A Reckoning?

To understand the global economic chaos endured over the last few weeks, it is essential to separate the proximate from the ultimate cause. 

The immediate or proximate cause is the often fatal, expanding contagion of the coronavirus (Covid-19). The collapse of worldwide equity markets has been an immediate and widely noted effect of this proximate cause. The virus’s carnage in PRChina triggered a rapid and effective response, but one that dampened economic activity in a country already dealing with a slowing economy battered by economic sanctions and tariffs. Institutional investors, hedge fund managers, and their ilk took note of the carnage and contagion and, anticipating its effects on global activity, withdrew their assets from equities and moved them to safer havens, like US Treasury bonds. The panic initially shook the bond markets, lowering yields dramatically.

The rapid spread of the virus brought even greater economic disruption in its wake.

However, the ultimate cause of the current worldwide economic turbulence is the fragility and vulnerability of the global capitalist system. That statement is neither trivial nor self-evident. Since the severe crisis of 2007-2009, capitalism has been limping along, thanks to extraordinary central bank measures, tax cuts, military spending, and expansive credit-driven consumer demand. The casualties of the previous crisis survive on low-paying, casual service jobs while the rich engorge themselves on stocks inflated by mergers and acquisitions and stock buybacks. Every tentative growth spurt falters, returning the capitalist economy into stagnation. The increasing irrelevance of centrist political parties is one manifestation of the mass dissatisfaction with the growing inequality and impoverishment suffered by many. The question was not whether this course is sustainable, but when it would fail.

The ominous threat of the Coronavirus to international economic activity-- work, leisure, travel, all forms of social life-- has triggered a market meltdown based on a fear that the capitalist system may spiral out of control. Investors know that the system’s weaknesses, the lack of adequate preparations, the political stasis, and ineffective governing foretell a frightening outcome. 

Unlike the rapid and thorough Chinese response which has largely arrested the virus’s spread, complacency in the Western capitalist countries is shocking. Today, seven times more people per millions of population  have been infected by the virus in Italy than in PRChina, where the illness first broke. New cases in Italy are 3,497 against only 11 in PRC on March 14. Chinese deaths fell to 13 on March 14, while 175 Italians, 97 Iranians, and 60 Spaniards died from the virus. All the Western media hand wringing about Chinese “authoritarianism” will not deflect the incredible failures of public health preparedness in the Western capitalist countries.

The lack of a universal, equitable, and comprehensive healthcare system (like Medicare for All!) and a robust public health sector put the US especially at risk. Couple the unevenness and unfairness of healthcare with the historical obsession with personal autonomy, and disaster is on the horizon.

An exogenous trigger of economic turmoil is not unprecedented in recent times. The attack by al Qaeda on US civilians on September 11, 2001 produced a 7+% drop in the stock market, deepened the dotcom downturn, and fueled a stock market retreat and growing unemployment for the next year or so. As with the Coronavirus in 2020, an unexpected, non-economic factor jolted a shaky economy in 2001, then also plagued by overvalued “assets.” This instance promises to be far worse.

Much of the economic history of the twenty-first century has been a battle by policy makers against deflation, a battle to prop up artificially inflated, often virtual, assets. From the turn of the new century and the dotcom bubble until today, toxic assets have infected the productive economy. Ironically, a seemingly random “toxic” virus is now threatening the weakened global economic organism, destroying “value” by the trillions.  

Of course the danger still lies ahead. Markets are only anticipating the lost work-hours, the layoffs, the healthcare costs, the business closures, the slowed production, the inverse “wealth” effect, the reluctant consumer, the slackening investment, and a host of other economic shocks that could feed a deflationary spiral. The financial sector is stunned by this as well because asset values are collapsing in a 

low-interest environment. 

Though some are calling this a financial crisis, it is not spurred by financial factors; nor is it confined to the financial sector. Nor is it a crisis of overproduction, under-consumption, or profitability, though it is quickly morphing into all of the above and, inevitably, where all economic crises arrive, a crisis of accumulation. The global economy was rocking on a precipice; the Coronavirus pushed it over.

The virus couldn’t have come at a worse time. The war between the economic globalists and nationalists, waged with tariffs and sanctions, was taking a heavy toll on many countries and remains unsettled. Despite equity market euphoria (disconnected from all reality), commodity markets were slack or declining. International trade had slipped below historic growth levels.

Saddled with the unspoken duty to stabilize the US economy for an incumbent in a Presidential election cycle, the Federal Reserve shot its monetary wad prematurely, lowering interest rates in anticipation of limited economic slippage from the “Chinese problem.” They are now left with only radical measures to meet the crisis (a program injecting a trillion and a half in liquidity into the banking sector and expanding deflation-fighting asset purchases was announced on March 12).

