The Curse of Crude

Oil fire at the Rumaila Oilfield, Iraq (Photo credit: Wikipedia)

The political and economic “equations” that define the Middle East are too complex to be understood, let alone solved.  The number of competing forces and variables are innumerable.   Rates of change are too quick to comprehend or predict.  I doubt that there’s any cohesive order or even pattern in the Middle East.

We send ambassadors or armies to negotiate or impose commercial agreements or peace treaties.  When the negotiations (or invasions) are finished, what’s changed?  What’s been accomplished?  Nothing.  As soon as we turn away, chaos returns.

Look at Iraq.  After receiving over 8 years of tutelage (invasion, actually) in the fine art of democracy, as soon as Americans leave, the Iraqis are back to bombing and killing each other.

•  The Middle East has been unstable for decades, but the current level of instability is greater than ever—and growing.  That instability isn’t only the result of internal political or economic tensions.   The Middle East is also divided into two fundamentally opposed Muslim sects:  Shiites and Sunnis.  Muslims tend to be so strident in their faith that they’re not only compelled to despise Jews and Christians; they’re also compelled to despise other Muslims sects.  The Shiites and Sunnis may be almost as likely to enter into jihad (holy war) against each other as they are against Israel.

 

•  One of the most bizarre causes for Middle East instability may be based on Mohammed’s marriage to his cousin.  If Mohammed did it, then all Muslims can—and most do—marry their cousins.

Nicolai Sennels is a Danish psychologist who has studied Muslims who’ve immigrated into Denmark.  In an article August of last year (“Muslim Inbreeding: Impacts on intelligence, sanity, health and society”), he detailed the consequences of Muslim inbreeding.   Sennels cites data showing that on average around 50% of marriages in the Muslim world are consanguineous, with predictable effects of low intelligence and mental and physical disorders. The consequences to Western societies include higher expenses for social services related to mentally and physically handicapped Muslim immigrants.  These higher expenses drain the budget for other public services: “When cousins have children together, they are twice as likely to have a disabled child – it costs municipal funds dearly.  Disabled immigrant children costs Danish municipalities millions.  In Copenhagen County alone, the number of disabled children in the overall increase of 100 percent at 10 years.”

It appears that Muslim interbreeding produces low intelligence, and disabilities that are both physical and mental.  After 1,300 years of interbreeding, we can assume that the Muslim “genome” has been permanently compromised.  To some degree, the Muslim’s faith has driven them mad.  We can reasonably wonder what is the value of a religion that causes the genetic impairment of its adherents.

Those who are searching for political stability aren’t likely to find it in Muslim nations characterized by religious zealotry and an increased tendency to lower IQ and mental illness.  If the Muslim people have a higher incidence of mental illness, they should also have a higher incidence of political instability.

 

•  The Middle East and North Africa have suffered three significant wars over the past decade:  Afghanistan, Iraq and Libya.  Iran is on the verge of being invaded or at least bombed by Israel or the US.

In just the past year, the “Arab Spring” of A.D. 2011 caused four governments to be overturned (Tunisia, Egypt, Libya, and Yemen).  Two countries (Bahrain and Syria) suffered civil wars.  Major protests have erupted in Algeria, Iraq, Jordan, Kuwait, Morocco, and Oman.  Minor protests broke out in Lebanon, Mauritania, Saudi Arabia, Sudan, and Western Sahara.

Reading the list of nations directly impacted by the Arab Spring is interesting.  But to grasp the full impact of the problem, look at a map.  For example, if you view a map of North Africa, you’ll see that virtually every nation from Mauritania on the Atlantic to the Sudan on the Red Sea were destabilized during the Arab Spring.  A map of the Middle East shows that almost every nation between the Mediterranean and the Indian Ocean were (and remain) destabilized by the Arab Spring.

Viewed on a map, the extent of the Arab Spring’s ongoing destabilization is unsettling.  The Arab Spring wasn’t a minor problem involving a couple of disparate nations.  The instability affected a region of the world that’s comparable in size to the region of Europe that was subjected to WWII.

Is it possible to solve any regional problem without regional/“world” war?

 

Foreign Influences

From a Western perspective, the Middle East’s instability might be merely interesting or even amusing—except for two things:  crude oil and “petro-dollars”.

Therefore, if the political, economic, religious and even genetic controversies within the Middle East weren’t enough to destroy Middle East stability, there are also external forces contributing to that instability.

 

• First, as demand for crude oil rises, the US, EU, Chinese and global economies compete to control Middle East oil production.   As oil-consuming nations compete, they’re constantly pulling and tugging at the nations of the Middle East to acquire more crude oil. The oil consumers bribe or threaten the governments of the Middle East to gain more oil.  The result of the competition for crude oil is higher prices and more governmental corruption.

Although the world’s demand for crude oil has fallen during the recent “recession,” the historic trend suggests an ever-increasing demand for crude.  So long as the world’s demand rises, the price for crude will also rise.

Conventional wisdom supposes that higher prices for crude oil should be great for the Middle East.  But that’s not necessarily so.  Higher oil prices cause higher food prices, which cause food scarcity and even starvation among the common people of the Middle East and North Africa.  Food scarcity causes political unrest, revolution and the overthrow of Middle East governments.  The “Arab Spring” was caused or at least exacerbated by crude oil’s rising prices.  As we see these governments challenged or overthrown, the increased political instability causes the price of crude to rise even higher laying the foundation for yet another “Arab Spring”.

