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Introduction
There is a mystique surrounding oil. It is a deliberate one, trumped up to make everyone thankfully accept a manipulated market with hugely inflated prices. These market machinations rob the world’s consumers of literally hundreds of billions of dollars every year, both in higher energy prices and in artificially inflated costs for just about every other kind of good. Over the past three decades, according to one U.S. government estimate, the tab has totaled a staggering $7 trillion.
These costs land disproportionately on those least equipped to bear them, the people in the developing world. Already treading a precarious path of existence, Third World countries lack the money and technology to introduce energy-efficient techniques and processes, and typically have little or no access to energy sources that can be substituted for oil. With nothing to shield them from the full brunt of rising prices, the world’s poorest people are thus forced to spend more of their meager resources on food, fuel, and transport. The hole they are in just gets deeper.
For this thievery from all the world’s citizens, we can blame OPEC, the Organization of the Petroleum Exporting Countries. Though OPEC’s twelve member states (Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela) account for an estimated 40 percent of world oil production, their brazen market manipulations largely determine the price for all the rest.
Blame must also go to OPEC’s co-conspirators in what I call the oiligopoly—nonmember countries like Mexico and Russia; the Western oil companies and their minions who collude with the cartel; and Western governments (including, at key junctures, the United States) that actively support the conspiracy. And the guilt is shared by the media, with its willingness to swallow and regurgitate OPEC’s propaganda, and by all the rest of us who have stood by and passively watched this disaster unfold.
Don’t get me wrong. Yes, I think oil—and everything made from it—is too expensive, and I want to bring the price down. But this doesn’t mean I want to keep using oil to run the world until the world runs out of oil. I believe that global warming is a disaster and is mainly caused by burning fossil fuels; and I want us all to switch to alternative energy sources as fast as possible. But in reality, that transition will take at least a generation. While it’s going on, the less we spend on oil and oil products, the more we’ll have available for research and investment in renewable energy, fuel cells, nuclear power, hydrogen, and any other power we can find that won’t ruin the planet. Step one is to get the oiligopoly off the world’s back.
Astonishingly enough, President George W. Bush has admitted the U.S. government’s complicity in the conspiracy. Speaking of our dealings with Middle Eastern countries during a press conference in early 2005 at NATO headquarters in Brussels, the president said: “The policy in the past used to be, ‘Let’s just accept tyranny for the sake of “cheap” oil or whatever it might be,’ and just hope everything would be okay.” He added that the events of September 11, 2001, changed all that when pent-up Arab hatred exploded on U.S. shores. But where the president went wrong in his Brussels remarks was that OPEC oil has not been “cheap” for quite some time, at least not in the way free-market advocates understand that term.
OPEC is a cartel of suppliers, and all cartels are inherently suspect. They earn that suspicion by joining in schemes to control production, allocate markets, and fix prices to balloon their profits. Price fixing is illegal in this country, and the Justice Department has prosecuted any number of antitrust cases over the years (most notably, perhaps, John D. Rockefeller and Standard Oil). But U.S. courts have decided that the “foreign sovereign immunity doctrine” precludes the Justice Department from suing OPEC. Various senators have sought to override the doctrine with legislation that would subject government-owned commercial ventures, such as the state-controlled and state-owned oil companies of the OPEC members, to antitrust laws. These efforts have been derailed by a Senate provision that allows senators from oil-producing states to put the legislation on indefinite “hold,” thus guaranteeing that it will never make it to a floor vote and never threaten the conspiracy.
The damage wrought by the oiligopoly is not only economic. America’s security is also at risk. As I will detail later in this book, President Bush’s father made a Faustian bargain with OPEC in 1986, selling our soul for a steady supply of oil and giving Washington’s blessing to the steep escalation of oil’s price. And ever since, the United States has squandered a great national resource: the independence that would be secured by moderating, or more intelligently providing for, our own energy needs. We have placed our security in the hands of an extortionist cartel, just to keep our industrial heart beating. Worse, the world’s addiction to Middle Eastern oil means that hundreds of billions of dollars are being pumped into a region where people despise us and where too many preach and pray for our destruction.
In fact, prominent members of OPEC openly work to undermine democratic ideals in the United States and other Western countries. Millions of dollars of Saudi Arabian and Kuwaiti money go to finance schools, mosques, and supposedly charitable organizations that actively promote the virulently anti-Western Wahhabi strain of Islam and encourage Muslim citizens of Western nations to reject the principles upon which their governments were founded.
