- - Sunday, September 25, 2011


President Obama’s war on fossil fuels is adding to instability in a world already racked by international debt, demographic pressures and unpredictable, galloping technological advances.

The domestic implications of his policies are increasingly apparent: The closing off of prospecting and drilling is costing tens, perhaps hundreds of thousands of jobs. The attempt to choose winners and losers through “green energy” subsidies is producing market distortions, huge losses of taxpayers’ funds and corruption rarely seen since the Soviet Union’s Gosplan. Using executive fiat for arbitrary environmental rulings after Mr. Obama’s “cap and trade” climate plan quietly died in Congress is eroding constitutional government by creating a precedent for defying public opinion as expressed through the legislative process.

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On the world scene, the impact is equally grim, with intricate politico-economic problems that are difficult to quantify.

It is a given, of course, that world energy is, as the economists say, an imperfect market. The imperfections run the gamut: President Hugo Chavez gives 100,000 barrels of oil a day to his ideological buddy Fidel Castro to keep Havana’s lights on from Venezuela’s production, which is also a principal source of American imports. Hand-me-down restrictive policies, a heritage of the Carter administration’s misbegotten Department of Energy and its first head, James R. Schlesinger, still dog the natural gas market. Cartelization of the industry, despite all the legislation and litigation since the Supreme Court broke up John D. Rockefeller’s Standard Oil in 1911, continues to inhibit the competition that could challenge efforts by the Organization of Petroleum Exporting Countries to set production quotas to control prices.

Yet, by and large, world energy is fungible — that is, production, stocks and therefore prices in one region affect the worldwide market. After becoming a net importer in 1970, then doubling imports since the mid-1980s to 50 percent of total consumption in 2010, the U.S. as the world’s No. 1 consumer (and a producer of 25 percent of the world’s liquid gold) is decisive in establishing price, stocks and supply in other markets.

By impeding U.S. production through its refusal to lift controls, dragging out decisions, and initiating or threatening to initiate more controls, the Obama administration helps put a floor under world prices. The floor holds despite an erosion in prices caused by a fall in consumption resulting from the worldwide economic recession, OPEC’s very “leaky” efforts to retain control of its 40 percent of global production, and production in the Persian Gulf for some grades of fuel at a fraction of costs in North America. At a time of growing worldwide economic stagnation, cheap oil remains as always the sine qua non of American prosperity — and probably for world recovery.

Higher prices gorge the feudal satrapies that rule their small, backward populations in the Persian Gulf, with governments and economies unable to absorb and efficiently utilize capital. Worse, high energy prices indirectly finance world terrorists, wherever they may be. For example, Saudi subsidies to mosques and community activities in the U.S. and the West, as well as in the rest of the Muslim world, carry with them Wahhabi sect preachers insinuating pre-modern Islamic Shariah law into Western legal codes, while advocating armed jihad against “infidels” and even fellow Muslim sects or reformers.

Higher prices produce a petroleum bonanza for the increasingly authoritarian and corrupt Russian regime, allowing it to avoid basic post-Soviet reforms. Moscow’s inefficient producers gain increasing international political leverage through gas sales to Germany and other Western countries. They reinforce the Putin regime’s efforts to re-establish Soviet hegemony over Ukraine and Central Asia and Moscow’s hope to intervene in Afghanistan after the U.S. withdraws.

In Syria, along with the Obama administration’s policy of appeasement, higher prices for the country’s meager oil exports also have propped up the bloody Assad dictatorship that is now at war with its own people.

Not only has the U.S. natural gas snafu produced a temporary domestic surplus — with technology pointing toward vast new production — but it also prevents potential liquefied natural gas exports to high priced-markets such as East Asia. U.S. sales to South Korea, for example, would block a proposed Moscow-Seoul gas project whose transit fees through North Korea would bolster the bankrupt, peace-threatening regime in Pyongyang.

Much of this analysis includes problems that the Obama administration inherited, but its pandering to environmentalistas within its ranks has exacerbated old problems and invented new ones. With most of the president’s foreign policy initiatives in shambles, his energy policy could be the straw that breaks the camel’s back.

Sol Sanders, a veteran international correspondent, writes weekly on the intersection of politics, business and economics. He can be reached at [email protected]

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