The Russians exacerbated the crisis by shunning the Saudi plan to bolster oil markets. On Friday, March 6, they refused to join the Saudis in curtailing oil production to stabilize prices. Irresponsibly, the Saudi leadership-- under severe political pressure from budgetary shortfalls and a disappointing IPO-- announced a price war (and arrested oppositional members of the Royal family).

As oil prices collapsed, the Russian ruble collapsed as well, forcing the Russian central bank to halt foreign purchases temporarily.

According to Russian insiders, the withdrawal from price maintenance was aimed at US frackers who cannot produce profitably when prices are low. Alexander Dynkin is quoted as saying: "The Kremlin has decided to sacrifice OPEC+ to stop U.S. shale producers and punish the U.S. for messing with Nord Stream 2." [my emphasis] The Russians surely knew that the US fracking industry was already on the verge of collapse because of massive, unmanageable debt (over $120 billion maturing over the next 2 years!). Thus, Russia risked a profound oil-price deflation in revenge for US subversion of its European gas pipeline project-- a capitalist tit-or-tat. 

I have written about energy imperialism frequently over the last two years (especially, the US’s extortionate use of war-mongering, sanctions, and threats in order to garner market share) . Given the ugly effects of a price-war race to the bottom on vulnerable oil production-dependent countries like Venezuela, those who see Russia as something more than another capitalist country pressing its own interests may find a reason to reconsider.

A nasty virus, incompetent and delayed responses, ill-conceived economic policies, an irresponsible price war, all contribute to a fear-driven market collapse as the opening act of a possible drama featuring an unprecedented deflationary spiral. 

Does anyone believe that the leaders of the capitalist world can manage this challenge?

Greg Godels

zzsblogml@gmail.com

Inching Towards Armageddon

Gerald Seib, The Wall Street Journal’s chief political commentator, is right about the attack on the Saudi Arabian oil facilities: “In any case, the timing is deeply suspicious.” But hampered by his ties to officialdom, his suspicions take him only to the Iranians and their allies. Like all those drawing a salary from the monopoly entertainment industry, Seib cannot, by choice or by diktat, color outside the establishment lines.

Of course Seib is not alone in pointing fingers at the Iranians; the entire US foreign policy/intelligence cabal can only see Iran’s hand in the attack. They are determined to gin up enthusiasm for some kind of military adventure against Iran. That unanimity alone is cause to be “deeply suspicious.”

As for timing, what sense does it make for the Iranians to stir up trouble when Trump had just fired John Bolton, the most violently anti-Iranian policy maker in his administration, when Trump had alluded to a possible deal with Iran and dangled $15 billion bait before the Iranian leadership? Little sense indeed-- and “deeply suspicious timing.”

While liberals will choke before applauding any of Trump’s foreign policy initiatives, his bizarre confidence in “deal-making” has pulled the US back from more than one bloodletting venture planned by the policy hawks and the generals. Certainly the attack on Saudi Arabia played into the hands of the belligerent factions that stood with Bolton (and Pompeo) on the road to war. They benefit from the attack.

With a close election and a history of crying “Iran is evil!” at every opportunity, Israeli Prime Minister Netanyahu would have sought to benefit from the attack. 

And the US domestic oil industry-- now the largest producer in the world-- definitely benefits from the attack. Violence and instability in the Middle East, the traditional oil spigot, only makes the US a more attractive source, as Trump has bluntly advertised. With the Strait of Hormuz a risky bottleneck and Saudi Arabian facilities ablaze, cautious customers might be well advised to buy US energy resources guaranteed by a trillion-dollar military. 

At the same time, energy insiders have exposed the explosive crisis facing the fracking-driven US oil industry. Caught in the scissors of massive overproduction and collapsing earnings, the industry is facing a cold, calculating Wall Street, calling in the enormous debt accumulated over the years. Wall Street financing allowed the industry to survive the 2014 Saudi Arabian attack on the US shale revolution, but now finance capital wants to see a return. The unprecedented rise in oil prices in the aftermath of the attack certainly helps the US industry, as a back page article in The Wall Street Journal concedes: “Frackers Seek to Profit on Saudi Oil Attack” (9-17-19).

For over two years, I have been arguing that US imperialism is shaped more and more by the explosive growth of US energy production. New and greater markets for oil and liquified natural gas play a larger role in shaping US foreign policy. Rather than using US might to dominate and safeguard energy production, US foreign conduct is today directed toward disrupting competing sources. The chaos in the Middle East (and the intervention in Venezuela) certainly further that agenda.

