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Our Friends the Saudis

What is the world's oil-supplier of last resort up to?

11:00 PM, Dec 20, 2004 • By IRWIN M. STELZER
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Should the promise of keeping the oil flowing not provide America with a good enough reason to protect the Saudi regime, the royal family provides another: support for the dollar. Despite the decline in the dollar, the Saudis and their OPEC colleagues have refused to denominate oil prices in any other currency, or in a basket of currencies in which the euro would feature prominently. Moreover, like other producing countries, the Saudis have continued to invest heavily in U.S. securities, offsetting some of China's reduced buying. In the first nine months of this year, eight Middle Eastern producing countries that were net sellers of U.S. securities in the past two years were net buyers to the tune of $15 billion.

One thing the Saudis know they can count on is the inability of America's politicians to fashion a policy that will reduce American dependence on foreign oil. Both president Bush and his challenger, John Kerry, promised to make America independent of foreign oil. So did Richard Nixon, Gerry Ford, Jimmy Carter, and Bush's other predecessors. None could figure out how to accomplish that goal without raising taxes on gas and other oil products, a move considered a sure ticket to early retirement by all save Bill Clinton, who tried but failed to wring a significant increase in gas taxes from a reluctant Congress. Bush, who is unidirectional when it comes to taxes, has no such move in mind. So the increased amounts that Americans are laying out in this new era of higher oil prices will end up, not in the U.S. Treasury, but in the treasuries of Middle Eastern governments, some of which are financing the terrorists whom the president has pledged to defeat.

Irwin M. Stelzer is director of economic policy studies at the Hudson Institute, a columnist for the Sunday Times (London), a contributing editor to The Weekly Standard, and a contributing writer to The Daily Standard.