- The Washington Times - Monday, November 21, 2005

Oil supply manipulation by Middle East belligerents and “allies” alike is emerging as a significant threat to the security of the United States and our economy. These oil oligarchs have identified an “Achilles heel” and are aggressively trying to exploit it. The Organization of Petroleum Exporting Countries, led by Saudi Arabia, is at the forefront of this assault, targeting our reliance on foreign oil.

If we do not takes steps to address this dependence, there is a menacingly high potential for economic dislocation and increased global instability.

As chairman of the House Armed Services Terrorism and Unconventional Threats Subcommittee and the Joint Economic Committee, it has become increasingly apparent to me that our growing dependence on foreign oil gives Middle East terrorists the opportunity to harm us without leaving their lairs.

The Saudi-led OPEC cartel possesses the economic equivalent of the atomic bomb, with the potential to jeopardize our ability to rout terrorism in the Middle East. Of course, methods are debated on how to remove the oil weapon from OPEC. However, there’s no debate about the economic firepower they possess and the urgent need to disarm them.

For three decades, OPEC has manipulated the oil market. The Persian Gulf countries sit on huge reserves of oil they can produce cheaply. Major Middle Eastern protagonists, together with countries such as Algeria, Libya, Nigeria, Indonesia and Venezuela are part of the cartel. These radical nations openly collude to restrict oil output and raise prices far above costs.

From the end of World War II until the oil embargo of 1973, Arabian Light crude oil sold for less than $2.50 per barrel. Thirty years later, that barrel has sold for more than $50.

This week OPEC’s price fell below $50 a barrel for the first time since Hurricane Katrina devastated the Gulf Coast. Already OPEC is urging a production cut to offset the slide in demand.

They simply extort the American people. Venezuela has already said OPEC needs to cut its 30 million barrels per day to offset recovering U.S. production from the Gulf of Mexico. Producers have grown used to prices well above $50, but now openly fret high prices could dampen demand and hurt economic growth.

Current known oil reserves are estimated at 885 billion barrels for OPEC versus 393 billion barrels for non-OPEC producers. Yet OPEC produces far less oil than non-OPEC countries: 32.9 million compared to 50 million barrels per day in 2004.

Since World War II, most U.S. economic recessions have resulted from an oil crisis. Beyond the immediate additional cost to the U.S. of about $36 billion yearly, oil price rise has dampened U.S. economic recovery and eats into President Bush’s generous tax cuts.

The incentive for producers to invest in substantially expanding output has been artificially weakened by a cartel whose greatest concern is a price collapse. When demand recedes and OPEC’s cartel fractures, the price can drop dramatically.

For example, in 1997 OPEC raised its production ceiling 2.5 million barrels per day to meet growing Asian demand. However the currency crisis caused a fall. The result was a market price that dipped below $10, the lowest level since 1973, and a $51 billion year-over-year reduction in oil revenue.

There is plenty of oil to satisfy demand. At its current rate of production, OPEC would not run out for 75 years, and that assumes no additional reserves are found. The oil price is high because OPEC has held back output and not developed its vast oil fields. So the rest of the world continues to watch what OPEC does. The question is whether and how much to invest in additional production, if OPEC will substantially increase its supply and bring the price down. This uncertainty slows U.S. and global investment and holds America to ransom.

These premeditated and at times criminal actions of the OPEC cartel and the Saudi oil barons are formulated to create artificial scarcity and drive up oil prices — imposing undue hardships on Americans. In simple terms, it is nothing but an ongoing clandestine campaign to increase the cost to the American taxpayer of our assistance to Iraq, with the specific objective of weakening U.S. resolve. If OPEC continues manipulating supply, it will destabilize the world oil market and threaten U.S. security at home.

Jim Saxton, New Jersey Republican, is chairman of the House Armed Services Committee’s Terrorism Subcommittee and of the Joint Economic Committee.

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