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Portrait of an Oil-Addicted Former Superpower: Rising Oil Prices & America's Status

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  • Portrait of an Oil-Addicted Former Superpower: Rising Oil Prices & America's Status

    1 of 2

    ALARAB ONLINE

    Portrait of an Oil-Addicted Former Superpower
    How Rising Oil Prices Are Obliterating America's Superpower Status


    By Michael T. Klare*


    Nineteen years ago, the fall of the Berlin Wall effectively eliminated
    the Soviet Union as the world's other superpower. Yes, the USSR as a
    political entity stumbled on for another two years, but it was clearly
    an ex-superpower from the moment it lost control over its satellites
    in Eastern Europe.

    Less than a month ago, the United States similarly lost its claim to
    superpower status when a barrel crude oil roared past $110 on the
    international market, gasoline prices crossed the $3.50 threshold at
    American pumps, anddiesel fuel topped $4.00. As was true of the USSR
    following the dismantling of the Berlin Wall, the USA will no doubt
    continue to stumble on like the superpower it once was; but as the
    nation's economy continues to be eviscerated to pay for its daily oil
    fix, it, too, will be seen by increasing numbers of savvy observers as
    an ex-superpower-in-the-making.

    That the fall of the Berlin Wall spelled the erasure of the Soviet
    Union's superpower status was obvious to international observers at
    the time. After all, the USSR visibly ceased to exercise dominion over
    an empire (and an associated military-industrial complex) encompassing
    nearly half of Europeand much of Central Asia. The relationship
    between rising oil prices and the obliteration of America's superpower
    status is, however, hardly as self-evident. So let's consider the
    connection.



    Dry Hole Superpower

    The fact is, America's wealth and power has long rested on the
    abundance of cheap petroleum. The United States was, for a long time,
    the world's leading producer of oil, supplying its own needs while
    generating a healthy surplus for export.

    Oil was the basis for the rise of the first giant multinational
    corporations in the U.S., notably John D. Rockefeller's Standard Oil
    Company (now reconstituted as Exxon Mobil, the world's wealthiest
    publicly-traded corporation). Abundant, exceedingly affordable
    petroleum was also responsible for the emergence of the American
    automotive and trucking industries, the flourishing of the domestic
    airline industry, the development of the petrochemical and plastics
    industries, the suburbanization of America, and the mechanizationof
    its agriculture. Without cheap and abundant oil, the United States
    would neverhave experienced the historic economic expansion of the
    post-World War II era.

    No less important was the role of abundant petroleum in fueling the
    global reach of U.S. military power. For all the talk of America's
    growing reliance on computers, advanced sensors, and stealth
    technology to prevail in warfare, it has been oil above all that gave
    the U.S. military its capacity to "project power" onto distant
    battlefields like Iraq and Afghanistan. EveryHumvee, tank, helicopter,
    and jet fighter requires its daily ration of petroleum, without which
    America's technology-driven military would be forced to abandon the
    battlefield. No surprise, then, that the U.S. Department of Defense is
    the world's single biggest consumer of petroleum, using more of it
    every day than the entire nation of Sweden.

    From the end of World War II through the height of the Cold War, the
    U.S. claim to superpower status rested on a vast sea of oil. As long
    as most ofour oil came from domestic sources and the price remained
    reasonably low, the American economy thrived and the annual cost of
    deploying vast armies abroad was relatively manageable. But that sea
    has been shrinking since the 1950s. Domestic oil production reached a
    peak in 1970 and has been in decline ever since -- with a growing
    dependency on imported oil as the result. When it came to reliance on
    imports, the United States crossed the 50% threshold in 1998 and now
    has passed 65%.

    Though few fully realized it, this represented a significant erosion
    of sovereign independence even before the price of a barrel of crude
    soared above $110. By now, we are transferring such staggering sums
    yearly to foreign oil producers, who are using it to gobble up
    valuable American assets, that, whether we know it or not, we have
    essentially abandoned our claim to superpowerdom.