Ironies abound, not least that we supply the money that buys the textbooks and prayer books stuffed with venomous words designed to bury us. American citizens’ gas money is used to pay the salaries of imams and school officials who propagate the poison. But it isn’t only hate-filled teaching and preaching that we support. The sheer volume of this torrent of funds practically guarantees that some of our dollars will wind up in the hands of people—both stateless terrorists and recognized leaders of rogue nations—who are capable of acquiring biological, chemical, or nuclear weapons, and eager to use them against us. Indeed, at this very moment, Iran’s Islamic regime is putting its oil money to work acquiring long-range ballistic missile capability. It is also producing enriched uranium that could be used to make nuclear weapons. Iranian leaders deny that their intentions are malignant, of course, but the CIA isn’t convinced.
Meanwhile, Osama bin Laden and his terrorist networks continue to plot new attacks on the United States. Since 9/11, we have been lucky; an unknown number of planned assaults have been exposed or disrupted, and none have hit American soil as yet—though our friends in Britain, India, Indonesia, Malaysia, Russia, Spain, and Turkey have suffered. But we remain terrifyingly vulnerable; our seaports, our cities, our chemical industry, to name just a few weak points, cry out for better protection. The nation’s intelligence officials warn grimly that the odds are against them, and sooner or later another attack is likely to succeed.
When it does, we will have paid for that, too. Petrodollars will buy the dirty bombs, explosives, or chemical or biological weapons and smuggle them into the country; they will help procure fake visas and passports for the terrorists and guarantee safe passage through Canada or Mexico and into the United States. In countries where life is touched by fanaticism and virtually everything is for sale, the combination of limitless wealth, seething hatred, and weapons of mass destruction is more than frightening. It is a threat to our very existence.
There is one more peril that we can blame on the oiligopoly, and it is only slightly less imminent than the terrorist threat: the global warming that threatens us with environmental destruction and economic ruin. Many oilmen and their coal-mining colleagues like to pretend that there’s no proof that manmade greenhouse gases are to blame, but the overwhelming scientific consensus has now concluded that the burning of fossil fuels is directly responsible for the fastest rise of global temperatures in the history of the earth. The results promise catastrophe, from drowned seacoasts and spreading deserts to the extinction of species, disrupted economies, and widespread famine and starvation. And we Americans use more fossil fuels than anyone else in the world—billions of tons of coal, trillions of cubic feet of natural gas, an ocean of oil. We buy 10,000 gallons of gasoline every second.
Obviously, we must drastically curtail consumption of fossil fuels. Achieving that would require conservation and the development of alternative energy sources. Clearly, we should be getting better mileage from our cars and trucks; producing more hybrid vehicles; pushing to develop better electric cars; building more nuclear power plants to replace coal-fired generators; and speeding up research on alternative power sources including hydrogen fuel cells, biofuels, and ways to store wind and solar power.
Each of those actions, of course, would be a thumb in the eye for OPEC and its collaborators. And although President Bush has correctly called America’s use of oil an “addiction,” neither he nor oil’s reliable friends in Congress show any inclination to take real steps to cure it. Oklahoma’s Senator James Inhofe, formerly the Republican chairman of the Senate Environment and Public Works Committee, has called global warming “the greatest hoax ever perpetrated on the American People.” Perhaps, with the Democrats now in control of Congress, there will be more willingness to face reality. But I predict that the industry’s money will continue to talk, and the foot-dragging will go on until the voters make it clear that they have had enough and insist on reforms.
This book aims to awaken us all to the dangers posed by the great oil conspiracy, to explain how it evolved and what it could do to the world, and to suggest ways we can escape our shameful dependence on OPEC oil and break OPEC’s extraordinary grip on the world’s economy. So great are the perils that we can no longer permit the unfettered consumption of oil. Our national honor, our security, and the health of our planet all depend on it.
But before I go any further, let me answer the inevitable questions: Who am I? How do I know what I am talking about? And why am I writing this book now?
For openers, I am not an oilman. (By the time you finish reading this book, I think that fact will enhance my credibility, not erode it.) I have spent more than twenty-five years of my professional life trading in commodities—and that’s just what oil is, no more and no less than a simple commodity. Despite all the hyped-up rhetoric about its being uniquely political, strategic, scarce, and rapidly depleting, oil is merely one of the unglamorous raw materials of civilization, no different from any other. Its mystique is a manufactured justification for its outrageous price.