Apparently, the Russians stand to benefit as well. President Putin suggests that maybe Saudi Arabia, with the third largest defense budget in the world, should spend some money on Russian air-defense systems like their touted S-400. Clearly, the Saudi defense system, based on the most sophisticated and costly US defense systems, failed to stop the attack, a great embarrassment to the US and the Saudis. 

US officials, including the Joint Chiefs of Staff, scrambled to explain the failure. They argued that the multi-billion-dollar systems were focused on threats from the Houthis in Yemen. Of course that claim contradicts the long-standing, fundamental charge that Iran is the principal danger to the region. To deflect attention from the defense failure, the US and the Saudis must instead maintain that they were bushwhacked by the Iranians. Any alternative explanation would point to an enormous intelligence and military-hardware failure. Surely the poor, backward Houthis could not outsmart the best and brightest of the Western defense establishment. The illusion must be maintained.

Liberals, and even many on the left, have failed to grasp the current imperialist paradigm. We witness the clash and competition of big and little imperialist powers. The Cold War paradigm is now obsolete. And in its place are postures, maneuvers, and actions by many rivals to gain advantage over or escape the dominance of others; we live in an era of escalating inter-imperialist conflict between capitalist countries of every size and political persuasion. 

We have to go back over a hundred years to find a real, existing parallel to the events transpiring on and around the Arabian peninsula.

Like the events in Sarajevo in 1914, we may never clearly identify a “villain.” Nor will it really matter. It may soon be overshadowed by the war and destruction that comes in its wake.

Greg Godels

zzsblogml@gmail.com

Blood and Oil

The Washington Post, the New York Times, and Reuters report that their sources have revealed the CIA is concluding (with its surely-by-now suspect “high confidence”) that the highest echelon of the Saudi Arabian government, including the Crown Prince Mohammed bin Salman, ordered the assassination of Jamal Khashoggi. Khashoggi’s murder at the Saudi embassy has occupied US headlines for the last six weeks. While it appears to be a particularly gruesome and brazen act, one cannot but recoil from the callous selectivity of the US media, a media that heretofore ignored or minimized the horrors inflicted upon tens of thousands of Yemeni people by the same Saudi government and its coalition allies.

As though choreographed for the moment, a study suddenly appeared last week proclaiming Saudi savagery (Aid Group Says 85,000 Children May Have Died of Hunger in Yemen) and capturing the attention of The New York Times, Washington Post,Time,The Independent, Voice of America, etc. Overnight, the US media discovered atrocities already well documented over the last three years by the UN and foreign and alternative media. Suspiciously, the aid group releasing the study was thrown out of Pakistan in 2015 charged with covering a bogus CIA vaccination program.
 
One might be led to believe that the violently imposed social, cultural, and political backwardness of the Saudi family regime and its bloody actions was unknown until the Khoshoggi affair. However, it is only politically expedient to recognize it now with a rift in the ruling class.

But what is one to make of this leak from anonymous CIA sources to the media?

Like so much of the unattributed information and misinformation driving the US entertainment-oriented media, the leaks stir the political pot without adding certainty or clarity.

Apart from information tantalizingly dangled by Turkish authorities, the CIA leakers additionally claim a phone intercept between the Crown Prince’s brother in Washington, DC and Khashoggi, assuring his safety for a visit to the Saudi consulate in Istanbul. The CIA sources assert that the call was made at the behest of the Crown Prince. Therefore, they conclude that bin Salman’s motive for the call was to set up the Khashoggi murder.

The corporate media have taken the matter as proven despite no official confirmation from top CIA officials or other government agencies. For the entertainment-industrial complex, the Khashoggi affair is just another opportunity to bait President Trump-- a firm supporter of the newly installed Crown Prince--  into another episode of prevarication, bluster, and outrageousness. And the simultaneous “discovery” of Saudi Arabia's bloody massacre of Yemen only adds to the case against Trump.

In the meantime, President Trump squirms before the broad national and international revulsion over the killing.

Is the revulsion over the Khashoggi killing sufficient for the US and the NATO allies to kick Saudi Arabia to the curb? Will they jettison their long reliable “policeman” over the Islamic world and their intermediary in imperial domination?

Soaked with self-righteousness, US and European leaders act as if they had forgotten the dirty work that the Arabian head choppers did for them, for example, in Afghanistan, in the former Yugoslavia, in supporting Israel, in Libya, and, of course, in Syria.

