Economy

America’s Latest Political Weapon: Oil

The U.S. was once vulnerable to the geopolitics of energy reserves. Now American shale gas exploration offers foreign policy muscle in the face of the Saudis, Russians and Iranians.

A fracking operation near Carrizo Springs, Texas
A fracking operation near Carrizo Springs, Texas
Stefan Beutelsbacher and Holger Zschäpitz

-Analysis-

BERLIN â€" America's newest weapon is stored in four former salt mines in Texas and Louisiana, more than 1,000 meters below ground. Right there, near the shore of the Gulf of Mexico, is where America's strategic oil reserves are to be found. Around 700 million barrels of this precious raw material sit in these underground chambers, enough to cover the country's entire oil requirements for 35 days.

But this supply is only to be touched in an emergency â€" that is, during crises such as war or a natural disaster, like after Hurricane Katrina in 2005, when dozens of oil rigs were devastated. The stored oil is the last reserve in times of crises, a defensive shield. But now, it seems, it's going to be used as an offensive weapon.

The White House and Congress have agreed to gradually sell part of the country's reserve â€" 8%, to be precise â€" over the next few years. Five million barrels are to be sold annually starting in 2018, and that number will rise to 10 million barrels beginning in 2023. That's nearly 60 million barrels turned into revenues by 2025.

It's viewed as a sizeable sum meant "to stabilize the budget," according to official statements. But selling the oil, which would result in only $3 billion profit, won't be enough to cover the nation's $18 billion in debt.

Perhaps, then, the decision to monetize the oil reserves is motivated by something else. By signaling a willingness to sell its energy reserves, the U.S. is artificially lowering prices and weakening the countries that rely on oil production â€" Russia, Saudi Arabia and Iran, for example. Though the factors have shifted, the world again is facing a war over the most precious of raw materials.

Too risky?

The steps the U.S. is taking are questionable, economically speaking. The price of oil has fallen by half during the last year alone. In mid-2014, a barrel of oil cost around $100, whereas the current price is below $50. Consumers are therefore able to fill up their tanks and heat their homes for much less, even as energy companies are seeing dramatic drops in profits.

So why did Washington decide to release information about its decision to sell part of its oil reserves while oil prices are so low? Most likely, say experts, because it's as much about politics as it is about money.

Noah Poponak, analyst at Goldman Sachs, says the news is being accompanied by another budget deal that will see the arms expenditure increased by $50 billion a year. "This," says , "is a serious expansion of the arms budget."

The stock prices of defense companies Northrop Grumman, Raytheon, Lockheed Martin & Co. are now rising, while energy listings are falling. This is a clear sign that oil has become a weapon amid political turmoil.

"The geopolitical world is about to come unhinged," says Ian Bremmer, a strategist at the consultancy agency Eurasia Group.

Saudi Arabia is suffering most from the falling price of oil, and its public finances are melting away like snow in the desert. The Fitch rating agency is forecasting a 14% Saudi deficit, and Standard & Poor’s (S&P) is even more pessimistic, predicting a budget deficit of 16% and having downgraded Saudi Arabia's credit rating to A+, with negative prospects. S&P is justifying the downgrade by saying that "80% of Saudi Arabia's revenue comes from oil."

A counter strategy

The regime is partially responsible for this situation. The Saudis have produced more oil than ever before in the last year. In response, other nations have also increased their production, creating a global war over the commodity: the U.S. vs. Russia, the U.S. vs. Iran, Saudi Arabia vs. Iran, but most of all Saudi Arabia vs. the U.S.

The Saudis have long since tried to take down American oil companies via price dumping and flooding the market with more oil than OPEC production quotas require. The sheiks are targeting specific American firms that produce oil via fracking, an extraction method used for difficult-to-reach deposits in which the ground is blasted under extremely high pressure with a mixture of water, sand and chemicals, thereby forcing oil to the surface.

