency ‘Ruble’ since 1998. The weakness of the Ruble is hurting Russian economy. Lower oil price have always troubled Russia as in 1980s decline in oil prices was one of the factor responsible for the fall of Soviet Union.
The New York Times columnist “Thomas L. Friedman” Stated that US and Saudi Arabia are dragging Iran and Russia towards a total economic collapse due to the manipulation of oil prices. He further mentions that instead of looking at the causes of lower oil prices look at the consequences like budget shortfall in Russia and Iran. So what is the indication and who will benefit from this? Of course US, as it wants to hit Russian economy by Ukraine related sanctions and by lower oil prices. Russia is a traditional rival of US and Saudi Arabia and are fighting proxy wars in Syria and Yemen.
The third country which is being affected by lower oil prices and economic sanctions is Islamic republic of Iran. Saudi monarchy and Judeo-Christian alliance are always targeting Iran by economic sanctions and proxy wars. Israel considers Iran as a main threat to its national security, as Iran has a great influence over Iraq, Hamas, and Hisbollaha. Iran also controls strait of Hurmuz, which is a route for 40% of Worlds Sea borne oil. US and Israel are also trying to bring down Iranian nuclear Programme. The hegemony of Israel in the Middle East has been halted by Iranian influence in the region, so they want to eliminate this threat by employing all the means which are at their disposal. Even the nuclear scientists of Iran have been covertly murdered by its enemies. It is believed that IAEA data was used for tracking the scientists and later many of them were assassinated like Mustafa Ahamadi Roshan, Majid Shahriari, and Mosoud Alimohammadi. Manipulation of oil prices is yet another tool which is being used to destroy Iran, as oil sales constitute a main source of revenue for the country. Lower oil price will slow down their growth and is a threat to their national survival.
So what are the consequences for using oil as a tool for economic warfare? At first it is destroying the economies of target countries and also has a negative impact on a global scale. Fracking has contaminated the water table which is indispensable for human survival. The main concern is regarding the breakout of global conflict between nuclear powers. When economic interests of a country are frustrated then there is a huge possibility of military confrontation as happened before World War 2, when US imposed economic sanctions against japan. In this nuclear age military conflict will be a disaster that will engulf whole humanity. An elite minority which is lusting for war with Russia have put the whole humanity on the verge of extinction.
(The writer is the independent Researcher and can be mailed at [email protected])