Like the US media, Erdogan’s Turkey stoked the assassination into a major crisis. They willingly exposed their illegal wiretap in order to discredit Saudi Arabia and drive a wedge between the Saudis and the US. They have also sided with Qatar in its defiance of the other Arabian monarchies.

Qatar, in turn, has conveniently befriended Iran with whom it shares an enormous natural gas field. Iran, like Turkey, has engaged in an off-again, on-again friendship with Russia. In the case of Turkey, Erdogan plays the US against Russia over arms sales. Round one went to Russia with its sale of its sophisticated ground-to-air defense system, annoying the US to no end. Though the US cancelled its offer of the defense industry’s crown jewel, the F-35, the Turkish leaders know that the US desperately needs to sell the fighter to rationalize the development costs. Erdogan would like to trade closer relations with the US (and not Russia), arms sales, and a muting of the Khashoggi affair to get their hands on Fethullah Gülen, the alleged coup plotter living in the US.

Alongside the gore of assassination and weapons sales haunting the Middle East, there is, as there always is, the specter of oil (energy). Saudi Arabia has sought to reset its role in the energy nexus. New leadership hopes to shed its image of unreconstructed tribalism, it attempts to diversify its vast wealth, and it looks to jump-start its capitalist normalization by making ARAMCO, the Saudi energy firm, a publicly traded corporation.

But the emergence of its long-time energy partner, the US, as an energy rival has deflected those goals. First, the Saudis tried to discipline the US energy industry by driving prices below cost of production, bullying the revived US fracking industry and taming its growth. With billions of investor funds propping up the US industry, the plan failed.

Saddled with enormous and growing expenses from the Yemeni war, the Saudis reverted to their traditional role as ‘CEO’ of OPEC, guiding the oil producers toward a stable mix of sustainable and profitable prices.

But their close friends in the Trump Administration overturned that effort. Taking the Trump sanctions against Iran at face value, the Saudis and the other oil producers ramped up production to fill the void. However, the Administration negotiated large exceptions to the sanctions, turning the increase into an overproduction glut and collapsing prices.

Sensing a betrayal of the alliance, the Saudis are embarking on an independent policy of drastically reducing production and urging others to do so as well. The oil wars are escalating.

With the Saudi-US alliance frayed, Putin has made nice to the Saudis in recent months.

If the Middle East seems a cauldron of chaos, drama, and frictions, it is only one of several centers of growing tension and conflict. Southeast Asia is becoming the scene of US-PRC rivalry, with different countries taking different sides, with influence peddling through loans and projects, and with threats and counter-threats.

Further, the European Union continues to barely hang together, wracked by ever more powerful centrifugal political forces. And South America continues to suffer sharp political and economic instability.

To those still viewing the world through the prism of the Cold War or the brief period of global US hegemony, today’s world appears as a great mystery-- a moment of intense drama and inexplicable chaos. The Cold War-- for all of its dangers-- operated under a fairly strict set of unspoken rules, even when reckless leaders like Ronald Reagan were in power. During the post-Soviet, short-lived US global regnum, all but a few countries accepted some US governance.

But today, states are in intense competition for economic advantage as Lenin's Imperialism foresaw. Capitalist countries are replaying the intense competition typical of human interactions under capitalism, but on the regional and international level. Alliances are formed and broken; contradictory new ones are formed in the blink of an eye. International rules and regulations are under siege as countries seek to gain an economic edge. Cooperation, always a tenuous global achievement, has dissolved to reveal a feral pursuit of national self-interest. A ruthless zero-sum logic replaces the heralded “win-win” attitude of global players during more stable economic times.  

The more powerful economies are attempting to construct hegemonic blocs to bring rivals to bay. Lesser powers are seeking regional hegemony or the most advantageous place in a larger constellation. The anarchy of unrestrained market competition has finally and decisively penetrated international relations. And there is no going back to a non-existent “golden era.”

But we have seen this before.

Today’s aggressive rivalries resemble only too well those smoldering before World War One. Like the pre-WWI period, big and small powers vie for economic advantage, taking every opportunity to expand the exploitative tentacles of their capitalist enterprises. As Lenin foresaw over a hundred years ago, the voracious hunger for new markets, for new sources of exploitation, and new resources inevitably leads to war.
That is where the toxic combination of economic decline and intensifying inter-state rivalries is taking us. As the danger of a spark igniting a disastrous regional or global war grows, too many good people are engaged in the machinations and maneuvers of bourgeois politics to now recognize the looming catastrophe.

Now, more than ever, we need a powerful movement for peace. Nothing could be more urgent.

