As oil prices keep plummeting, mainly due to a dramatic increase in U.S. oil production, OPEC apparently has a plan.
The plan is to drive prices so low that American oil producers won’t find it profitable anymore to drill oil in the vast reserves of North Dakota and Montana. OPEC will lose billions in the process, but as they knock the new oil fields out of action, they will recoup their investment by once again driving up prices.
Once that happens, OPEC will again have the U.S. where it wants it — over a barrel of oil. It would take years before the oil drilling would come online again to stabilize prices, but by then the U.S. economy would have already suffered from spiraling inflation. OPEC would once again have its monopoly on global oil production.
And it isn’t only the economy that would suffer. Once more, the U.S. would be tethered to totalitarian and extremist regimes in the Middle East and South America, propping up these governments militarily in the fear that the oil lifeline would be cut in the event of instability.
On a whim, or because they don’t like elements of U.S. foreign policy, OPEC could turn back the clock to the 1970s, threatening to cut the flow of oil production as blackmail to force the U.S. to adopt policies that favor OPEC nations at the expense of other countries in the region.
The oil sheiks of OPEC have been reaching for Xanax ever since U.S. oil production has skyrocketed during the last five years. The price of Brent Crude has now fallen more than a staggering 40 percent since June to $64 a barrel. Much of the increase in U.S. production is due to the shale fracking process that has allowed producers to extract oil from reserves that previously could not be drilled.
OPEC is taking a gamble here. Many American drillers can still turn a profit at $50 a barrel, but not much lower than that. OPEC can turn a profit at even lower prices per barrel, but it would mean they would have to substantially tighten their belts and rein in government spending. If OPEC can lower prices to below the $50 threshold for a prolonged period of time, they have a good chance at accomplishing their mission of setting back American oil production.
We can’t allow that to happen. Now that there is a golden opportunity to crush OPEC, an organization that has held Western nations by the throat for four decades, we should take every possible measure to ensure its permanent irrelevance. With OPEC’s blackmail out of the way, American foreign policy will not have to bow and scrape to the despots in Riyadh and Kuwait City. The same may be true for Europe. It’s been no coincidence that the rise of OPEC and Europe’s dependence on Persian Gulf oil has led to the rise of anti-Semitism in Europe during the last 40 years.
To make sure that U.S. oil extraction from shale continues and increases, Congress should do all it can by way of easing regulation and, if necessary, subsidizing the industry until OPEC cries uncle. Such a policy of supporting “rich” oil companies make some cry foul, but American tax dollars are subsidizing many more dubious green energy causes. The solar industry wouldn’t have a ray of success if it weren’t for federal government subsidies to the tune of billions a year. None of the electric cars coming off the assembly line would get a second look from consumers if it weren’t for the handsome tax breaks doled out to encourage ownership. The fuel alternative Ethanol, made from corn, is only becoming ubiquitous because of the subsidies given to farmers. Keeping the drilling going until OPEC loses the price war will wean the U.S. off foreign oil for the foreseeable future.
U.S. unemployment numbers keep improving, and one of the main reasons for all the sanguine news in the job numbers has been the incredible boom in jobs that the fracking industry has created. There’s almost no unemployment in Montana, North Dakota and Texas.
Another benefit of the plunge in oil prices has been the hole it’s created in Mr. Putin’s pocket. Exporting fuel has been one of Russia’s main sources of income. The huge profits from Russia’s oil industry had been burning a hole in Putin’s pocket, providing him with the economic means for more military adventurism. With his oil profits cut dramatically in the last few months, Putin will have to curtail military spending.
The precipitous plummet in oil prices has been one of the most incredible events of the year. It can be one of the most pivotal events of the century if Congress and the president throw their support to the efforts of the U.S. oil industry in achieving energy independence.