Seth, I had assumed that the point was not to ensure our oil, but to make access for other people more difficult, and more expensive, especially the people who hold a good chunk of our debt. Owe ten thousand and you got a problem. Owe ten million and you got a partner. Owe ten billion and you have a headlock on someone. Owe several hundred billion, and then drive up the cost of the way he makes a living, and you have an anxious supplicant.

excellent post!

the key word is "fungible." it doesn't matter who "controls" the oil. they sell it, we buy it. the problem is, I don't Bush and company understand this. That's why I wish we were fighting a plain old war of conquest! Effing take the oil! Why bother fighting just so our oil companies win the service contracts instead of France's or Norway's companies.

All money, all power, and all cheap plastic bath toys are dependent on oil.

Where's the confusion?

J. Alva Scruggs:

[Seth, I had assumed that the point was not to ensure our oil, but to make access for other people more difficult, and more expensive, especially the people who hold a good chunk of our debt.]

Supposedly this is what happened after the first oil shock. Back then it was Europe we owed money to. When oil prices quadrupled, the logic goes, it hurt them and it hurt us. But it hurt them worse, in balance of payments terms, since the oil producers were plowing their surpluses back into dollars rather than deutschmarks. (Partly due to secret deals between the Saudi central bank and Nixon's Treasury Secretary, William Simon - who later, deliciously, became president of the Olin Foundation.)

In the long run, though, I don't know what that gets us. We end up owing just as much to China, plus a little more to Saudi Arabia. China ends up paying more to Saudi Arabia, too. Does that make Dick Cheney smile? I have no idea.

Actually, I think rising oil prices hurt the overall US economy more than other economies. We use more oil per unit of GDP than other countries. Plus, we have much lower gas taxes than in Europe, so prices at the pump are much more sensitive (in % terms) to changes in the underlying price of crude oil.

---

John Schwarz, Stutts '49:

[Sadly, nationalism in the mideast eventually makes that untenable. Our lackeys are forced (or perhaps get enough power vis a vis us) to nationalize everything. That's still acceptable to us, however, as long as oil companies still make money refining, etc. and the lackeys send lots of their profits back to us by buying F-16s, US bonds, and triplexes in Manhattan.

The only thing we'd truly find unacceptable is if the greatest material prize were actually used by the general population of the mideast, leaving little left over for us.]

Yeah, I think that's right.

Though it's not like the Saudis (for example) didn't use any of their oil windfall to benefit the general population. They built up a big welfare state in the '70's. There was still plenty left over for F-16's, triplexes, diamond-encrusted Playstations, etc.

The weird thing is that US foreign policy (especially in its belligerent phases) has become more and more obsessed with the Mideast over the past 40 years, even though there hasn't been much evidence of a looming threat that regimes might come to power intent on cashing in their Manhattan triplexes to finance total wellness programs for their people. Which is my way of saying, it puzzles me.

[And far as (2), didn't Kennan et al always plan for us to have our hand on the spigot so we could bring Japan and Europe to their knees if necessary? This kind of concern with raw power seems kind of quaint now, but it didn't right after World War II, when being able to seize oil fields was vital. It may also be getting unquaint to the psychocons with the rise of China. It's not that we're worried the oil producers won't sell it, it's that in the back of our mind we want to be able to seize it during wartime, when people are less concerned with profit and more with crushing their enemies.]

I think Kennan and Churchill were talking about the military value of oil in a war, rather than the commercial value of oil in peacetime. And as you say, that sort of logic disappeared a long time ago.

The US can't somehow "deny" oil to China or Europe by maintaining pliant regimes in the Middle East. How would that work? If a war broke out with China, it seems like it would make a lot more sense to send ships to the Pacific to interdict oil deliveries. If WWIII happens and we want to seize oil fields, then we can seize oil fields, no? Why this long, confusing flashback sequence where we invade Iraq 20 years before the fact? Again, I'm puzzled.

[As you describe it here, the Weapondollar-Petrodollar coalition plays the role of the insane rich, always willing to kill everybody to make a trillion dollars RIGHT NOW -- whereas the Technodollar-Mergerdollar guys are the sane rich, able to plan beyond the next five minutes for greater profits down the road.]

Well, Nitzan and Bichler have a theory on this. They say capitalists don't want to make "a lot of money." They want to make "more money than the other guy." N-B call this differential accumulation. And if you ask a fund manager (who embodies the weightless, Platonic ideal of a capitalist), he'll confirm this. He'd much rather earn a 7% return when the other funds are making 5% than earn 11% when the other guys are pulling down 15%. (That's part of the reason fund managers used to buy Amazon.com for $200 a share when they knew better.)

