HomeFeaturesDailyBriefingsRapidReconSpecial ReportsAbout Us

« March 2008 | Return to Commentary | June 2008 »

May 19, 2008

United States of America

Crude Hypochondria

Oil Hysteria Driving Price More Than OPEC Supply, Global Demand

By Steve Schippert | May 19, 2008

America's greatest strength in wartime has long been its economic and industrial might. Record oil prices are damaging this capacity. Yet the cause for the sustained spike in oil prices has less to do with increased global demand or fluctuations in supply than most acknowledge. Rather, an irrational market panic is by far the greatest variable in the economic equation. Nevertheless, we continue to look to address the problem by cajoling or even intimidating the suppliers. Regardless of what one thinks of OPEC states, their supply is neither the primary cause nor the principal cure to what ails us.

The UK's Telegraph reports on the latest regarding OPEC's refusal to increase crude production. With President Bush's visit to Saudi Arabia sparking the news cycle, this is last week's news. But within this article - surely the thousandth on the subject with similar content - is an economic gold nugget from an unlikely source: OPEC.

Opec members blame market speculators and geo-political factors for pushing up the oil price, not a shortage of supply.

And that is absolutely 100% truth. Supply and demand are the fundamental arbiters of the price of goods. But the human elements of irrationality and panic set the equation askew. We would do well to recognize and acknowledge this cog in the system.

Have a look at this chart from WTRG.com which plots crude oil prices since 1970. It shows a stable price for nearly two years after the 9/11 attacks around $25 per barrel. The chart ends with January 2007 prices below $60 per barrel. Today's record price is over $130 per barrel.

Has Asian growth accounted for a 500% increase in demand? Hardly. Has the supply dropped by 500%? No. Have both factors combined for a 500% increase metric? Not even close.

What gives? The answer is precisely what OPEC says: Frantic speculation on tomorrow's supply, compounded daily, and geo-political events that have driven this hysterical perception.

So convinced are our markets today that tomorrow's supply is going to evaporate, we place a crisis value on today's barrel. Tomorrow, we are surely even closer to fossil fuel doom and thus that day's barrel will be even more critical than the day before. Lather, rinse, repeat. $132 per barrel crude prices are returned from the calculus. Yet, it's basic math dictated less by true supply and demand and much more on the hysterical perceptions of the same.

We have become oil hypochondriacs. We are so convinced that we have cancer, it has inevitably appeared on our psychosomatic charts. So assured are we that doom awaits in perpetuity that we drive our own listing ship fearing that it will list port side any moment now.

It's an amazing phenomenon to behold. OPEC members adore the windfall breezes. Our enemies - chiefly Iran - are at times kept economically afloat by little else domestically. Others, such as presumed ally Saudi Arabia, are simply enriched at a breathtaking clip.

With Saudi Arabia's raw, unrefined product being sold at 5 times its going rate of just a few short years ago, our influence with them is reduced reciprocally. When President Bush visited the Kingdom of Saudi Arabia last week, is there anyone who truly envisioned anything but a resounding 'no' from them when asked to please increase output? What do we have that is as valuable in trade as our own windfall hysteria?

We still don't seem to recognize our own perceptions as part of the diagnosis. While President Bush chose the once-proven method of courting the Saudis, presidential hopeful Hillary Clinton chose to threaten them and vowed to "go right at OPEC" if she is elected president. Clinton said of the OPEC influence on oil prices, "That’s not a market. That’s a monopoly." There's a fundamental flaw to this thinking; it's their oil, not the world's complete with common rights to access. More importantly, and even more fundamentally, she too misdiagnoses the nature of the problem, which is our own out of control perceptions and panicked speculation. Whether we court or threaten the world's top crude oil suppliers, this is not the medicine to treat the proper disease.

We lend far too much credence to the impact OPEC has on the amount of money we are apparently willing to pay for their resource. It is not as if supply and demand have fluctuated commensurate with a 500% increase in market prices.

But if our hypochondriac diagnosis is cancer, the cure seems to have been determined to be taking up smoking. The ailment is here, not there. If the fear is the crippling effect of oil prices on our economy, and our chosen redress is to increase supply, why do we trek across the globe for relief shipments rather than tap into our own resources here at home? Why do we seek to control or influence others and increase our access to what is theirs without any effort whatsoever to further harvest what is ours, be it in Alaska or off our coastal shores?

Russia is staking underwater claims in the Arctic around the North Pole. China is drilling just off the Florida Keys. The prospect of Chinese slant drilling at the edge of our maritime territory is both bold on their part and embarrassing on ours. With Chinese rigs potentially at the edge of international waters drilling down at an angle to extract from beneath our territorial waters what we refuse to harvest, we may well have settled on smoking to cure our cancer, but just what it is that we are smoking is far from clear.