    According to the latest data from the U.S. Department of Energy, the
    United States is importing 12-14 million barrels of oil per day. At a
    current price of about $115 per barrel, that's $1.5 billion per day,
    or $548 billion per year. This represents the single largest
    contribution to America's balance-of-payments deficit, and is a
    leading cause for the dollar's ongoing drop in value. If oil prices
    rise any higher -- in response, perhaps, to a new crisis in the Middle
    East (as might be occasioned by U.S. air strikes on Iran) -- our
    annual import bill could quickly approach three-quarters of a trillion
    dollars or more per year.

    While our economy is being depleted of these funds, at a moment when
    credit is scarce and economic growth has screeched to a halt, the oil
    regimes on which we depend for our daily fix are depositing their
    mountains of accumulating petrodollars in "sovereign wealth funds"
    (SWFs) -- state-controlled investment accounts that buy up prized
    foreign assets in order to secure non-oil-dependent sources of wealth.
    At present, these funds are already believed to hold in excess of
    several trillion dollars; the richest, the Abu Dhabi Investment
    Authority (ADIA), alone holds $875 billion.

    The ADIA first made headlines in November 2007 when it acquired a $7.5
    billion stake in Citigroup, America's largest bank holding
    company. The fund has also made substantial investments in Advanced
    Micro Systems, a major chip maker, and the Carlyle Group, the private
    equity giant. Another big SWF, the Kuwait Investment Authority, also
    acquired a multibillion-dollar stake in Citigroup, along with a $6.6
    billion chunk of Merrill Lynch. And these arebut the first of a series
    of major SWF moves that will be aimed at acquiring stakes in top
    American banks and corporations.

    The managers of these funds naturally insist that they have no
    intention of using their ownership of prime American properties to
    influence U.S. policy. In time, however, a transfer of economic power
    of this magnitude cannot help but translate into a transfer of
    political power as well. Indeed, this prospect has already stirred
    deep misgivings in Congress. "In the short run, that they [the Middle
    Eastern SWFs] are investing here is good," Senator Evan Bayh
    (D-Indiana) recently observed. "But in the long run it is
    unsustainable. Our power and authority is eroding because of the
    amounts we are sending abroad for energy=80¦."



    No Summer Tax Holiday for the Pentagon

    Foreign ownership of key nodes of our economy is only one sign of
    fading American superpower status. Oil's impact on the military is
    another.

    Every day, the average G.I. in Iraq uses approximately 27 gallons of
    petroleum-based fuels. With some 160,000 American troops in Iraq, that
    amounts to 4.37 million gallons in daily oil usage, including gasoline
    for vans and light vehicles, diesel for trucks and armored vehicles,
    and aviation fuel for helicopters, drones, and fixed-wing
    aircraft. With U.S. forces paying, as of late April, an average of
    $3.23 per gallon for these fuels, the Pentagon is already spending
    approximately $14 million per day on oil ($98 million perweek, $5.1
    billion per year) to stay in Iraq. Meanwhile, our Iraqi allies, who
    are expected to receive a windfall of $70 billion this year from the
    rising price of their oil exports, charge their citizens $1.36 per
    gallon for gasoline.

    When questioned about why Iraqis are paying almost a third less for
    oil than American forces in their country, senior Iraqi government
    officials scoff at any suggestion of impropriety. "America has hardly
    even begun to repay its debt to Iraq," said Abdul Basit, the head of
    Iraq's Supreme Board of Audit, an independent body that oversees Iraqi
    governmental expenditures. "This is an immoral request because we
    didn't ask them to come to Iraq, and before they came in 2003 we
    didn't have all these needs."

    Needless to say, this is not exactly the way grateful clients are
    supposed to address superpower patrons. "It's totally unacceptable to
    me that we are spending tens of billions of dollars on rebuilding Iraq
    while they are putting tens of billions of dollars in banks around the
    world from oil revenues," said Senator Carl Levin (D-Michigan),
    chairman of the Armed Services Committee. "It doesn't compute as far
    as I'm concerned."

