2011 April 24 Sunday
Syria Destabilization And Saudi Oil Production

While Hillary Clinton refrains from calling for the ouster of Syrian President Bashar al-Assad the US government is clearly working to support opponents to the Syrian regime. Will this strategy lead to another recession?

The State Department has secretly financed Syrian political opposition groups and related projects, including a satellite TV channel that beams anti-government programming into the country, according to previously undisclosed diplomatic cables.

The recent revolutions in northern Africa and the US support for the rebels in Libya have encouraged anti-government protests in Yemen, Syria, Bahrain, Morocco, and even Saudi Arabia. Since American promotion of democracy leads to outcomes that provide examples of successful regime change this policy is an existential threat to the Saudi royal government. The Princes in Saudi Arabia have got to be wondering whether the Obama Administration will turn its regime destabilization machine toward them or will a substantial number of Saudi citizens decide to copy the Egyptian, Tunisian, and Libyan examples even without further US prodding?

What can the Saudis do about it? They are not without cards to play. Notably, (as suggested by Greg Cochran) the Saudi decision to cut oil production could be tied to a (quite understandable) desire on their part to see regime change in Washington DC rather than in Riyadh. The party in power always loses in a recession. A US recession therefore could help protect the Saudi royal family's hold on power.

Can will the Saudi princes survive in power long enough to drive Obama from office? Depends on how big an oil weapon they can wield. The connection between oil prices and recessions seems strong, especially when you view it from the perspective of percentage changes in oil prices as compared to a preceding period. Robert Rapier believes a double dip recession is a best case scenario with a "Long Recession" as a more likely future.

So double dip or long recession? Richard Batty of Standard Life Investments says a 100% increase in oil prices in a year is needed to cause a recession and so we will only hit an economic downturn above $150 per barrel. Not sure if that is true. The economic recovery so far has been very weak. So the amount of decrease in economic activity needed to put the US economy back into recession is not large.

Before you rush to criticize the Saudi strategy (which also provides them with more money in the short term to buy off a restive population) consider what would happen to the US and world economy if the Saudi government was overthrown. The price of oil would skyrocket. $200 a barrel is within the realm of what might happen with oil prices as Saudi oil fields shut down as they have in Libya. The result would be economic depression as unemployment would soar far above a starting level that is already 8.8% (with a large shadow group of unemployed who have given up job searching). An overthrow of the Saudi royal family runs the high risk of putting you, your family, friends, and neighbors out of jobs and out of the homes you all live in.

Share |      By Randall Parker at 2011 April 24 07:34 PM  Economics Energy


Comments
AnotherDad said at April 24, 2011 10:56 PM:

If anything -- outside of our insane policy of mass (low skill) immigration -- shows both the anti-nationalism and incompetence of our elites, it's that 30+ years after the 2nd oil shock we still don't have a post-oil energy policy.

All that's needed to break this is a mandate to all cars be flex-fuel, capable of running on methanol, which we can make from natural gas and even coal for around $1 a gallon. Methanol -- which the Indy cars ran on until shifting to ethanol a few years ago -- has about 1/2 the energy value of gasoline, so that equates to something like $2 wholesale gas, maybe $2.50 with taxes. Certainly it ought to cap oil prices at an equivalent to $3/gal gasoline. (Probably -- rough calculation -- something like $80-$90/barrel.)

A flex-fuel mandate does more than cap the oil price though. It shows our willingness to get "off oil", and it creates are market -- since we're the BSD of the car market -- for alcohol fuels world wide, enabling other countries (India and China have coal, all nations have the possibility of agricultural alcohol) to also take this path. And in doing so, it takes rips away the long term future -- ever rising prices -- of the oil market.

And when the Saudis are defunded, and can no longer -- or at least not very generously -- fund the Islamofascists, that threat retreats too. Win, win, win, win. But what is our government doing to get us off oil ...?


Black Death said at April 25, 2011 6:25 AM:

What a delicious irony. With all the US meddling in the Middle East to promote "regime change" in various lands, the Saudis may now be promoting regime change in Washington. Truly, truly fascinating. I wonder if they can pull it off?

Every president since Nixon has talked about "energy independence," but none have done anything about it - the US has grown more, not less, dependent on foreign oil. "Regime change" in the Middle East usually means that some authoritarian, mildly pro-American government is replaced with something much worse (think Iran, and maybe Egypt). And oil exports always decrease for a while. I have no love at all for the corrupt, repressive, authoritarian Saudi government, but the alternative is probably much worse. Count on Obama and his minions to muck it up.

Make Believe Media said at April 25, 2011 7:58 AM:

It is probable that the Israelis also have a desire for regime change in the Americas ... now if between them they could only convince Kadaffy Duck to release details of his donations ...

John Samford said at April 25, 2011 8:21 AM:

"it's that 30+ years after the 2nd oil shock we still don't have a post-oil energy policy."

The above is a fantasy. We have an OIL based economy. Even if we stopped burning OIL for energy (That would require Congress to re-write the Laws of Physics), OIL is still needed for most items manufactured today.
Even if somebody wakes up tomorrow morning with an idea, runs out to their garage and builds a fusion reactor that fits in the palm of your hand an outputs mega watts on just 1 cc of unobtainium we will still be OIL dependent.
The watermelon's idea of No OIL is the equal of the Muslims practice of blaming everything on the Jews.

no i don't said at April 25, 2011 12:38 PM:

"The State Department has secretly financed Syrian political opposition groups and related projects, including a satellite TV channel that beams anti-government programming into the country, according to previously undisclosed diplomatic cables."