So the oil companies, according to N-B, aren't recklessly trying to make $1 trillion NOW while the others are willing to be patient. Each faction just wants to make more than the other. High oil prices mean high profits for oil companies, low profits for everybody else.

Sorry, Jon. I seem to have a pathological need to call you 'John."

Seth, thank you for the intriguing post and additional commentary. I found this:

They say capitalists don't want to make "a lot of money." They want to make "more money than the other guy." N-B call this differential accumulation. And if you ask a fund manager (who embodies the weightless, Platonic ideal of a capitalist), he'll confirm this. He'd much rather earn a 7% return when the other funds are making 5% than earn 11% when the other guys are pulling down 15%. (That's part of the reason fund managers used to buy Amazon.com for $200 a share when they knew better.)

J. Alva is right: It's largely about controlling China. It's also about ensuring that the U.S. dollar remains the global reserve currency. It's so abstract that nobody talks about it but think about it like this: If Iran's oil bourse had opened on schedule last month, allowing highly liquid oil transactions in Euros, that would allow all of the big oil sellers and buyers to dramatically cut their dollar reserves. That would mean selling treasuries, spending more dollars than they save, and otherwise disposing of greenbacks. A U.S. dollar could buy $1.62 Canadian 2 years ago. It buys C$1.10 today, a 25-year low. On New Years, 2002, a Euro could get you only 90 US cents. Today it will buy you $1.28, down from $1.35 Jan. 1.

In real-world terms, that means it's hard for us to compete with Europe on goods neither of us have (like oil, coffee or timber) and it's much harder for us to afford their products (BMWs, camembert). So far, not much pain. If countries could get rid of much more dollar holdings, the U.S. currency would decline even further, increasing the cost of all our imports. The good news is we might get a few jobs back as we become a cheap labor site for the planet.

Anyway, none of that happens as severely now, because Iran's oil bourse is on indefinite hold and nobody's gonna mess with the Petrodollar while the U.S. has a quarter-million troops in striking distance of any country in the Middle East. It would have worked out even better if Iraq hadn't been a quagmire, and don't forget, by all accounts, the Administration really thought it would be a cakewalk.

I think it is a mistake to believe that Iraq was about one reason and one reason only. There were probably several reasons for the invasion of Iraq. Surely one reason was political gain for the Bushies as I am sure we have all read about how Bush believed that wars make presidents popular and with popularity comes more power. Then there is the influence of Israel's lobbies in Washington which cannot be denied. And yes oil certainly, because if you control the flow of oil you control the price of oil. If you can control the flow of oil as in lowering production you then can justify raising the price of oil, and thus gasoline which in turn translates into higher profits for the energy companies. Think about the diamond industry which is controlled by one family. They purposefully keep the production of diamonds down in order to keep the price of diamonds up. Also a huge consideration is the huge money making contracts to Bush's non-bidding buddies for the so-called reconstruction effort which is really why they did not use companies in Iraq despite the reasons given such as security problems. Follow the money it always works.

It is only confusing until you remember that the friends of Bush sell oil, or if they buy it, they turn around and sell it at a "reasonable profit" which is a function of the price. We invade Iraq, the price goes up. We threaten Iran, the price goes up. They don't care that it costs more to fuel their jets when their profits are at a record level. They sell more than they buy. Read the Wall Street Journal--they do!

[But the real reason I bring all this up is that, whether or not one buys the theory, it does raise the following question: If the Iraq war is "about the oil" somehow, then in what way, exactly, is it about the oil? This deceptively simple question is a problem both for the left and for more establishment types.]

Seth, I think you and Jonathan basically have it right -- the reasons people think it is important to control oil only make sense in a framework of war, not in one of economics. And that framework of war makes no sense.

But that doesn't mean it's not the framework they're using -- it very much is. It's the framework of the cold war. That framework was slowly and completely sedimented throughout our security establishment during that four decade period. And it's still at the bottom of every basic concept its denizens use to frame the world.

I know you already read this, but if people following at home have any interest, I once made this argument at greater length on the eve of the war:

http://mailman.lbo-talk.org/2003/2003-March/008879.html

And none of those basic ideas have changed. The reaction of the heads of the defense establishment -- Cheney, Rumsfeld, Wolfowitz, Power -- to the end of the cold war was to consciously look around for a substitute. That was the prime and only purpose of the infamous Defense Policy Guidance memo of 1992. And now, post-9/11 they are absolutely positive that they've got that substitute. So now they feel less than no need to change their views. They feel those views are truer than they ever were. They trust their old instincts implicitly.