OPEC, as I said, is a cartel, but not just any cartel; it is the world’s most egregious combine and its most damaging. It blatantly violates the spirit of free trade, as well as the rules of the World Trade Organization (WTO), while being meekly thanked by its holdup victims. And the longer it prevails, the stronger it grows. OPEC uses the fictional shortage of oil to extort not just money but diplomatic favors from dependent buyers as diverse as China and the United States. As the Council on Foreign Relations has warned, America’s dependency on imported oil has greatly weakened our foreign policy influence in the world—and it increasingly threatens our national security.
I am writing this book because OPEC and its machinations make me very angry. OPEC’s dealings offend my sense of fairness and justice. Like most traders I know, I take pride in playing by the rules on a level playing field. In the markets I worked in, traders who tried to take unfair advantage soon found themselves frozen out. But there is a whole industry, led by OPEC, that is permitted to hoodwink the world, while governments collude in the robbery and hardly a protest gets registered. Just imagine the firestorm of indignation that would erupt if the public found out that the world’s big grain exporters (say, the United States, Canada, Brazil, Argentina, and Australia) were conspiring to triple or quadruple the price of such basic commodities as soybeans, corn, and wheat. If growers conspired as OPEC does, the prices of grain and products made from it would balloon, and the plotters would be seen as preying on humanity’s basic needs. Yet oil is just as basic, just as essential, and the damage done by the OPEC oil cartel and its friends is every bit as costly to the world as a grain conspiracy would be. pose
This shakedown also alarms me because of the danger it poses not only to my country but to the world. I served in the U.S. Navy as a district security officer and was given a sound but frightening education in all the basic elements of chemical, biological, and nuclear warfare. (Ironically, part of my service was spent in the federal building at 90 Church Street in lower Manhattan, a building that was destined to become the northern demarcation line of the hallowed quadrant that was once the World Trade Center.) I know what I’m talking about—more sometimes than I want to know. I know how easy it is, especially for those who are determined and willing to sacrifice themselves, to buy or steal these weapons or their equivalents, move them around the world, and use them to destroy vulnerable targets and kill as many of us as they can. We are in imminent deadly peril, and every dollar we ship off to the Middle East for oil increases the danger.
I have also been to China and seen the future, in the form of the massive shroud of pollution that fouls the air and spreads all the way to California. That’s just the visible marker of the unseen carbon dioxide, methane, and other greenhouse gases that are inexorably changing the face of the earth and threatening our way of life, if not life itself.
The cartel must be broken, as must our addiction to fossil fuels, and the United States must lead the fight. Our government alone carries the clout to stand up to OPEC and the oil interests, their powerful friends and well-entrenched allies, and the accumulated billions of dollars that bankroll their activities. The time has come for our leaders to honor their commitment to this nation by coming down squarely on the side of its people; they must defend us against the greed and destructiveness of OPEC and its minions in the oil and related industries. Anything else would be a dereliction of duty.
I have nothing to gain from OPEC’s demise. If the cartel were broken tomorrow, I would receive no more than one man’s share of the resulting rise in global prosperity.
Commodity trading has been good to me. I can indulge my fondness for travel and my passion for art, a love that began when I was a young man hanging around the Cedar Bar in Greenwich Village, listening to arguments among such esteemed artists as Franz Kline, Jackson Pollock, and Willem de Kooning. My interest continued, and I was privileged to be appointed by President Ronald Reagan to serve on the National Council on the Arts (part of the National Endowment for the Arts), as well as serving on the boards of museums and other arts organizations.
I found my way to commodity trading by a natural route: I originally came from Luxembourg, the son of a leather goods wholesaler with clients all over Europe. My family immigrated to the United States at the outset of World War II. I attended the Wharton School of Finance and Commerce at the University of Pennsylvania, majoring in what was then quaintly called “international commerce.” Two years of my life were spent in the Navy, after which I landed an apprenticeship in commodity trading with a large trading company. From there, I started operating on my own.
Most people never give commodity trading a thought, but it is a fascinating, complex business that keeps the world running. To be a trader, you have to know a lot—what’s needed where, what it’s worth there, and where you can find it at what cost. You negotiate for the purchase and sale, arrange financing and letters of credit, take possession of the goods, move them to a port, charter ships or planes for the long haul, arrange to move the material from the port of arrival to the final destination, and buy insurance to cover any conceivable loss along the way. Even so, you worry until the goods are safely delivered and the check is in the bank.