The success of fracking is causing serious concern for Saudi Arabia, which is constantly increasing production quotas to lower oil prices artificially with the hope of forcing its new American fracking rivals to give in. The Saudi strategy could work, as the latest statistics demonstrate that fracking companies are barely making a profit anymore because it's more expensive to extract oil from rock than to drill it from the desert sands. The U.S. Energy Information Administration (EIA) forecasts that fracking production rates will stagnate starting in November.

Lowering prices through overproduction is the weapon of choice for all parties in this oil war, as each seeks to weaken the others. Back in the day, the Saudis actually reduced production when oil became too cheap. But profits are no longer the only concern. They also want to push the U.S. into difficulty.

And the Iranians too, while they're at it. Since sanctions against it were revoked, Iran should again become one of the most important oil suppliers and will begin exporting it next year. Tehran is already warming its engines: two dozen tankers are sitting ready and loaded in their ports, more weapons in the latest global war.

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Running of the Bulls in Tafalla, northern Spain

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Здравейте!*

Welcome to Monday, where an apparent coup is underway in Sudan, Colombia's most-wanted drug lord gets caught, and Michael Jordan's rookie sneakers score an auction record. We also focus on a report that the Thai government is abusing the country's centuries-old law to protect the monarchy from criticism (lèse-majesté) to target pro-democracy activists and protesters.

[*Zdraveite - Bulgarian]

🌎  7 THINGS TO KNOW RIGHT NOW

• Developing: Sudan leaders arrested amid military coup reports: Soldiers have arrested several members of Sudan's transitional government as well as civilian leaders, and Prime Minister Abdallah Hamdok has reportedly been put under house arrest, in what the information ministry called a military coup. Pro-democracy protesters have taken to the streets of the capital city Khartoum where there are reports of gunfire and clashes.

• Colombia's most wanted drug lord to be sent to U.S.: Colombia's most dangerous drug trafficker, known as Otoniel, was caught after a joint army, air force and police operation and faces extradition to the U.S. He led the country's largest criminal gang, and was on the U.S. most wanted list for years.

• Xi speech marks China's UN anniversary: China's President Xi Jinping marked the 50th anniversary of Beijing's entry into the United Nations with a speech calling for greater global cooperation, adding that issues like climate change, terrorism and cyber security needed multilateral solutions. Taiwan was not mentioned.

• German ISIS bride jailed for crimes against humanity: A German court has sentenced a German woman and former member of the Islamic State to 10 years in prison for letting a 5-year-old Yazidi enslaved girl die of thirst in Iraq. The case is one of the world's first trials to prosecute a war crime against the Yazidis.

• COVID update: The Beijing marathon scheduled next weekend has been postponed until further notice as China seeks to stamp out Delta variant outbreak and return to zero cases ahead of the Winter Olympics next February. Meanwhile, coronavirus cases in Eastern Europe have surpassed the 20 million mark as the region fights against its worst outbreak since the pandemic started and vaccination efforts lag.

Goodbye, Gunther: U.S. actor James Michael Tyler, best known for his role as the barista Gunther on the TV show Friends, has died at 59 of prostate cancer.

• Sneakers record: A pair of Michael Jordan's white-and-red Nike shoes, which he wore during his rookie season with the Chicago Bulls in 1984, sold for $1.47 million — a new record price for sneakers at auction.

🗞️  FRONT PAGE

"The end of a boss," titles Colombian daily El Espectador, reporting on the arrest of drug lord Dairo Antonio Usuga, known as Otoniel, who had led Colombia's largest criminal gang and had been on the U.S. Drug Enforcement Agency's most wanted list for years. He was captured in a raid and will be extradited to the U.S.


#️⃣  BY THE NUMBERS

$57,789

A Georgia man is being prosecuted for wire fraud after spending most of his business's COVID relief loan to buy one Pokémon trading card for $57,789.

📰  STORY OF THE DAY

How Thailand's "Lèse-Majesté" law is used to stifle all protest

Once meant to protect the royal family, the century-old law has become a tool for the military-led government in Bangkok to stamp out all dissent. A new report outlines the abuses.