    Certainly, however, our allies in the region, especially the Sunni
    kingdoms of Kuwait, Saudi Arabia, and the United Arab Emirates (UAE)
    that presumably look to Washington to stabilize Iraq and curb the
    growing power of Shiite Iran, are willing to help the Pentagon out by
    supplying U.S. troops with free or deeply-discounted petroleum. No
    such luck. Except for some partially subsidized oil supplied by
    Kuwait, all oil-producing U.S. allies in the region charge us the
    market rate for petroleum. Take that as a striking reflection of how
    little credence even countries whose ruling elites have traditionally
    looked to the U.S. for protection now attach to our supposed
    superpower status.

    Think of this as a strikingly clear-eyed assessment of American
    power. As far as they're concerned, we're now just another of those
    hopeless oil addicts driving a monster gas-guzzler up to the pump --
    and they're perfectly happy to collect our cash which they can then
    use to cherry-pick our prime assets. So expect no summer tax holidays
    for the Pentagon, not in the Middle East, anyway.

    Worse yet, the U.S. military will need even more oil for the future
    wars on which the Pentagon is now doing the planning. In this way, the
    U.S. experience in Iraq has especially worrisome implications. Under
    the military "transformation" initiated by Secretary of Defense Donald
    Rumsfeld in 2001,the future U.S. war machine will rely less on "boots
    on the ground" and ever more on technology. But technology entails an
    ever-greater requirement for oil, as the newer weapons sought by
    Rumsfeld (and now Secretary of Defense Robert Gates) all consume many
    times more fuel than those they will replace. To put thisin
    perspective: The average G.I in Iraq now uses about seven times as
    much oil per day as G.I.s did in the first Gulf War less than two
    decades ago. And every sign indicates that the same ratio of increase
    will apply to coming conflicts; that the daily cost of fighting will
    skyrocket; and that the Pentagon's capacity to shoulder multiple
    foreign military burdens will unravel. Thus are superpowers undone.

    ...................

    * Michael Klare is a professor of peace and world security studies at
    Hampshire College and author of the just-released Rising Powers,
    ShrinkingPlanet: The New Geopolitics of Energy (Metropolitan Books). A
    documentary film based on his previous book, Blood and Oil, is
    available from the Media Education Foundation and can be ordered at
    bloodandoilmovie.com. A brief video of Klare discussing key subjects
    in his new book can be viewed by clicking here.

    © Copyright 2008 Michael T. Klare

    These days, the price of oil seems ever on the rise. A barrel of crude broke another barrier Wednesday -- $123 -- on international markets, and the talk is now of the sort of "superspike"
    What if I find someone else when looking for you? My soul shivers as the idea invades my mind.

  • #2
    Re: Portrait of an Oil-Addicted Former Superpower: Rising Oil Prices & America's Stat

    2 of 2

    ALARAB ONLINE

    Portrait of an Oil-Addicted Former Superpower
    How Rising Oil Prices Are Obliterating America's Superpower Status


    By Michael T. Klare*
    .................
    Russia's Gusher

    If anything demonstrates the critical role of oil in determining the
    fate of superpowers in the current milieu, it is the spectacular
    reemergence of Russia as a Great Power on the basis of its superior
    energy balance. Once derided as the humiliated, enfeebled loser in the
    U.S.-Soviet rivalry, Russia is again a force to be reckoned with in
    world affairs. It possesses the fastest-growing economy among the G-8
    group of major industrial powers, isthe world's second leading
    producer of oil (after Saudi Arabia), and is its top producer of
    natural gas. Because it produces far more energy than it consumes,
    Russia exports a substantial portion of its oil and gas to neighboring
    countries, making it the only Great Power not dependent on other
    states for its energy needs.

    As Russia has become an energy-exporting state, it has moved from the
    list of has-beens to the front rank of major players. When President
    Bush first occupied the White House, in February 2001, one of his
    highest priorities was to downgrade U.S. ties with Russia and annul
    the various arms-control agreements that had been forged between the
    two countries by his predecessors, agreements that explicitly
    conferred equal status on the USA and the USSR.

