Oil Prices = f (U.S. Presidency), or the Second Law of Petropolitics or what?

By Ngozi ekeoma

Oil really means many things. This is indeed a magic power. If some country turns to dictatorship,

usually it is considered as the country's internal affair. But if the country has oil reserves, the picture changes to the inverse. Oil places dictators on the leading edge of world policy and gives them leverage over oil importing countries. Moreover, it helps them retain power longer than usual, fattening their supporters and arming police against malcontents.

years ago, Tom Friedman, columnist for the New York Times, promulgated the First Law of Petropolitics. According to it the prices of oil move in inverse proportion to the level of freedom in the oil producing countries. Though the presidents of Russia, Iran and Venezuela disagree with this law, statistics and intuition speak in favor of it.

So, does everything really depend on the petrostates leaders’ democratism only? And if not, has all been lost? I believe, however, to think so means to attach undeservedly great importance to the Persian Gulf monarchs and to autocrats like Hugo Chavez. Do oil price fluctuations really occur from the whims of the oil exporting countries only? And oil consumers cannot influence the prices? Why not? They can. And they even try to do this.

This is the Second Law of Petropolitics. The more active the war policy of the West in oil producing regions of the world, the higher oil prices, and vice versa.

Oil consumers definitely have an influence on oil prices. The desire to influence prices is a natural reaction of consumers now forced to give away $8 billion per day for oil. Only active actions of the oil importing countries’ governments are, however, of significance. Passive adaptation is not

counted. So though the European Union and Japan are extremely interested in acceptable prices for oil, these players would rather prefer just to watch how the dice are played. At best they will try to regulate pricing on domestic markets (by means of taxes, etc.), but no more.

The only country of oil importers, which actively influences the world oil market, is the United States of America. The foreign policy of this country (or rather, the White House) is a very influential factor, which can sometimes outweighs the actions of the oil exporting countries. If the USA interferes in the affairs of the Middle East, oil prices often go up. If the U.S. actions take place in countries where there is not even a drop of oil, the prices usually fall.



In turn, the pattern of U.S. foreign policy can be foreseen, knowing to what party the White House master belongs. The dispassionate statistics of the last 20 years show which trends oil prices attainoil prices go down if the U.S. president is a Democrat, and they go up if a Republican.

during a Republican or Democratic administration of the White House. Therefore, practical formulation of the Second Law of Petropolitics sounds so:

The explanation of this phenomenon lays, probably, in the existing strong link between war policy and party affiliation of the U.S. president. So it has developed that Democrats diligently bypass oil producing regions in foreign policy. Republicans, on the contrary, do not experience doubts before shaking the bludgeon of the war machine near oil wells.

In the 1990s, the Clinton administration used diplomacy only in relations with Iraq and Russia, but actively advanced U.S. interests in such countries as Yugoslavia and Somalia. But there is no oil in Serbia and Somaliland. As a result, the oil prices fell to historical lows. The Bush administration, on the other hand, did not hesitate before intrusion into Iraq, thus having raised tensions in the whole region of the Persian Gulf. As a result, a record of $145.31 for a Barrel of oil.

Speaking figuratively, the White House has a "magic button" by which it is possible to influence oil prices. The Pentagon’s war actions play the role of the button. The finger pressing this button is

managed not only by a specific man – the president of the USA, but also by the party standing behind him. The party even to a greater degree.

From an economic point of view, the Second Law of Petropolitics has the right to exist as does the second side of a medal. Any economic process, from purchase of a pencil to international trade, contains two sides – supply and demand. As regards the oil market, it is clear the oil producing countries are the supply side. But to believe that oil prices depend on the wishes of the OPEC countries only is a bit one-sided. The demand side, i.e. American and European oil consumers, has influence, too!