👑 Thailand's Criminal Code "Lèse-Majesté" Article 112 imposes jail terms for defaming, insulting, or threatening the monarchy, with sentences of three to 15 years. This law has been present in Thai politics since 1908, though applied sparingly, only when direct verbal or written attacks against members of the royal family. But after the May 2014 military coup d'état, Thailand experienced the first wave of lèse-majesté arrests, prosecutions, and detentions of at least 127 individuals arrested in a much wider interpretation of the law.

🚨 The recent report "Second Wave: The Return of Lèse-Majesté in Thailand," documents how the Thai government has "used and abused Article 112 of the Criminal Code to target pro-democracy activists and protesters in relation to their online political expression and participation in peaceful pro-democracy demonstrations." The investigation shows 124 individuals, including at least eight minors, have been charged with lèse-majesté between November 2020 and August 2021. The new wave of charges is cited as a response to the rising pro-democracy protests across Thailand over the past year.

💻 The more than a century-old law is now largely playing out online, where much of today's protest takes place in Thailand. Thai student activist Juthatip Sirikan says people are willing to go further on social media to expose information such as how the king intervenes in politics and the monarchy's accumulation of wealth, information the mainstream media rarely reports on them. Not surprisingly, however, social media is heavily monitored and the military is involved in Intelligence operations and cyber attacks against human rights defenders and critics of any kind.


➡️ Read more on Worldcrunch.com


📣 VERBATIM

"Children are going to die. People are going to starve."


— The United Nations warns that Afghanistan verges on a "total breakdown" as millions of Afghans, including children, could die of starvation unless urgent action is taken by the international community. The agency calls for the release of frozen assets to avoid economic and social collapse, despite concerns over the Taliban government. A recent report said that about 97% of Afghanistan's population may sink below the poverty line, and World Food Programme (WFP) Executive Director David Beasley warned that more than half of Afghanistan's population of 39 million were facing acute food insecurity and "marching to starvation" in comparison to 14 million two months ago.

🕌 🔍 IN OTHER NEWS

Dutch cities have been secretly probing mosques since 2013

At least ten Dutch towns and cities have secretly used a private agency to probe mosques and other local religious organizations, Amsterdam-based daily het NRC reports in an exclusive investigation.

The clandestine operation — funded by NCTV, the National Security Services, the Netherlands' leading counter-terrorism agency — was prompted by the social unrest and uncertainty following multiple terror attacks in 2013, and a rise in Islamic radicalization.

The NCTV, which advises and financially supports municipalities in countering radicalization, put the municipalities in touch with Nuance by Training and Advice (Nuance door Trainingen en Advies, NTA), a private research agency based in Deventer, Netherlands. Among the institutions targeted by the investigations, which came at a cost of circa 500,000 euros, were the Al Mouahidin mosque in the central Dutch town of Ede, and the Nasser mosque east of the city of Utrecht, according to NRC.

Unlike public officials, the private agency can enter the mosques to clandestinely research the situation. In this case, the agents observed activity, talked to visitors, administrators, and religious leaders, and investigated what they do and say on social media.

All findings then wound up in a secret report which includes personal details about what the administrators and teachers studied, who their relatives are, with whom they argued, and how often they had contact with authorities in foreign countries, like Morocco.

It is unclear whether the practice is legal, which is why several members of the Dutch Parliament are now demanding clarification from the outgoing Minister of Justice and Security, Ferd Grapperhaus, who is said to be involved.

"The ease with which the government violates (fundamental) rights when it comes to Islam or Muslims is shocking," Stephan van Baarle, member of the leftist party DENK, told De Volkskrant, another Dutch newspaper.

Leaders of the Muslim organizations that were secretly probed say they feel betrayed. Hassan Saidi, director of one of the mosques investigated, said that the relationship with the local municipality had been good. "This puts a huge dent in the trust I'd had in the municipality," he told the Dutch public broadcaster NOS.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Are you more Chicago Bulls or running of the bulls? Let us know what the news looks like from your corner of the world! info@worldcrunch.com info@worldcrunch.com!

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