Greg Godels

zzsblogml@gmail.com

Stirring the Energy Pot

Since February of 2017, I have written frequently about changes in the global political economy of energy and the effects of those changes on imperialist rivalries and accompanying political trends: New Developments in Political Economy: The Politics of Oil (2-6-17), US Imperialism: Changing Direction (6-25-17), More on Energy Imperialism (7-26-17), Economic Nationalism: What It Means (12-28-17).

The broad gist of these articles was that (1) the era of global economic integration was severely challenged by the 2007-2008 shock; (2) a technological revolution in energy extraction moved the US-- the leading imperialist power-- towards energy independence; (3) the failure of OPEC and others to rein in US energy production and the continuing sluggishness of growth and trade prodded the US towards a further goal of energy dominance through competition in energy markets; (4) without the burden of dependence on stable, secure international energy sources, US imperialism stepped back from its role as the primary promoter and guarantor of global integration and stability; (5) intensifying competition in the context of stagnant growth fostered the politics of economic nationalism and the promotion of national self-interest in contrast to the politics of globalism.

Since the British navy and other navies converted from coal to oil-burning vessels in the early 1900s and with the burgeoning dependence of modern militaries on oil, securing energy sources has been a strategic centerpiece of imperialist strategy.

It is not too great of an exaggeration to see German expansion in World War II as accelerated by a thirst for reliable energy supplies (Romania, Soviet Union). And the denial of energy resources to the Japanese militarists similarly prodded aggression in Southeast Asia.

For the US, declining domestic production and increasing reliance on foreign oil, particularly from the Middle East, led to greater attention to security and stability in the Middle East. The US established a powerful gendarmerie to police the region: the Shah’s Iran, Israel, and the Arabian petrostates. Billions of dollars of military hardware bolstered these watchdogs at various times in an effort to guarantee stable supplies of oil. US security services worked overtime to install stable regimes in all of the petrostates and their neighbors. US dominance was sealed with the establishment of the dollar as the petroleum-trading currency. The dominance was so complete that the US was able to use low petroleum prices as a weapon against the Soviets during the Cold War.

But matters have changed radically with the technology-enabled explosion of oil and natural gas production in the US.

The New

Writing in The Washington Post (The US is about to be the world’s top crude oil producer. Guess who didn’t see it coming, 3-7-18), Charles Lane reminds us of how matters were before: “During his 2006 ‘addicted to oil’ State of the Union address, President George W. Bush bemoaned imports from unstable parts of the world and called for replacing 75% of Middle East oil imports by 2025.” Bush, like his father, spent great efforts-- lives and wealth-- policing and bullying those “unstable” oil producers.  

Energy writer James Blas explains in Bloomberg Businessweek (The New World Order of Energy Will Be American, 1-29-18) how matters are now, how the US no longer has to “tiptoe around oil supplying nations” whether they are “friends” (Saudi Arabia) or “adversaries” (Venezuela). Instead, “energy dominance” is on the agenda.

Blas notes that the US won the battle for dominance started by Saudi Arabia in 2014 when the Saudis drove the price of West Texas crude oil down to as low as $26 a barrel through massive overproduction, expecting to cripple US shale production. Thanks to huge investments, the shale oil companies survived the attack, cut costs, and roared back. Today growth is faster than pre-2014 when prices for oil were actually much higher. And imports are now below 2.5 million barrels a day, the lowest level since record-keeping began in 1973 (imports were 12 million barrels per day in 2008).

Thanks to geo-political “flare-ups” (generally US-instigated instability), US exports at one point in 2017 hit 2 million barrels a day, mainly to Canada and the People's Republic of China (PRC). Exports are fully expected to grow even more in the future.

Venezuela is Illustrative of the US’s growing interest in disrupting oil markets to its advantage. Through disinvestment and sanctions, Venezuelan oil production dropped nearly 30% last year. Similarly, the US-NATO destruction of Libya has succeeded in disabling its oil industry. The wreckage of the Libyan energy industry means that oil prices would have to reach $78.10 per barrel for the industry to break even. With prices trending well below that number, there clearly is little chance for the Libyan industry to recover, invest, or add to the country’s sovereign wealth.

With massive corruption and an expensive war to finance, Saudi Arabia now needs $70 a barrel to merely break even. Hoping to escape from dependency on an oil regimen, the Saudis had planned a public offering (a sell-off to private interests) of its national oil company, ARAMCO. In the current unfavorable competitive environment, that move has been postponed time and time again.