Strictly speaking, the quantity of non-democratic leaders, one can say, dictators, has been approximately the same at all times. Now these are Hugo Chavez and Mahmoud Ahmadinejad; a bit before these were Saddam Hussein and Sani Abacha, the Nigerian president. Even earlier, Muhammad Suharto (Indonesia) and Muammar al-Gaddafi (Libya). All these countries, please note, are in OPEC.

For the oil market, therefore, the importance is not the quantity of dictators or level of freedom in these countries, but opportunities and the concrete actions of these regimes. When oil prices break records, the opportunities of these regimes expand many times. And inversely, low oil prices tie the hands even the most blood-thirsty dictators.

If one recalls the history of oil, oil prices were stable and low from the end of World War II until 1974: they grew from $2.50 to $3.00 in 25 years! Western governments seldom interfered in Middle Eastern affairs; instead of them, representatives of oil corporations like Exxon, Gulf or Shell sat at the negotiating tables. But it could not continue long and in 1974, the West lost control over the Middle East's oil and, correspondingly, prices. Arab sheikhs began to play a main role in this game, becoming suddenly unpredictable and strategically important.

It continued about ten years and then prices went down again. In the 1990s, there was a substantial drop of oil prices – to $10.82 a barrel. Does it mean everything has resumed its normal course and the West has acquired control over the oil market again? I believe that there was something else.

Instead of the West's direct control over world oil reserves (as it was until 1973), there was a fragile balance between the oil owners (mainly OPEC) and the Western oil corporations, who now have wisely hidden behind backs of their governments. But only the White House has appeared capable to be an equal counterbalance to OPEC actions.

In turn this sought out lever of influence is widely used by winners of U.S. presidential races. No wonder therefore the White House often follows the interests of the business circles that are closest to the winning party.

It is known the majority of Hi-Tech industry businessmen traditionally render assistance to the Democrats and representatives of the Old Economy (including the oil industry) usually support the Republicans. For example, software and biotechnological companies support the present Democratic nominee, Barack Obama. As regards the Republicans, it will not be news to talk about the connection of the current U.S. president Bush with the Texas oil business and vice-president Cheney with Halliburton, a service company in the oil industry. Therefore, Obama is not far from the truth when he accuses George Bush and John McCain of being in the pocket of the big oil companies.

On the other hand, nobody can say the relations between Big Oil and the Republican administration of the White House look like the relations inside the establishment of such countries as Nigeria, etc. One can directly name the unconcealed bribery there. Nevertheless, oil lobbying takes place in Washington, D.C., too. Thanks to the appropriate foreign policy, supermajors ExxonMobil and Chevron receive $40 and $18 billion annual net income respectively.

In general it is not reprehensible when the U.S. president acts in the interests of the American oil companies. There should be some limit, however. The high oil prices help oilers earn hundreds of billions, but the point is that the whole American economy loses more. The above-mentioned billion in profits is mostly taken out of the pockets of millions of American households. So, whose interests are more important? One million shareholders and the employees of the oil corporations or 300 million other U.S. inhabitants who only consume oil?

The solution is not in the USA, but global. The oil consumers should not be misled by ineffective measures like U.S. offshore drilling or the announcement of a $300 million prize for the invention of an alternative energy source. Such measures give practically nothing and only divert attention . The real mechanisms of oil price decreases are in the Middle East.

So, what to do? If one is to state it in one phrase, just forget about the Persian Gulf and oil prices will go down. Let the sheikhs just earn money and do not interfere in their affairs. And then the prices will go down. This is a paradoxical and only solution.

And what about Russia and Venezuela, you ask? They, you see, use oil money to strengthen political influence (political, not economic – this is their difference from sheikhs). However, the West can do nothing with them with such oil prices. There is a single tool for reducing their influence on world policy – falling oil prices. It is enough to lower the prices by half from the present and you can forget about the serious influence of Russia or Venezuela.

As you can see, the Second Law of Petropolitics has several consequences and, more importantly, it can soon snap into action yet again. A variable in the right part of the equation can change it. And consequently, both possible oil trends and much more in this world really depend on the one who is the US predisednt