Forty years ago, the commodities business was less formal than it is now. We got along on our character, our connections, and what we knew. We didn’t need vast amounts of capital to get financing, or flow sheets detailing every move in every part of each transaction. We calculated our deals on the back of an envelope and made our bets. And sometimes we lost. A partner and I once loaded two tons of fresh strawberries in California, flew them to New York, and transferred them to a flight to London, where we had an eager buyer. But the plane’s cargo refrigerator wasn’t up to the job, so the plane landed in London with two tons of strawberry jam. Still, we survived.
I got an education in those years, and part of it came when I encountered my first cartel. In hindsight, that taught me everything I needed to know about OPEC. It was in the mid-1960s, and this cartel controlled the world market in sulfur, most of which was then extracted from huge underground domes in the southern United States. Forming a joint export association under the Webb-Pomerene Act would allow the three companies dominating the business to operate legally as an export cartel. So they formed the Sulfur Export Corporation, or Sulexco, which in effect had a world monopoly. Sulexco set the price and controlled the supply, and it kept the market so tight that some buyers couldn’t get sulfur at all.
Few people realize how essential sulfur is, to both industry and agriculture. You can’t make steel or industrial explosives without sulfuric acid; the entire “green revolution” in agriculture would have been impossible without the sulfuric acid that converts phosphate rock into phosphate-based fertilizer. In the mid-1960s, Sulexco was saying there wasn’t enough of it to meet demand—a claim that was almost surely untrue. The sulfur domes were virtually limitless, and all the producers had to do was pump in heated water to dissolve the sulfur, pump it back out, and then separate the mineral from the water. In classic cartel fashion, Sulexco probably decided that rather than increase production, it could make money with less effort by fabricating a shortage and raising the price. This manufactured shortage ensured that those lucky enough to get their hands on some sulfur were grateful to Sulexco, rather than resentful over the egregiously high price.
But the shortage, though artificially induced, still meant that some people couldn’t find the sulfur they needed, and they became fairly desperate to get it. In South Africa, for example, the mining industry was about to come to a halt for lack of explosives, which would have dealt a mortal blow to the South African economy. Meanwhile, a French company was producing sulfur as a byproduct of a new process to remove hydrogen sulfide from “sour” natural gas. A rumor spread in the commodity business that the South African government, worried about its mining industry, had offered to equip its air force with French-made Mystere jet fighters if the French would sell sulfur to South Africa’s explosives producer, African Explosives & Chemical Industries (AECI). But the negotiations seemed to stall.
AECI was partly owned by Britain’s then-monolithic Imperial Chemical Industries (ICI), so Pretoria also put pressure on ICI to deliver the needed sulfur by threatening to nationalize AECI if it didn’t. Sulexco still held the upper hand, though. Based on its claim that there wasn’t enough to go around, it would sell ICI only what it needed for its own use, not for AECI’s. ICI was almost frantic to find another source of sulfur to prevent the loss of its AECI investment.
That source turned out to be me. I was operating at the time in western Canada, where some oil companies were experimenting with the same process the French were using to sweeten sour natural gas by removing its foul-smelling and dangerous hydrogen sulfide. So I went to a number of these companies and offered them a reasonable price for their sulfur byproduct. I put together small parcels until I had commitments for 20,000 to 30,000 tons, a major portion of what South Africa needed. Then I offered it to ICI.
It was a heady scene. There I was, twenty-eight years old, a small trader based in Canada, having a boardroom luncheon in ICI’s grand London Millbank headquarters with a lot of starchy British executives in Savile Row suits. I told them I would supply AECI with sulfur, but they would have to support me in purchasing other commodities particular to the chemical fertilizer industry, including nitrogen products, phosphates, and potash. We struck the bargain, and I set up my trading business with that deal. I called my company Brimstone Export Ltd., using the biblical term for sulfur.
After that, more and more companies began using the new process to separate sulfur from natural gas, and the so-called shortage eased considerably. It soon became clear that Sulexco was going to lose its market control, because the huge amount of sulfur coming from gas was a lot less expensive than the sulfur pumped from underground domes.
