Apr 12, 2012

U.S.-Israel Middle East Foreign Policy Behind High Oil and Gas Prices


If you listen to talk radio, whether national or local, you will probably only hear about supply and demand influencing oil and ultimately our gas prices.  The purpose of this article is to provide summary proof that our high oil and gas prices over the last decade are not only, or even primarily, linked to supply and demand (as Economics 101 teaches us), nor solely to Big Oil (as others claim, albeit they play a role), but by other factors considered by market investors, which some call "speculators", on Wall Street who ultimately set the price of oil through market trading.  They of course take into account supply and demand, output in millions of barrels produced, imports and exports, etc.  But a large part of speculation is entirely driven by what they forecast for the oil business climate particularly in the Middle East too. The headline states the conclusion up front, but let us walk through the analysis to demonstrate how we got there.

First, let's look at the clear and non-partisan history of gas and oil prices.  (Click on any chart for a clear and enlarged view).


During the Bush administration they were as high as 4.19 per gallon nationally.  We are close to 4.00 per gallon under Obama, projected to pass over that threshold in May of this year.

High gas prices during both administrations; sharp drop during Nov. 2008 elections

So the highest and lowest marks have been shared by both administrations, respectively.  But Americans have grown way too complacent about and used to this.  Note that during the elections of 2008 we were only paying about $1.79 per gallon!  Yet that was still high compared to about $1.29 per gallon when Bush took office in 2001 (not shown in these graphs). 

So what changed gas prices so dramatically?  The "elephant in the room" that no one talks about, as each party tries to portray their own talking points, is foreign policy and middle east wars.  The history of oil and gas prices shows that it was after 9/11 in 2001, and primarily when President Bush, influenced by the Israeli-neoconservative propaganda and persons within his administration (Cheney, Wolfowitz, Rumsfeld, and the rest of the PNAC group), moved America into a decade long war with Iraq under the false pretense of WMD and mythical images of "mushroom clouds".   That had a direct and immediate impact upon oil and gas prices as the following charts will show.

POINT 2:  WARS AND 'FEAR PREMIUM' TRUMPS SUPPLY & DEMAND--Middle East Activity, U.S. Foreign Policy and Wars, Drive Up Oil Prices 

Look over this graph very closely (click to enlarge) and try to refute or disbelieve that that wars and Middle East tensions are the most significant factor behind high oil prices.  Look and see what the norm of oil prices was prior to the invasion of Afghanistan and Iraq after 9/11:

High crude oil prices began during Bush administration, invasion of Afghanistan/Iraq.
Now notice on this graph the volatility of price compared to growing, steady supply.

Supply has been steadily increasing yet oil prices fluctuate dramatically.
First note after Bush was in office, and even after 9/11, oil was still trading well under $30 per barrel.

Second, that oil prices only rarely crossed $40 per barrel before 2002 (i.e. note too the CIA fomented the Iranian Revolution, which led to the Iran/Iraq War on chart), when the war on Afghanistan began and the war on Iraq became inevitable to the investors/speculators, and oil prices have never recovered since war in the Middle East has continued to this day.  It is NOW THE NORM for oil prices to be over $80 to $100 per barrel through the decade long wars for "regime change" in Iraq and Afghanistan, which are still to be completely ended.  And now Iran is in the cross hairs.  Thus the Bush administration's unnecessary war on Iraq has "reset" oil prices, with over a decade of Middle East wars now, including Israel's attacks on Lebanon and Syria during the Bush administration, per the market prices on oil.  Would not ramping down Middle East wars and tensions reverse oil prices?  Yes, just ask the traders who trade in oil.

POINT 3:  Growing Global Demand Does Not Account for the New Level of High Oil Prices

This article (with graph) shows that global demand (consumption) has indeed been increasing steadily and lately somewhat greater than supply, which does account for some upward pressure on oil prices.  But that does not explain the oil prices' dramatic fluctuations and much higher averages and spikes that this demand could account for.  In fact, recently the Saudis (who know quite a bit about oil supply and demand) called the present high oil pricing "irrational".  They mean that there is no limit of supply vs. demand that justifies the current market price of crude oil.   Note too that the Saudi oil minister spoke of "irrational fear" of shortage of supply versus that demand, affecting the spot price set in the market by investors and "speculators", which is a direct reference to the "fear premium" we have alluded to before, including regarding fears due to wars in the Middle East, past and present (Iraq, Iran, Syria, et al).  Already oil experts say that this year supply is catching up with demand while there is a price elasticity in gas prices--i.e. U.S. demand (consumption) has dropped during higher pricing.

POINT 4:  U.S. Oil Companies Are Not Helping with Supply--Cutting Refining, Increasing Exports

First, while just complaining about government hindrance of drilling refinery capacity has deliberately been reduced--to increase profits through efficiency, which puts a bottle-neck on supply!  I bet you have never seen this graph about their inventories as demand has increased.

 Second, though the U.S. is a leading oil producer (i.e. refining crude into petroleum products), it has recently become a greater exporter than importer!  Why?  Hoppy Kercheval should have asked this with the oil exec recently on Talkline.  Yes, more drilling is needed, which the current administration is hindering.  However, U.S. oil companies are not helping us either where they are able. 