But think about it. Crazy as it is to think of oil in cold war terms, is it any crazier than thinking of terrorism in cold war terms? The cold war was premised on a threat to our existence. Osama bin Laden threatens our existence like the Soviet Union did? Now that's crazy. And ditto to think it about Iran. Or Iraq. Or any other pissant country.

In other words, the madness you want to explain vis a vis oil is really a subset of a larger problem, namely, Why can't the security establishment wake up from the cold war?

Or to put that question more starkly: why do we even have a security state now that the cold war is over and our Enemy is dead? (We didn't need one before it. And militarily we were in a much weaker position in the interwar period than we are now.) It seems like a mad question. Because that's how deeply the security state has become our unquestionable reality. And the only security state we've ever had is the cold war one. It's the only worldview it's ever had. It secretes it. And there's no precedent for creating a new one.

And as long as we apply this outdated framework to a post-cold war world, everything we think in security terms is crazy. Oil is the least of our misconceptions. Our security thinking is crazy in the most fundamental sense -- we act like our national existence is threatened when it's not. When we are in fact the least threatened country in the history of the world.

Michael

The automobile is a passing fad, get a horse.

Michael:

The link you gave states:

Only when the market is tight can [OPEC] exert the power to raise prices. Their only chance is that after decades of low oil prices, growth in demand will outstrip growth in supply by so much that we'll draw closer to the conditions of 1973 and they'll once again be able to exercise a corner.

Hmm, demand for oil outstripping the supply. I know I've heard of this somewhere recently... I just can't place it. :-) Also, you are ignoring the core-periphery theories in IR, which just so happened to get postulated after the embargo---namely, OPEC is the same threat as a strong union, but it operates on an international level, organizing the "working nation-states" as it were. In that model, OPEC organizing production in favor of a legitimate oil market is akin to unionists organizing production and eliminating the "company town". And, just as workers in a tight labor market can demand higher wages, oil-producers in a peak-oil environment can demand higher prices for their products. The great fear, I think, is having to go hat-in-hand to a certain brand of South-American Socialist, which I would think is akin to having to beg a gaggle of Wobblies to keep working for you :-).

Ultimately, I think everyone needs to acknowledge that the neocon plan makes a certain perverse logical sense from the owners' perspective: "Park the army on top of the oil before things get dicey. Don't put your faith in new technology (recall, 2000 was post-TechStockBubble.com), keep your faith in U.S. military supremacy." If that plan didn't make some form of sense, those who cast the long shadow called politics would never have let Bush take power in the first place, nor would they have let him stay for so long.

Of course, Bush and Cheney are both monumentally incompetant, so they couldn't pull it off. Bush's smirk when noting that "our country is addicted to oil" is essentially him trying to pull a fast one on his bosses---the boss should've known the whole direction is crazy (which is true), so that lets him off the hook, somehow.

Shamefully, none of the above addresses your concerns of institutional memory and the trench mentality. Oh well, it's fun to nitpick and/or provide the Class War cover of "What's Wrong With The World."

Michael, the trouble with sustaining empire is that it is a fertile ground for the harvest of paranoia. the national greatness is eventually conflated with the national existence and no stain on the national greatness can be tolerated because it is a reflection of the weakness of national existence.

Anyway, none of that happens as severely now, because Iran's oil bourse is on indefinite hold and nobody's gonna mess with the Petrodollar while the U.S. has a quarter-million troops in striking distance of any country in the Middle East.

Ahmedinejad announced while in Azerbaijan at the regional economic conference earlier this month that the bourse would start up in July. Maybe that start-up will always recede a few months into the future, the functional equivalent of being on indefinite hold. We'll see.

"Maybe that start-up will always recede a few months into the future, the functional equivalent of being on indefinite hold. We'll see."

That reminds me of the United States government debt limit, ha ha.

Until alternative energy can create strong competition for the markets, we wil ALWAYS be under these peoples' thumb.

Hey, in this context can someone please explain a throwaway Weisberg snarkline for me?

(So, why did the oil companies oppose the Iraq war?)

in his amazingly vitriolic denunciation of Kevin Phillips.

http://www.slate.com/id/2138947/

I was like, huh? I missed that somehow. . .what the hell is he talking about?

@Saheli: Maybe Weisberg's referring to Brent Scowcroft's prewar opposition (on the theory that Baker and Scowcroft are speaking always and entirely on behalf of the oil co's)?