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Forget Energy Independence: Producers Have America Over a Barrel

12:00 AM, Jan 21, 2012 • By IRWIN M. STELZER
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On Monday, the European Union is expected to decide to boycott Iranian oil. If it does—nothing is ever certain when EU policymakers gather, least of all a firm decision—Iran says it will close the Strait of Hormuz, through which 20 percent of the world’s oil moves to market. That country’s navy commander, Habibollah Sayari, says Iran has the ability to “control” the waterway, and unnamed military sources in Iran are saying a boycott would be an act of war. General Martin Dempsey, chairman of the Joint Chiefs of Staff, says that “we can defeat that,” an effort Iran would be compelled to resist with force. All of this, calmer observers argue, is mere sabre rattling. But sabre rattling by a mullah-led nation dedicated to the destruction of Israel, willing to allow thugs to gut the British embassy, and providing Iraqi terrorists with weapons with which to kill American servicemen cannot be ignored. Little wonder that there is something like a 20 percent risk premium built into the current price of crude oil.

Not to worry. American officials say—more precisely, hint—that instead of calling for still another U.N. resolution the U.S. will use force if necessary to keep the Strait of Hormuz open. And Saudi Arabia, no friend of the Iranians, says it will increase its production to make up for any shortfall resulting from the boycott of Iranian supplies. Unfortunately, neither country is a rock on which to build a reaction to Iran. The world no longer considers America a reliable partner in arms—it is difficult to follow a nation whose president has decided to take Nelson Mandela’s advice and lead from behind. And there is some question about the ability of the Saudis to ramp up production or to win an intra-OPEC battle to have quotas raised since Iraq now chairs OPEC, and is not noted for its willingness to defy Iran, which has warned that it will retaliate against any country that increases production to make up for supplies lost as a result of a boycott.

Add two more developments this week. Saudi oil minister Ali Naimi announced that his country now has a target price of $100 per barrel, up from the $75 announced by King Abdullah in 2008. “If we were able as producers and consumers to average $100 I think the world economy would be in better shape.” Or at least oil producers would. The “Arab Spring” has forced nervous regimes to step up public spending on benefits—free food, higher pay for civil servants, more money to Saudi religious institutions to extend the reach of Wahhabi terrorist preachings. OPEC members say they really need the $1 trillion they will earn from oil sales so that they can be what Auda abu Tayi, chief of the Howeitat, described himself as in Lawrence of Arabia, “a river to my people.” Like Auda, the current rulers of Saudi Arabia manage to turn the river of money they receive into a rivulet when passing it on to their people, but still, the portion of the kingdom’s incremental oil revenues that now sticks to princely fingers has been reduced, although not sufficiently to be lifestyle-threatening.

It probably is more than mere coincidence that the Saudis decided to raise their benchmark price on the same day as President Obama decided not to approve the Keystone XL oil pipeline that would have brought oil from the oil sands of landlocked Alberta, Canada, 1,700 miles to refineries in Texas. After three years of intensive study by the State Department, which has jurisdiction over this international project, the president says further study is required, study that will make a final decision impossible before the November elections. Green groups say the production of tar sands oil pollutes the environment, but that oil will be produced and sold elsewhere if the U.S. won’t take it. They also contend that Keystone XL would endanger the giant Ogallala Aquifer, which supplies the ten states of the Great Plains. Never mind that 25,000 miles of pipeline already traverse that aquifer, with no harm to water supplies.

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