U.S. Produces More Oil Than Iran

U.S. Companies Now Export More Oil Products Abroad
POINT 5:   Value of Dollar and Inflation Do Not Account for High Oil and Gas Prices

Look and compare this inflation adjusted chart to the ones above (noting differing date range).

Note again the same pattern, while considering these significant dates about foreign policy and regional tensions in the Middle East:

1.  The only prior high peak was during the 1979-80 Iran/Iraq War, which was in part sparked by the CIA's prior covert ops sparking the Iranian Revolution, which ran up prices immediately.  This is when Rumsfeld was shaking hands with Saddam Hussein and the U.S. was supplying WMD to Iraq and Saddam Hussein (ironically).

2.  Oil prices hit $60 per barrel during U.S. military ops against Iraq in Kuwait in 1991 under Bush I.

3.  Late in 2001 after 9/11 was a price spike as talk of war and invasion of Afghanistan began.

4.  Late 2002 was war-mongering moves by the U.S. and the invasion of Iraq in March 2003.  The steep climb in prices began.  The war on Iraq continued officially for over a decade until 2011.

5.  Prices consistently escalated as the U.S. and Israel expanded the "war on terrorism" and violence in Iraq, along with a "surge" of more troops.  Note oil prices continually increase in the trading markets (while supply continues its normal growth, per previous graphs).  Israel bombs Lebanon in 2006 and bombs a site in Syria and also bombs Gaza against Hezbollah.
    Prices also rose after Hurricane Katrina which pinched some U.S. refining capacity for a time.

6.  As the U.S. and Israel increased war talk about Iran as a "threat to Israel" toward the end of Bush's 2nd term oil prices spiked dramatically into 2008.

7.  Elections Nov. 2008 showed a sharp drop in oil prices as talk of ending the Iraq War was entertained and a softer Middle East policy was hinted at by candidate Obama.

8.  Oil prices began to rise quickly in 2009 as Obama talked about a "surge" of his own, appointed the same Bush-generals in war operations and violence surged up into 2010.  (See, no matter the administration; "it's the war policy, stupid").  Granted, this is also when the Gulf Spill changed Obama administration's policy on off-shore drilling, but with no immediate effect upon supply.

POINT 5:  It is Economic Suicide for the U.S. to Increase Conflict with Iran

Do you think this chart shows the potential for such a conflict to inflate oil prices from a "fear premium" on Supply?  Experts think so: See here in regard to Economic Sanctions already begun (though propaganda Op-eds from pro-Israel groups are now attempting to downplay this, to protect their policy on Iran).

Does anyone want a repeated spike of oil prices like during the Iraq-Iran War (see graphs previous)?  Prices of over $200 per barrel have been mentioned if there was an Israeli strike on Iran's nuclear facilities, because of certain retaliation by Iran, and immediate inflammation of war in the Middle East.   TELL CONGRESS TO BACK OFF THE WAR-MONGERING AND SANCTIONS AGAINST IRAN UNLESS YOU WANT TO PAY FOR IT, LITERALLY, IN YOUR GAS AND CONSUMER PRICES.  (It is irrational to believe Iran would attack Israel without provocation).

POINT 6:  Oil Prices Influence All Consumer Prices, The Whole American Economy


If foreign policy affects oil and gas prices, then foreign policy affects the entire U.S. economy, of which oil and gas prices is a key factor.  Isn't that what we have seen since the invasion of Iraq?  The price of all consumer goods has gone up, and stayed up, along with oil prices.  This pattern is undeniable and will continue.


Why does neither party bring the "war premium" or "fear premium" or "foreign policy" about oil prices?    Because they don't want to offend the powerful Israeli Lobby, AIPAC, which holds a hammer over every member of Congress and causes presidents to tremble.  It's all about wars for Israel and/or "democracy" in the Middle East; regime change by force.  But President Obama, being provoked, finally let the truth slip out, for which he was quickly hit with broadsides from all propaganda cannons for.  But he was partially right.  See the article:  Obama Administration blames Israel for high oil prices.  That was frankly a breath of fresh air to even read the headline (even though we are against his entire philosophy and most of his policies).  

The truth is often not politically-correct and particular interests groups are always pressuring others to prevent free public debate.  But it is blind beyond belief not to talk about Middle East and Iran foreign policy when discussing oil and gas prices and the U.S. economy.  It needs to be brought into the discussion immediately as even the graphs show that oil prices began their increase immediately as sanctions on Iran and war-mongering by Israel and the U.S. surged last year.  Market investors in oil, who indirectly set our gas prices by consequence, pay attention to all of that.  So why shouldn't we in the social and political arena?  It is stupid to ignore it.

This also demonstrates that unjust wars (e.g. Iraq, potentially Iran) have "blow-back" effects on the U.S. domestic economy.  It is a Biblical axiom that "you reap what you sow".  There is a Law of Consequences.  "What goes around" has effects that "come around".  It's time to pay attention to this, and talk openly about it, including in Congress and on talk radio.  If you think this argument has merits, then by all means pass it on for the benefit of all Americans, irregardless of party.