Formerly a price dove-- the world’s advocate for low oil prices-- the Saudis are now desperate to achieve higher prices. Their escape plan from their losing hand in oil competition-- Vision 2030-- is endangered by modest prices. To reduce supply and increase both demand and prices, the Saudis are a strong advocate for sanctions against Iran, as are powerful energy interests within the US ruling class.

The new, competitive environment has brought forth new, unexpected alliances. Russia-- a frequent foe of Saudi foreign policy-- has recently signed a comprehensive energy agreement with Saudi Arabia. For its part, Russia is offering to take a substantial position in any future IPO of ARAMCO, boosting its prospects (along with a similar offer from the PRC). Saudi Arabia, in return has agreed to invest in Russian LNG projects and Eurasian drilling. It appears that Russia and the PRC are looking to guarantee security, stability, and cooperation among the energy-producing states, a role that the US has now abandoned with its pursuit of energy dominance and a role that is a necessary condition for peace in the region.

Because emerging US oil dominance (and sanctions: war by other means) threatens to disrupt the reliability and stability of existing petro-suppliers, the PRC has begun to negotiate crude-oil futures contracts in renminbis rather than petro-dollars.

Natural Gas

Much of the growing US animosity that is so apparent in US-Russia-PRC relations revolves around competition in the natural gas market. Through political fantasies, sanctions, threats, saber-rattling, and contrived affronts, the US has made every effort to wean Europe away from Russian natural gas, especially the expansion of pipelines to Europe promising consistent supply and favorable prices.

Some Eastern European countries, mired in historic anti-Russia enmity, have welcomed US liquefied natural gas (LNG) shipments, constructing new receiving facilities. They accept inconvenience, inefficiency, and higher prices as the cost of the politically motivated anti-Russia campaign. The US is trying to browbeat the rest of Europe into giving preference to US LNG.

But the big prize is the PRC, the fastest growing natural gas market in the world. Both Russia and the US are fighting to supply natural gas: Russia has a pipeline project (GAZPROM) sales agreement to supply 1.3 trillion cubic feet a year, while the US (Cheniere Energy) has contracts to supply 1.2 million tons of LNG per year.

The recently announced selective, very selective US tariffs-- apparently really only against PRC-- likely have a covert motive. US Secretary of Commerce Wilbur Ross suggested that increased Chinese purchases of LNG might have a happy consequence for tariffs by reducing the US-PRC trade deficit-- another shot fired in the energy wars.

Trade Tariffs

The sharpest edge of US economic nationalism is the emerging establishment and threats of trade tariffs. Short of embargo or out-and-out war, establishing disruptive trade barriers is the most hostile posture towards other nations. In the case of a powerful country like the US, tariffs constitute unabashed arrogance. As perceptive left commentators have noted, the US has always pressed its problems unto its weaker “friends,” but not with this hubris.

Lest anyone think this is a ‘Trump’ problem and not shared by fellow Republicans and Democrats, attention should be paid to what others are saying. When Trump announced the first round of tariffs directed at the PRC, Democratic Senate leader Chuck Schumer was quoted in The Wall Street Journal: “I don’t agree with President Trump on a whole lot, but today I want to give him a big pat on the back.”

And Reuters reported on April 1 that Democratic Senator Elizabeth Warren, speaking in Beijing:

The Massachusetts Democrat and Trump foe, who has been touted as a potential 2020 presidential candidate despite rejecting such speculation, has said U.S. trade policy needs a rethink and that she is not afraid of tariffs.

After years of mistakenly assuming economic engagement would lead to a more open China, the U.S. government was waking up to Chinese demands for U.S. companies to give up their know-how in exchange for access to its market, Warren said.

“The whole policy was misdirected. We told ourselves a happy-face story that never fit with the facts,” Warren told reporters on Saturday, during a three-day visit to China that began on Friday.

Clearly, broad sections of the US ruling class have joined the trend towards economic nationalism.

The implications for peace or war are stark.

Greg Godels

zzsblogml@gmail.com

New Developments in Political Economy: The Politics of Oil

Since the military build-up leading to the First World War, petroleum production has been the figurative, if not literal, motor for economic growth. Modern machines of war demonstrated the future. The imperialist powers recognized the crucial role of motorized vehicles, airplanes, and naval vessels and their thirst for oil in modern warfare, as well as anticipating the many important peacetime uses to come. At the same time, these same powers foresaw that securing sources of crude oil would be an essential, if not the essential, key to achieving and maintaining a dominant position in the global economy.