This brings me to the real parallel with OPEC: For years, Sulexco put out propaganda to persuade its customers that sulfur was still in short supply and that anyone who didn’t buy at full price from Sulexco was in danger of running out. It used all the tactics practiced by OPEC—writing articles, hiring “experts” to parrot the message, and feeding the cartel’s line to the press. The aim was to persuade the world that sulfur was strategic, that it was a fast-depleting finite resource, that its sale and movement were politically sensitive, and that high prices were beneficial because they would help Sulexco ration the precious element and make sure it was wisely used. In time, Sulexco’s fiction collapsed of its own weight, but until it did, the cartel reaped enormous profits.
I never forgot that. Years later, after the 1973 Arab oil embargo enabled OPEC to gain a stranglehold on the world, I began to sense that something similar to the Sulexco fraud was being perpetrated on oil consumers throughout the world. I wrote a letter that the New York Times graciously published, arguing that oil was no more scarce or strategic than the commodities that make agriculture possible. By then, however, the alleged shortage of oil had already been accepted as received wisdom, reinforced by the environmental movement and various reports from so-called experts.
For a while, the 1973 embargo seemed to backfire on the cartel. There was an active push to find new reservoirs of oil and alternative sources of energy. Oil prices drifted lower. But late in the 1980s, it became clear that OPEC and the world’s major oil companies had joined forces to push up the price of oil, and that the U.S. government was helping them. After the Persian Gulf War in 1991, OPEC became a major force in world markets, influencing both the supply and the price of oil with its machinations. And not surprisingly, I found myself reading the same kind of propaganda from OPEC that Sulexco had foisted on its consumers years before.
In March 1991, shortly after the end of the first Gulf War, I wrote an op‑ed article for the Times asking, “Did we fight the war to save OPEC?” It argued that OPEC was restraining global trade and imposing an unfair tax on the world economy. I suggested that since we had saved Kuwait and protected Saudi Arabia from Saddam Hussein, the least those countries could do in return was to leave OPEC and trade their oil on a free-market basis.
That didn’t happen, of course. Instead, OPEC continued to spread its propaganda and hardly anyone spoke up in protest, least of all the cartel’s friends in Washington and other world capitals.
A decade later, the United States again went to war with Iraq. The uncertainty and fears of an oil supply crisis pushed prices to unimagined heights. OPEC happily fed the panic.
In September 2003, the cartel’s chief propagandist, Omar Farouk Ibrahim, wrote a letter to the International Herald Tribune that reached a new level of hubris. He said the cartel was ensuring the steady flow of “a finite resource . . . at a price that is fair and reasonable,” and thus doing nothing less than “fulfilling our obligations to humanity.” Ibrahim went on to claim that the Western nations were “the biggest beneficiaries of high oil prices,” since the oil companies were headquartered in these countries, and OPEC spent its oil riches on Western goods and investments. His brazen claim that OPEC was good for all humanity prodded me to write another piece. “OPEC Follies: Breaking Point” was published by National Review Online in December 2003, after which I began writing this book.
It is heartening to consider that Sulexco no longer exists and few people even remember it. My goal in publishing this book, now updated and expanded in this new edition—and also in my regular columns for the Huffington Post—is to send OPEC along the same track to oblivion, by exposing its deceptions and corruptions, its extortionist tactics, and the pathetic complicity of its victims.
This is no easy task. The conventional wisdom foisted on us by the conspirators is deeply ingrained; when I tell people that oil is no scarcer than other commodities, they simply can’t believe it. When this book was first published, it was discouraging to see how many reviewers had swallowed the oiligopoly’s line and dismissed my argument without even debating it. But I don’t intend to shut up until the message is heard. The issue is too important. Our safety and prosperity, our nation’s honor, and the fate of our only planet are all at stake.
My own thinking about the energy future has evolved since this book was first published, and this edition has been updated and revised to reflect, among other topics, the urgency of the global warming crisis. I hope to drive home the vital need for a rapid end to the use of all fossil fuels and a transition to a world economy powered by clean alternatives. Breaking the power of the oiligopoly will liberate us to achieve that, and the money the world will save on oil during the transition will finance the research to make it possible.
Clearly, it is no fun for any of us to be over a barrel. But there is another way to look at it. The phrase “over the barrel” was also used to describe a sailor’s way to resuscitate someone from drowning. Victims were placed not over the barrel of a cannon, but on a wooden barrel, and then rocked back and forth until they expelled the water from their lungs and gasped for life-giving air. Maybe if we rock our oil barrel long enough and hard enough, we can expel the strangling forces of OPEC and become self-reliant once again.
