The Atlantic: Why the U.S. still needs Saudi Arabia

The Atlantic’s Matt Schiavenza has some pointed commentary on the longtime U.S.-Saudi alliance, arguing that the United States needs the Middle East kingdom “more than ever.”

Following the death of King Abdullah last week at age 90, following a lung infection, President Obama cited his “enduring contribution to the search for peace” in the region. Secretary of State John Kerry said he was a “man of wisdom and vision.”

Schiavenza then lists the ways in which Saudi policy undermines the American praise, including the lack of rights of women, and the case of blogger Raif Badawi, who was sentenced to 1,000 lashes and 10 years in prison for defending atheism.

Schiavenza writes:

Contrary to President Obama’s statement, Saudi Arabia’s role in brokering Middle Eastern peace has, at best, been unhelpful. King Abdullah bitterly opposed Washington’s support of pro-democracy protesters in Egypt and urged President Obama to use force to preserve Hosni Mubarak’s dictatorship. Since Abdel Fattah al-Sisi assumed the country’s leadership in 2013, Riyadh has helped finance his brutal suppression of the country’s Muslim Brotherhood. Saudi Arabia has also resisted the rise of Shia movements in the region out of fear that Iran, their main rival, will gain influence. When Shia protesters threatened the Sunni dictatorship in neighboring Bahrain, Saudi Arabia dispatched its military to suppress the uprising. Riyadh’s support of Syrian rebels, too, has backfired: Islamic State fighters have benefited from Saudi money and weapons.

The reason the United States continues to “put up with” Saudi Arabia, the writer contends, is oil. And despite ramped-up production in the U.S. shale-oil fields, the U.S. will continue to need Saudi oil. Currently there’s a glut that might worsen, since Abdullah’s successor, his half-brother Salman bin Abdul Aziz, appears unlikely to reduce oil production to stem the drop in price. Right now the U.S. produces about 9 million barrels of oil a day, comparable with Saudi output.

But the kingdom, which is the leading oil-producer in OPEC (which controls 40 percent of the world’s oil supply), is “well-positioned to survive a sustained drop in the price of oil,” Schiavenza writes, adding:

Riyadh generally needs oil to trade at $80 a barrel in order to balance its budget. But with $750 billion stashed away in reserve, the kingdom faces little pressure to reduce supply and raise the price. In addition, Saudi Arabia and fellow OPEC members Kuwait and the United Arab Emirates have proved reserves of 460 billion barrels. The United States, by contrast, has proved reserves of just 10 billion—and the U.S. Energy Information Agency forecasts that American shale oil production will plateau in 2020.

Woolsey on fuel choice: ‘Let everybody play’

R. James Woolsey, the former director of Central Intelligence and a current member of the Fuel Freedom board of advisors, went on the Jacki Daily show recently and had some interesting observations about the global sell-off in the oil market.

He said the price drop has been particularly hard on oil-exporting nations that need a high price to balance their budgets and meet generous public benefits. “Russia really needs oil up around $120 a barrel in order for its society to function,” he said.

He said nations like Russia should diversify their economies so they aren’t as reliant on oil prices for a thriving economy. “Russians don’t make anything. When was the last time you were in a store and you bought something that says ‘Made in Russia’? I guarantee you it doesn’t exist.”

Despite low prices, many experts predict that the global demand for oil will resume its upward trajectory, making fuel diversification essential, Woolsey said.

“Let the alcohol, the methanol producers particularly, and the gasoline producers and the natural gas producers, biodiesel producers … let everybody play.”

Woolsey, who served as CIA director under President Clinton, also is a member of the U.S. Energy Security Council. You can read this story quoting him about the vulnerability of the U.S. power grid in Forbes.

Explaining all the nutty conspiracy theories about oil

The Washington Post has a good explanation why so many leaders — including Vladimir Putin — might believe that other players are conspiring to set oil prices low, putting pressure on nations like Russia that rely so much on the high price of oil to balance their budgets.

To understand this particular conspiracy theory, one must look at the nature of conspiracy theorists, and here WaPo cites some knowledgeable experts on the subject:

… the psychological research suggests that conspiracists don’t just believe one conspiracy theory. They often believe lots of them. And many of the conspiracies have similar structures — suggesting there are deeply powerful but unseen players working behind the scenes to shape world events.

“A lot of conspiracy theories take as their premise that there’s a small group of people who are plotting to control something, to control the government, the banking system, or the main energy source, and they are doing this to the disadvantage of everybody else,” says University of California-Davis historian Kathy Olmsted, author of “Real Enemies: Conspiracy Theories and American Democracy, World War I to 9/11.”

It might be natural for some people to believe in oil conspiracies, because oil itself is so vital a commodity around the world, and oil producers — notably OPEC — do, in fact, collude to keep their prices at a certain level. That’s the reason they formed the cartel in the first place.

But another motivator is that “struggling leaders need somebody to blame.”

In Putin’s case, finally, we must recognize that a conspiracy theory like the one above is politically expedient — especially in newly perilous economic times. “Governments use conspiracy theories in order to convince their people to support them,” says [University of Utah history professor Robert Alan] Goldberg. There’s no better way to rally support than to suggest to your people that outside forces — not supply and demand, but malicious schemers — are out to get them.

General: Dependence on oil a ‘serious’ national security threat

With gasoline prices at five-year lows, it’s easy to lose sight of the realities of U.S. dependence on oil. We’re still beholden to other nations for much of our supply; we still have to expend much energy and resources defending the free flow of oil around the world; and we still need the long-term solution of alternative fuels to keep prices low.