 

•  Second, some believe that the global supply of crude oil has “peaked”.  If the supply is falling while the demand continues or grows, the price of crude oil must rise, causing the price of food to rise, causing starvation, causing revolutions, causing the price of crude to rise even further.

Even if we haven’t hit “peak oil,” it’s unlikely that the world’s production of crude oil will increase enough to match growing demand.  So long as demand grows more quickly than production, the price of crude oil will also increase, triggering another round of spiraling food prices and political unrest in the Middle East.

 

•  Third  problem?  Petro-dollars.

When the US dollar lost the last of its gold and silver backing in A.D. 1971, it became a pure fiat currency and should’ve quickly declined in value and died.  However, the Nixon administration cut deals with Saudi Arabia and then OPEC whereby those oil-producing nations guaranteed to sell their crude oil only for fiat dollars.  As a result, anyone who wanted to buy crude oil on international markets had to first have a fistful of fiat dollars.

The need for fiat dollars to purchase crude oil created an international demand for fiat dollars.  The demand for fiat dollars created the illusion of the fiat dollar’s value.  The post-1971 dollar was no longer backed by gold or silver, but it was implicitly backed by crude oil.   Our currency became “petro-dollars”—and continued as the “world reserve currency”.

The petro-dollar scheme worked well until A.D. 2000, when Saddam Hussein started selling Iraqi crude for euros.  If currencies other than the dollar could purchase crude, the dollar would lose its “petro-hegemony” and possibly die.  To protect the petro-dollar, we invaded Iraq and hanged Hussein, but it was too late.  The world had begun to buy oil with currencies other than petro-dollars and the dollar’s value fell by roughly 50%.

More recently,             Libya’s Colonel Gaddafi attempted to create a pan-African currency that would be backed 100% by gold.  Such gold-backed currency threatened the existence of all fiat currencies—especially the fiat dollar.  So US and several other western nations quickly fostered Libyan civil war and subsequent invasion of Libya wherein Gaddafi was killed.

For most of the past decade, Iran has threatened to establish a “bourse” (market) wherein crude oil would be sold for currencies other than petro-dollars.  Reportedly, that bourse was finally established on March 20^th.  If it weren’t bad enough that Iran is selling its crude for fiat currencies other than petro-dollars, Iran has agreed to sell its crude to India (and possibly China) for (OMG!!!) gold rather than any fiat currency!   Transactions in gold pose a mortal threat to all fiat currencies—including the dollar. If or when the US/Israel attacks Iran, it won’t be to eliminate the Iranian nuclear capability.  Such attack will be made to (as it was in Iraq and Libya) to defend fiat currencies in general and the fiat dollar in particular.

If the Middle East didn’t have enough of its own internal problems, it also has to worry about wars caused by the relationship of crude oil to fiat dollars.

 

Peace, Peace!  But There Is No Peace.

•  So long as the Middle East is a primary source for the world’s crude oil, it will remain unstable.  So long as the Middle East remains unstable, the price of crude oil will rise.  As the price of crude rises, so will the price of food.  As the price of food rises, common people in North Africa and the Middle East will suffer food shortages, malnutrition and even starvation.  Food shortages will precipitate even more civil unrest and political revolutions.  More political unrest will trigger higher oil prices, higher food prices, etc.

The Middle East is trapped in a self-perpetuating spiral of causes and effects that seem certain to push the price of crude oil, food, and political unrest higher and higher.

Ironic, isn’t it?  The fundamental power and wealth of the Middle East flows from the region’s abundant supply of crude oil.   But that source of wealth and power is also the ultimate cause of the Middle East’s political unrest, revolutions and possible destruction.

You’d think that rising prices for crude oil—and rising profits–would be a blessing for the Middle East.  In fact, rising crude oil prices may be a curse since they restrict the food supply, precipitate revolt, and threaten to destroy Middle East governments.  Higher oil prices destroy Middle East stability.

 

•  Solution?  Simple.

Cut the price of crude oil.

Sounds crazy, doesn’t it?  But think about it:  If the price of crude oil fell from $105 per barrel to, say, $50 per barrel, the supply of food would increase, the price of food would fall, the common people of the Middle East would have more to eat and be less prone to riot or revolt.   The Middle East could become comparatively stable.

But who wants lower prices for crude oil?  The Saudi’s?  OPEC?  Exxon-Mobile?  British Petroleum?  Insofar as the US gov-co wants more inflation so it can repay the national debts with cheaper dollars, even the US government (secretly) wants higher prices for crude.

All of which implies that the price of crude oil will continue to rise.  As it does, the Middle East and North Africa will become increasingly insufferable, unstable and prone to revolutions—and that instability will foster even higher prices for crude oil.

Thus, the Middle East will remain unstable until: 1) the price of crude falls significantly; 2) the region’s supply of crude oil is totally exhausted; or 3) hell freezes over.

Conclusion:  There’ll be no peace in the Middle East in the foreseeable future.  Worse, the region’s instability practically begs to host the next world war.

Properly understood, the Middle East’s enormous endowment of crude oil was less of a regional blessing than a regional curse.

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