At any rate, even forgoing OPEC courtship or OPEC threats, accessing our own reserves at home merely addresses supply. And it should be clear that supply is not the cause for the unprecedented - and likely enduring - spike in crude oil prices. Nor is demand. Whether Alaskan oil or Arabian oil, most of the going rate for either remains largely driven by our own market hysteria. Until we can recognize and address that, we will remain in this aspect our own worst enemy, eroding unnecessarily our greatest wartime asset going back through World War II - an unrivaled economic and industrial powerhouse capacity.

There are very valid concerns about future supply, just as there are very valid concerns about increasing global demand. And we can and should address our own accessible supplies as well as usage conservation and alternative energy development. Yet none of these are short-term endeavors nor does any one of them address the causation most responsible for the spike in market oil prices: 'Crude' hypochondria.

May 1, 2008


Iraq: The New Vietnam

But Not In The Ways Popularly Proclaimed

By Warren Wilkins | May 1, 2008

From the initial political debate to the advent of the Iraqi insurgency, certain pundits have lamented the disastrous parallels between the current conflict in Iraq and America’s intervention in Vietnam. At first, the blithely opined comparisons seemed largely superficial, and many remain so despite the passage of time and continued conflict in Iraq. Yet now, with the benefit of added perspective, the oft repeated canard that Iraq is like another “Vietnam” may indeed have merit. Just not in the way a segment of our punditry has previously suggested.

In Iraq, much like in Vietnam four decades ago, there exists a certain reticence on the matter of destabilizing foreign/external influences in the principle theater of American military operations (Iraq now, South Vietnam then). Iraq’s Sunni 'insurgent' groups, presumably including al-Qaeda in Iraq, are uniformly domestic outgrowths of the war - they are financed, staffed, and led by Iraqis outraged at the US “occupation.” Similarly, we are instructed that Iraq’s Shi'a militias (the Mahdi Army principle among them), while admittedly hostile to US forces, espouse a sectarian-nationalist ethos and operate independently of outside actors.

Neither template, however, succeeds in accurately reflecting the complete spectrum of realities on the ground in Iraq. Consider the preeminent Sunni insurgent group in Iraq for a moment, al-Qaeda in Iraq (AQI), and the capture of its then senior most Iraqi member, Khaled al-Mashhadani, last summer. According to news report published at the time of al-Mashadani’s apprehension, US Brigadier General Kevin Bergner said al-Mashhadani informed interrogators that al-Qaeda in Iraq is run by a foreign group under Abu Ayub al-Masri’s leadership.1 The Egyptian born al-Masri, for those understandably unfamiliar with the litany of shadowy terrorist operatives, is identified by the United States as the head of al-Qaeda in Iraq.

Khaled al-Mashhadani’s disclosures not only betrayed the apparent depth of foreign hierarchal influence, but also the extent to which he and al-Masri endeavored to conceal the appearance of foreign involvement. VOA News subsequently reported:

He said that in order to mask the foreign influence, al-Mashhadani and al-Masri created a fictitious entity known as the Islamic State of Iraq. The made-up leader of the insurgent organization, a man called Omar al-Baghdadi, was played by an actor for propaganda recordings.2

ThreatsWatch provided an in-depth look at the fiction of Abu Omar al-Baghdadi in December 2007.

Elsewhere, Brigadier General Bergner would add: “What we’ve learned not just from the capture of al-Mashhadani but from other al-Qaeda operatives is that there is a flow of strategic directions of prioritization, of messaging, and other guidance that comes from al-Qaeda senior leadership to the al-Qaeda in Iraq leadership.”3

And now, on the heels of the recent fighting between Iraqi security forces and anti-American Shiite cleric Muqtada al-Sadr’s Mahdi Army and Iranian backed “Special Groups,” we learn of the Iranian role in deliberations that ultimately informed Sadr’s decision to issue a stand down edict to his followers.

From McClatchy:

The backdrop to Sadr's dramatic statement was a secret trip Friday by Iraqi lawmakers to Qom, Iran's holy city and headquarters for the Iranian clergy who run the country.

There the Iraqi lawmakers held talks with Brig. Gen. Qassem Suleimani, commander of the Qods (Jerusalem) brigades of Iran's Revolutionary Guard Corps and signed an agreement with Sadr, which formed the basis of his statement Sunday, members of parliament said.

Ali al Adeeb, a member of Prime Minister Nouri al Maliki's Dawa party, and Hadi al Ameri, the head of the Badr Organization, the military wing of the Islamic Supreme Council of Iraq, had two aims, lawmakers said: to ask Sadr to stand down his militia and to ask Iranian officials to stop supplying weapons to Shiite militants in Iraq.