One person who’s done a lot of thinking about this is retired U.S. Air Force Gen. Ronald Keys, who lays out the argument for reducing our consumption of oil in a guest piece for The Hill. Keys, who spent 40 years in the Air Force (and flew combat missions in Vietnam), is now chairman of the Military Advisory Board at the CNA Corporation, a nonprofit military research group.

Keys writes:

Our nation’s over dependence on oil is a serious threat to our national security—militarily, diplomatically, and economically. It limits our ability to act on the world stage and increases the likelihood that we will send Americans in uniform into harm’s way. It leaves us open to impacts from wildly gyrating prices …

And:

Importing less oil will loosen the bonds that tie us to regimes that don’t always have our nation’s best interests at heart. That will make it easier for the United States to act in its own national interest on the world stage, and make it less likely that we will have to send troops to defend the free flow of oil.

And:

Oil prices will always fluctuate, but the need to cut our nation’s oil dependency will endure. This need doesn’t get any less urgent just because pump prices tick downwards for a while.

The military pays an astonishing amount of money for gas

At the base rate, the U.S. military pays about the same as the rest of us for gasoline, under $3 a gallon. But the costs quickly escalate when you factor in the expenses related to getting fuel where it needs to go, and the often rugged, isolated places American forces need to use their vehicles.

According to an illuminating story by Eric Chemi on CNBC.com, the U.S. is:

… paying 100 times the price the rest of us are. The total cost of getting fuel where it needs to be is skyrocketing the cost for military gas. At a burn rate of 300,000 barrels of oil per day, the Department of Defense consumes 1.5 percent of total national consumption, and is the largest user of energy in America. As a result, it is the biggest proponent of clean energy. Even a total cost of $100 per gallon would be a steal for the military. That’s because its calculations on energy costs are very different than for a regular consumer.

It makes sense, therefore, that the U.S. Defense Department is far ahead the game when it comes to pursuing alternative fuel sources:

Some current projects include a way to produce localized energy on site, creating a mobile energy system and better integrating generators and batteries. There are dozens of projects already underway at military bases globally and multi-decade, long-term plans to find efficiency. Some of the projects include focusing on green power, renewable jet fuels and changing the culture around energy awareness in day-to-day operations.

Market Watch: Here are the reasons oil is plunging toward $60

[Slideshow] Oil’s stunning price collapse is undoubtedly one of 2014’s top stories and will remain a major theme for investors in 2015. Here’s a look at the factors that have led to the largest price decline since the 2008 financial crisis.

Indeed, oil futures CLF5, -2.94%  have plunged 39% from the beginning of the year, including carnage in Thursday trading that saw oil settle below $60, at $59.95, marking its lowest settlement price since July 14, 2009, while Brent LCOF5, -1.62%   is down about 42% for the year (though marginally higher in Thursday trade).

Read more at: MarketWatch

Report declares opportunity for growth in E85 market

NACSonline reported that there are opportunities to grow the E85 market — but only if prices remain significantly below those of regular grade gasoline and the automobile industry continues to produce flex-fuel vehicles at historic rates, according to a new report released today by the Fuels Institute.

Depending upon the likelihood of various scenarios, E85 sales will, at a minimum, double by 2023 — but could experience a 20-fold increase in sales over the same time period, according to the 40-page report, “E85: A Market Performance Analysis and Forecast.”

Researchers evaluated the performance of more than 300 stores that sell E85, also known as flex fuel, and developed forecasts taking into account a variety of factors that could ultimately affect sales. The Fuels Institute projects that E85 sales will increase from 196 million gallons in 2013 to between 400 million and 4.4 billion gallons in 2023.

Biofuels have experienced remarkable growth over the past 12 years, from 1.75 billion gallons sold in 2001 to 14.54 billion gallons sold in 2013. While the bulk of that growth has been from the embrace of E10, future biofuels sales growth will be highly dependent upon increasing the sale E85, a blend of gasoline with 51 to 83% ethanol.

Read more at: The Auto Channel

How Much Does ISIS Make on Selling Oil?

Iraq’s Finance Ministry has said ISIS militants are selling oil for as little as $20 per barrel. Though the global market price is steadily declining, at that price (which is not confirmed) ISIS would be selling its oil extremely cheaply, at a discount of around 75 percent. The global oil market price was around $78 per barrel this Monday, down about 30 percent since June this year.

Read more at: Newsweek

Pickens: We’re still ‘dangerously dependent’ on OPEC

Politico gathered some of the nation’s most influential players in the energy and national-security realms to discuss what we should do next about the sudden drop in global oil prices the past four months.

Among the heavy hitters are Amy Myers Jaffe, executive director of energy and sustainability at UC Davis (and a star of PUMP, the movie); environmentalist Bill McKibben; and geopolitical expert Ian Bremmer. But possibly the starkest commentary comes from magnate T. Boone Pickens, founder and chair of BP Capital. His entry in the roundtable is called “A False Sense of Energy Security,” and here’s an excerpt:

The key for America is that we shouldn’t let ourselves get distracted by falling oil prices when there is much more at stake. For decades, our dependence on OPEC oil has dictated our national security decisions and tied us up in the Middle East at an incredible price. We’ve spent more than $5 trillion and thousands of American soldiers have died securing Middle East oil. … it is critical that we not let ourselves lose sight of the problem and continue expanding American energy production. We have OPEC on the run, but we are still dangerously dependent. We have the domestic resources, but we need to demand that Washington get serious about a national energy plan that takes the real costs of energy into account. We cannot get sidetracked by a false sense of enhanced energy security and lower gasoline prices.

(Photo credit: Albert H. Teich/Shutterstock)