It is not far-fetched to view the post-First World War victor’s settlement, especially regarding the peoples of the Middle East, as significantly driven by considerations of future energy resources. The secret Sykes-Picot agreement likely had as its unspoken goal the guarantee of access to petroleum in the Middle East by both France and the British Empire. The conquest and oversight of oil reserves and the anti-Communist crusade became two essential pillars of twentieth-century imperialism.

US oil companies joined the European imperialists in sourcing Middle Eastern oil to complement domestic production. And the acquisition of sources of oil played no small part in the Second World War. All three Axis belligerents-- Germany, Italy, and Japan-- lacked sufficient petroleum access to sustain their imperial designs. The course of their aggression was shaped, to a great extent, in order to accommodate their thirst for oil.

In the Cold War era, the US took responsibility for securing oil for itself and its allies, installing Iran and Israel as Middle Eastern gendarmes. The oil issue became particularly acute with the collective organization of oil-rich nations into the Organization of Petroleum Exporting Countries in 1960, a development coming to a head with the oil embargo of the early 1970s that debilitated the advanced capitalist economies. This blow coincided with the beginning of a decline of US domestic oil production, sending shock waves through the US ruling class. A further shock struck with the loss of the Shah’s policing of the Middle East as a result of the Iranian Revolution.

Thus, the US entered the last two decades of the twentieth century facing shrinking domestic oil supplies and Middle East instability, two developments prompting more imperialist attention upon the affairs of oil-producing nations.

The Iraq-Iran War, beginning in 1980, further destabilized the region; US imperialism sided with Iraq out of fear that the Iranian revolution would spread throughout the Middle East, jeopardizing oil security.

And in 1991, the US undertook a massive military intervention in Iraq to protect the government of Kuwait, a reliable oil source threatened by an Iraqi invasion. US imperialism then recognized both Iran and Iraq as major threats to imperialist dominance of the region.

The Twenty-first Century

With the demise of the Soviet Union, the US enjoyed an unprecedented freedom of action. At the same time, US rulers faced growing dependence on foreign petroleum resources-- the US imported twice as much crude oil as it produced domestically at the turn of the new century. The Bolivarian Revolution in Venezuela was perceived as a threat to a once reliable source of petroleum products. Long-compliant allies in the Cold War sought their own independent arrangements with oil producers, stoking inter-imperialist rivalries. The explosive growth of the People's Republic of China and its dramatically expanded energy needs stressed global oil production.  

A panicky US ruling class looked to different paths to ensure access to resources for its mighty military machine and to assuage a restive public rocked by energy-price volatility. On one front, the US began to explore moving away from traditional sources of oil imports. Capitalist Russia enjoyed vast petroleum reserves and production capacity rivaling Saudi Arabia. And capitalist Russia was also in need of foreign investment. Two factors blocked this route (see Bloomberg Businessweek, 1-16/1-22-17, An Oily Reset in US-Russia Relations): first, Russian nationalization of some of its private oil business, and, two, the beginning of a revolution in domestic energy extraction (fracking and shale production). US allergy to supporting nationalization and the emergence of promising technologies (not to be shared with an imperialist rival) soon closed the opening to Russia in the eyes of many policymakers.

On the other hand, a substantial sector of the US ruling class favored achieving oil security through military intervention and under the guise of human rights and democratization. Tested in the Cold War, this strategy of imposing US capital’s will upon other nations by posturing as high-minded saviors proved even more effective after the demise of the Soviet Union as a counterforce. Before, imperialism promised to bring civilization to its victims; today, it is human rights and democracy.

The twenty-first century overt and covert interventions in Afghanistan, Iraq, Libya, Iran, Egypt, Syria, and possibly Turkey can all be seen, through the lens of the politics of oil, as related to securing or protecting petroleum resources. Because of active resistance to US domination, because of the strategic importance of oil, the US has been at continual war in the region since 2001 under the tattered banner of fighting terrorism.

Matters began to change in the last decade, with US domestic oil production nearly doubling between 2010 and 2014. In the last few years, US oil production has reached levels in line with the world’s largest producers, Saudi Arabia and Russia. For the first time in decades, the US is again exporting extracted energy products. In fact, many experts expect the US to become a net energy exporter in the next decade.

The return of the US as an energy competitor has predictably shifted US foreign policy. The Obama administration began to sour on leading the way in regime change in the Middle East as US energy production ramped up domestically. ENI, the Italian oil company led the call for regime change in Libya, backed up by the Italian and French governments. ENI’s relations with Gaddafi had worsened. The US joined, but did not lead the intervention. Obama later spoke of regret at being drawn into the schemes leading to the overthrow of the Gaddafi government.