I agree. However I don't agree that the U.S. has a promotion of democracy as most Americans think. Remember Chile in 1973? when a democratically elected president was overthrown and killed by the U.S. Chomsky and many others have been very clear about it.

"Since American promotion of democracy leads to outcomes that provide examples of successful regime change this policy is an existential threat to the Saudi royal government. The Princes in Saudi Arabia have got to be wondering whether the Obama Administration will turn its regime destabilization machine toward them or will a substantial number of Saudi citizens decide to copy the Egyptian, Tunisian, and Libyan examples even without further US prodding?"

I think Libya is not a good example, as the rebel number in Libya was no greater than a couple thousand, -no more than five thousand as we speak-.

Supporting these kinds of rebels is not the promotion of democracy. In fact the U.S. is no longer seen as the promotor of democracy in the world. It's felt more like an empire.

I want to believe that when you talk about "regime" you are here talking about Saudi Arabia only, in which case I agree, but not if you include Egypt or Libya since they are not regimes, simply because they are not monarchies. The word "regime" implies a morarchy: a king or "rex" that reigns and therefore should not be used for countries that are republics, but only for monarchies like Saudi Arabia, Spain, England, etc. ...Perhaps the Vatican as well.

Francis said at April 25, 2011 7:05 PM:

"Chomsky and many others have been very clear about it."

Chomksy? Only chumps like you fall for his shit.

Randall Parker said at April 25, 2011 8:44 PM:

AnotherDad,

Why do you think conversion of natural gas to methanol is the way to go? Natural gas can be converted to diesel and other liquids. I'm not saying you are wrong. I do not know enough about the technologies and economics of GTL (Gas-To-Liquid) plants.

I suspect if the spread between oil and natural gas remains this large we will see lots of measures taken to shift toward more natural gas usage. There are several options for doing that however:

- CNG in trucks.
- LNG in trucks.
- CNG in cars.
- GTL for methanol.
- GTL for gasoline.
- GTL for diesel.

CNG and LNG require far less capital. With heavy usage trucks make the most sense as the first to shift to them. UPS, Ryder, and some other companies are buying LNG and CNG trucks. UPS already runs CNG trucks for local delivery and is expanding CNG trucks for longer range delivery. I expect this to expand as the price of oil remains high and goes higher still.

Honda, btw, is going to bring out their Honda GX CNG car in many more markets this year. Want to switch to CNG? You'll be able to. Whether it makes economic sense is less clear. But when $6/gallon gasoline arrives a CNG car could be the ticket.

Engineer-Poet said at April 26, 2011 7:48 AM:
The above is a fantasy. We have an OIL based economy. Even if we stopped burning OIL for energy (That would require Congress to re-write the Laws of Physics), OIL is still needed for most items manufactured today.
This post must have been linked from Instapundit; the non-thinkers are all over it.

The majority of the USA's energy does not come from oil; oil isn't even a majority of the fossil energy (~35 out of ~78 quads in 2009).  If you look at the energy content of oil products supplied, it's obvious that the biggest part of it isn't "the economy" as a whole, it's cars and light trucks (a whopping 47.3%).  Distillate fuel oil (which includes diesel fuel and home-heating oil) is second at 21.3%, with jet fuel and LPG a distant third and fourth, nearly tied at about 8% and 7% respectively.

Things made FROM oil make up a very small part of it (they're included in "Other").  Total US plastics consumption is in the billions of pounds per year, while US oil consumption is billions of barrels.  There's no comparison.

If we powered all cars and trucks off something else, US oil imports would fall to approximately zero.  That's a good goal for a number of reasons, not the least of which is that electric cars and PHEVs seem to have very good crash-safety performance.  Protection from threats on the road and petroleum blackmailers abroad; what's not to like?

As for gas-to-liquids, it's nutty except for specialty products.  Efficiency of GTL is about 45%, so you can multiply the cost of gas by a factor a bit greater than 2 before you tack on the amortization and O&M of the GTL plants themselves.  Figure the $7/mmBTU price that Berman says the industry needs to be profitable and multiply by 2.2, I get $15.40/mmBTU or about $1.77/gallon of gasoline just for the feedstock.  Figure $1.50/gallon for the plant and $.50/gallon for taxes, and the bloom is off the rose; it would need subsidies to be profitable in downturns or the industry goes bankrupt.  But GTL subsidies would be a great revenue stream for the rent-seekers of the NG industry, which is probably why the propaganda machine is pushing it so hard.

no i don't said at April 26, 2011 11:13 AM:

Any thoughts of your own Francis? Aaaaah, but thinking is hard isn't it Francis?; it requires to exercise against our mental obesity, right Francis?

It's easier to sentence without having to provide any reasons and arguments, right Francis? I think you need to read Chomsky, Francis...

Or perhaps at least you'd like to quote your academic favorites... Og Mandino? Bill Gates? Pope Benedict XVI? William Buckley? Al Gore? Aaaaah, but it takes a little courage to say where you stand, who do you consider a thinker, right Frances?

Chomsky IS Chomsky. While you're just... hmm Francis, right?

bbartlog said at April 28, 2011 11:04 AM:

Chomsky is a keen observer. I don't agree with his ideas about what the world should look like, and he can be both smug and boring; further he has a blind spot for the crimes of nominal communists and socialists (like Pol Pot). But his criticisms of the US are pretty accurate.
High oil prices are not needed to trigger another recession. Remember, our current levels of government spending are unsustainable, and there is no serious proposal on the table to fix the problem as yet. Something has to give, and it's looking like the dollar at the moment.


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