    As an indication of how contemptuously the Bush team viewed Russia at
    that time, Condoleezza Rice, while still an adviser to the Bush
    presidential campaign, wrote, in the January/February 2000 issue of
    the influential Foreign Affairs, "U.S. policy=80¦ must recognize that
    American security is threatened less by Russia's strength than by its
    weakness and incoherence." Under such circumstances, she continued,
    there was no need to preserve obsolete relics of the dual superpower
    past like the Anti-Ballistic Missile (ABM) Treaty; rather,the focus of
    U.S. efforts should be on preventing the further erosion of Russian
    nuclear safeguards and the potential escape of nuclear materials.

    In line with this outlook, President Bush believed that he could
    convert an impoverished and compliant Russia into a major source of
    oil and natural gas for the United States -- with American energy
    companies running the show. This was the evident aim of the
    U.S.-Russian "energy dialogue" announced by Bush and Russian President
    Vladimir Putin in May 2002. But if Bush thought Russia was prepared to
    turn into a northern version of Kuwait, Saudi Arabia, or Venezuela
    prior to the arrival of Hugo Chávez, he was to be sorely
    disappointed. Putin never permitted American firms to acquire
    substantial energy assets in Russia. Instead, he presided over a
    major recentralization of state control when it came to the country's
    most valuable oil and gas reserves, putting most of them in the hands
    of Gazprom, the state-controlled natural gas behemoth.

    Once in control of these assets, moreover, Putin has used his
    renascent energy power to exert influence over states that were once
    part of the former Soviet Union, as well as those in Western Europe
    that rely on Russian oil and gas for a substantial share of their
    energy needs. In the most extreme case, Moscow turned off the flow of
    natural gas to Ukraine on January 1, 2006, in the midst of an
    especially cold winter, in what was said to be a dispute over pricing
    but was widely viewed as punishment for Ukraine's political drift
    westwards. (The gas was turned back on four days later when Ukraine
    agreedto pay a higher price and offered other concessions.) Gazprom
    has threatened similar action in disputes with Armenia, Belarus, and
    Georgia -- in each case forcing those former Soviet SSRs to back down.

    When it comes to the U.S.-Russian relationship, just how much the
    balance of power has shifted was evident at the NATO summit at
    Bucharest in early April. There, President Bush asked that Georgia and
    Ukraine both be approved for eventual membership in the alliance, only
    to find top U.S. allies (and Russian energy users) France and Germany
    blocking the measure out of concern for straining ties with
    Russia. "It was a remarkable rejection of American policy in an
    alliance normally dominated by Washington," Steven Erlanger and Steven
    Lee Myers of the New York Times reported, "and it sent a confusing
    signal to Russia, one that some countries considered close to
    appeasement of Moscow."

    For Russian officials, however, the restoration of their country's
    great power status is not the product of deceit or bullying, but a
    natural consequence of being the world's leading energy provider. No
    one is more aware of this than Dmitri Medvedev, the former Chairman of
    Gazprom and new Russian president. "The attitude toward Russia in the
    world is different now," he declared on December 11, 2007. "We are not
    being lectured like schoolchildren; we are respected and we are
    deferred to. Russia has reclaimed its proper place inthe world
    community. Russia has become a different country, stronger and more
    prosperous."

    The same, of course, can be said about the United States -- in
    reverse. Asa result of our addiction to increasingly costly imported
    oil, we have become a different country, weaker and less
    prosperous. Whether we know it or not, the energy Berlin Wall has
    already fallen and the United States is an
    ex-superpower-in-the-making.

    * Michael Klare is a professor of peace and world security studies at
    Hampshire College and author of the just-released Rising Powers,
    ShrinkingPlanet: The New Geopolitics of Energy (Metropolitan Books). A
    documentary film based on his previous book, Blood and Oil, is
    available from the Media Education Foundation and can be ordered at
    bloodandoilmovie.com. A brief video of Klare discussing key subjects
    in his new book can be viewed by clicking here.

    © Copyright 2008 Michael T. Klare

    These days, the price of oil seems ever on the rise. A barrel of crude broke another barrier Wednesday -- $123 -- on international markets, and the talk is now of the sort of "superspike"
    What if I find someone else when looking for you? My soul shivers as the idea invades my mind.

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