Note the cited aims of Ali Adeeb and Hadi al Ameri. Are we to conclude that when two Iraqi lawmakers beseech an Iranian Quds Force general to forswear supplying weapons to Shi'a militants, they are nothing more than unwitting dupes to the perforce neo-con agenda of ginning up a pretext for war against Iran? Moreover, why convene with the commander of the Iranian equivalent of the US Special Forces if the latter (and his nation) exercised no palpable influence over Sadr or the transit of weapons to his and other Shi'a militia factions?

Such inconvenient truths notwithstanding, talk of foreign/external influence on the armed factions opposing US and Iraqi governmental forces elicits scant media attention at best, and searing recrimination at worst. Charges of American “war mongering,” for example, can accompany any open discussion of Iran’s trafficking in weapons to Shi'a militia groups, the presence of training facilities in Iran for said groups, or the deployment of Iranian Quds Force operatives in Iraq. Likewise, any depiction of AQI other than that of an autonomous and entirely Iraqi institution trading on the al-Qaeda brand name will surely receive short shrift.

Sadly, this situation is not without precedent. Indeed, eerie parallels to the Vietnam conflict exist. For instance, the National Liberation Front (NLF) in Vietnam masqueraded for years as a wholly indigenous, sovereign South Vietnamese political organization opposing South Vietnam’s president, Ngo Dinh Diem, to the astonishingly incredulous approval of many a Western pundit.

Allegations of North Vietnamese influence over the NLF were routinely marginalized. Some even carried the NLF’s rhetorical mantle, promulgating a belief in its independence from all foreign or external influences. Of course, like the Islamic State of Iraq (according to al-Mashhadani), the NLF was created as a front organization to cloak foreign/external involvement—that of North Vietnam - in the insurgency. “The Central Committee,” a Communist defector once stated of the prevailing Communist political body in North Vietnam, “could hardly permit the International Control Commission to say that there was an invasion from the North, so it was necessary to have some name………to clothe these forces with some political organization.”4

Revered Vietnam scholar Guenter Lewy offered an equally succinct explanation of the role of the NLF. “The NLF, the evidence clearly shows, was formed at the instigation of the party in Hanoi,” Lewy wrote in America in Vietnam. “It was established as a typical communist front organization to hide the direction of the insurgency by the Communists.”5

In January of 1960, General Giap pronounced, quite prophetically, that “the North has become a large rear echelon of our army. The North is the revolutionary base for the whole country.”6 Today, Iran provides a reasonable facsimile of a “revolutionary base” for Iraqi Shi'a militants who harbor ambitions that are inimical to those of the United States and the fledgling Iraqi government. Throughout the Vietnam War, many remained steadfastly wedded to the farcical notion that the Viet Cong prosecuted their insurgency with WWII era weapons pilfered from the French during the Viet Minh war against Colonial France; this despite the glut of highly effective small arms weaponry procured from the Soviet/Communist bloc (via North Vietnam). Nowadays, on the battlefields of Iraq, many cast suspicion on any report of Iranian material aid to Shi'a militias like the Mahdi Army.

Obviously, the situations in Iraq and Vietnam are not wholly analogous. Nor could the foreign influence on either AQI, Shiite militias, or the NLF/Viet Cong be characterized as absolute. Nevertheless, since the country has been inundated with Iraq-Vietnam comparisons for years, it seemed appropriate to furnish a useful example, namely the reluctance of some to acknowledge foreign influence - political, military, or both - on America’s adversaries within Iraq. Today, these often are the same reluctant cast which saw only defeat in Vietnam, and now knows no course for victory in Iraq.

So yes, Virginia, in that respect Iraq is indeed like Vietnam.

End Notes
1 VOANews.com, “US Military: Most Senior Iraqi al-Qaeda Member in Iraq captured”, July 18th, 2007, p. 1
2 VOANews.com, “US Military: Most Senior Iraqi al-Qaeda Member in Iraq captured”, July 18th, 2007, p. 1
3 Robert H. Reid, “US says arrested al-Qaeda leader has bin Laden ties”, Boston Globe, July 19, 2007 p. A 5
4 Guenter Lewy, America in Vietnam (New York: Oxford University Press, 1978) p. 16
5 Guenter Lewy, America in Vietnam (New York: Oxford University Press, 1978) p. 16
6 Guenter Lewy, America in Vietnam (New York: Oxford University Press, 1978) p. 17

  • AudioFebruary 2, 2010
    [Listen Here]
    What on Earth can Usama bin Laden, the mystical calculus of climate change and US Homeland Security have in common? Does bin Laden really agree with the President of the United States on matters weather? How is it that the...

Special Reports

Recent Features