Similarly, the US intervention in Syria was modest in contrast to the massive military expedition in Iraq eight years earlier. The Obama administration refrained from establishing a “no fly” zone, a military maneuver expected to open the way to the defeat of Syria’s military.

US relations with Iran improved during the later years of the Obama administration as well, despite Iran’s independent foreign policy.

These developments signal the change brought on by the US shift from a voracious consumer of Middle Eastern oil to becoming a potential rival for markets.

This shift is further demonstrated by US relations with the two largest oil producers in the world: Saudi Arabia and Russia. During the later years of the Obama administration, officials and a compliant press ginned up a new Cold War against Russia. Sanctions, saber-rattling, and hysteria brought tensions far beyond the actual points of contention. An energy-hungry, resource-poor EU has grown dependent upon Russian energy supplies, particularly natural gas. As the US is fast achieving energy independence and beginning the export of liquefied natural gas, the battle for the European market is intensifying and driving hostility with Russia.

Similar tensions arose between the US and its long-term ally, Saudi Arabia. The growth of the US as an energy producer certainly alarmed the Saudi regime. With the threat of a former customer becoming a rival, and with the effects of dramatic increases in global production, Saudi leaders reacted. While they may not have precipitated the collapse of world oil prices in 2014, they did nothing to stop it. They made no effort to lobby OPEC for price-supporting cutbacks.

A falling price of oil advantaged the Saudis, who had one of the lowest costs of production among producers and harmed the new US producers, who had a much higher break-even point. Indeed, the price drop slowed, even reduced US production, but at great cost to the Saudis. Despite having efficient production, their reserves are diminishing. But more importantly, their social costs, budget balance, and the maintenance of foreign exchange reserves require a much higher price for oil. Saudi Arabia has achieved all the trappings of a modern, wealthy state thanks almost entirely to oil. But that state cannot be supported without high oil prices, a massive surplus over their low cost of production. Moreover, the costly war that Saudi Arabia has pressed in Yemen has helped drain reserves and expand the budget. It is not lost on the Saudis that the Obama administration was less than enthusiastic about this adventure.

Consequently, the Saudis surrendered going into the new year, working a deal to cut production in the OPEC states and with other producers, raising the price of oil.

It should be clear, then, that the approaching oil independence of the US, the changing role of the US from consumer to producer, and the attention to markets-for-oil over sources-for-oil profoundly influences US strategic policies, including the weakening or souring relations with other major oil-producing nations like Saudi Arabia and Russia. Oil self-sufficiency also accounts for the reluctance, on the part of the Obama administration, to resolve the profound Middle Eastern antagonisms created by US intervention. Instability among oil-producing nations only secures the US a better opportunity to penetrate new markets and a higher margin over relatively high costs of production.

While it is too early in the Trump administration to be confident, the appointment of Rex Tillerson, the CEO of Exxon/Mobil, to direct State Department policy would seem to suggest a significant change. As the world’s largest multinational energy company and one of the largest corporations in the US, Exxon/Mobil has enormous interests in nearly every energy-producing country. With extensive investments in Russia, it feels neither bound nor moved by diplomatic or political niceties; the Obama-era sanctions on Russia cost Exxon/Mobil hundreds of millions of dollars.

Tillerson’s direction of foreign policy will likely return to embracing, protecting, and securing oil-producing countries while seeking enemies elsewhere to appease the military-industrial complex. The most recent US casualty in Yemen, a death dramatically acknowledged by Trump, would seem to support a friendlier approach to Saudi Arabia. The hysterical pre-emptive attack on better relations with Russia would likewise seem to suggest that improved links with Russia are seen by a prominent section of the ruling class as imminent and to be contested.

Some may see a contradiction in Obama, the internationalist, having moved towards a nationalist foreign policy, or in Trump, the nationalist, opting for an internationalist Secretary of State; but they are contradictions only if the decisive control of the state by monopoly capitalism is neglected. Ultimately, the dominant interests of monopoly capital always defeat professed principles.

The disparate interests of the smaller domestic drillers of shale oil and the large multinationals like Exxon/Mobil are reflected in US foreign policy. The upstart domestic drillers need higher prices, modest capital investments, and growth to insure profits; the giant international oil companies need massive capital investments for development of new reserves and continual cost cuts to guarantee profits.

Trump’s new regime reminds us that bourgeois politics is not about personalities or civility, but about differing visions of service to monopoly capital. The politics of oil underscores this truth. Further, the politics of oil tells us that inter-imperialist rivalries are coming to a boil.

Zoltan Zigedy

zoltanzigedy@gmail.com