03/09/16 – Michael Klare – The Scott Horton Show

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Hey, I'm Scott.
Welcome back to the show.
It's my show, The Scott Horton Show.
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All right.
I promised a couple of interviews.
First up is Michael T. Clare, Professor of Peace and World Security Studies at Hampshire College.
The author most recently of The Race for What's Left.
Welcome back to the show.
How are you doing, Michael?
Just fine.
Very happy to have you here.
A very interesting article running at our friend Tom Englehart's site, tomdispatch.com.
And we're also running it at antiwar.com, I think today.
Yeah.
Today on antiwar.com, we're running an energy wars of attrition, the irony of oil abundance.
I was telling the audience earlier that I at least believe that you are some version of liberal or progressive or leftist.
I'm not exactly sure.
I'm a libertarian, and yet I did not find any flaws in your economic thinking here, anywhere in the article.
I think it's perfectly acceptable for Austrian school types too.
And this is an antiwar show, so I interview people of all different persuasions all the time, as long as the point is getting at the truth here.
And I think you do a real great job of doing that.
Well, thank you.
And that's admirable of you too.
Well, first things first, right?
Okay.
So let's start with the conspiracy theory, okay?
Because I got one, and I think I even have some evidence for it.
There was a meeting, I think in 2013 or was it 14, where John Kerry went to Saudi Arabia and apparently told the press afterwards that, yeah, we're going to deliberately drop the price of oil.
It was already declining, I think, but he says, yeah, basically we're doing this to get at Iran and Russia.
Or maybe they asked him and he said, yeah, well, you know, kind of an answer.
But enough that seemed like kind of confirmation that that was the plan, that the Saudis had decided that, you know, Russia and Iran, and I don't know if the Islamic State played into it at all, but at least Russia and Iran needed to pay.
And they're both oil exporters, highly dependent on, well, and for that matter, the Saudis are enemies of the Baghdad government as well.
They're all three of those highly dependent on oil revenues.
And this is a great way to screw them.
But then in your article, you go, well, yeah, you know, there's actually a lot more to it than that.
So can you please clarify for us?
Sure, sure, sure.
I mean, many people believe that that is the motive for Saudis not curbing, you know, cutting back their production, which would have boosted the price of oil.
Instead, they increase their production.
And we're talking now, this is in the months of August, September, October, November, 2014.
The price of oil reached a peak in June 2014, $115 a barrel, and then started declining slowly, and then faster and faster.
So we're talking about the period right after that.
And the Saudis, instead of cutting back their production, which would raise prices, increase their prices.
So yes, one possible interpretation would be that they're going after Iran and Saudi Arabia, and I'm sorry, Iran and Russia.
And many people thought that.
But the Saudis say differently, and I believe them.
They say that what they're trying to do was to protect their market share at a time when new producers were coming onto the market.
Iran was one of them.
But much more important in their eyes was shale production in the United States, and Canadian tar sands, and Brazilian offshore oil, because that was really changing the dynamics of the oil market from something centered in the Middle East and the OPEC countries, to non OPEC oil, Western Hemisphere oil, and threatening the dominance of Saudi Arabia in the market.
And I think they saw that as a much bigger threat than, you know, concern about Russia and Iran's meddling in Syria.
All right, now, that's very interesting.
And it happens to coincide with something that, and I think you and I have discussed this before on the show.
But I first learned this from Greg Pallast, probably back a dozen years ago or more, that this is what the Saudis do.
Of course, they want to charge the highest price per barrel as they possibly can.
But every once in a while, they like to dump the price down through the floor to bankrupt all their competition, because the Saudis got that sweet, light crude.
It's so inexpensive to get out of the ground.
And compared to them, whether it's the Canadians, the Texans, the Venezuelans, or anybody else, it's only profitable for them to refine their oil at a certain floor.
I think he said it's 40 bucks a barrel for Venezuela.
This would have been, you know, 10 years ago dollars.
It's 40 bucks a barrel for Venezuela to be even the slightest bit profitable.
It's a lot higher than that if you're talking about Colorado, Dakota, Alberta.
Yeah, exactly.
For those places today, Alberta, $80 a barrel.
In the shale fields of the U.S., $50, $60 a barrel.
Venezuela, I don't know, but their economy is going through the floor right now.
Nigeria is having a hard time.
So the losers in this case, in the low oil price situation you have today, the losers from a U.S. geopolitical point of view include not just the people that we don't like, like Russia, and Iran, and Venezuela, but it also includes people who are our allies, like Canada, and Nigeria, and Texas.
Well, and you know, it really raises the question, doesn't it, of the political power of Houston.
Can these guys not topple the regime in D.C. with a flick of their finger or what?
How are they letting this happen?
Well, they're running candidates who they hope will take over the government and then do things to turn this around.
I mean, they're going to pour more money into this campaign than anybody else, any other single source of campaign financing, and they hope to elect a Republican who is 100% fossil fuel oriented.
I mean, they already run advertising.
When I watch CNN to follow the returns on the primaries, every other advertisement is from the oil and gas industry saying, you know, let's boost our fossil fuel production.
So they're out there, and there'll be much more of this before we get to the final vote.
Well, now, so what are the Republicans exactly supposed to do about this anyway?
I mean, obviously they can decrease regulations if that'll help bring down the price of fracking by a small percent or something like that.
Well, I think their hope is, among other things, is to increase U.S. exports of oil.
They're pushing very hard, not only oil, but natural gas to build more LNG facilities, liquefied natural gas facilities, to export natural gas, and also to facilitate the export of oil from the United States.
Even though we're a net oil importer today, they want to allow U.S. companies to export oil, so to take advantage of price differentials in the market.
You know, in Asia, oil is more expensive, so they want to ignore the good interests of the American people, the American consumer, in order to raise the profits for the oil companies by allowing them to export more to foreign markets.
Which, you know, I mean, all things being equal, that should be fine.
There shouldn't be laws preventing them from exporting whatever resources they have.
I mean, assuming that they're private companies who invested in extracting the materials, you know, the resources themselves, that doesn't really seem like a problem so much, right?
I mean, I see what you're saying.
There is a problem.
The problem is that the export facilities don't exist.
So the taxpayers got to come up with them, right?
Yeah, the taxpayers have to facilitate the infrastructure construction to do all of this.
Yeah, I read you loud and clear on that.
Yeah, and what we're talking about here is eminent domain, and I know this is probably, in your world, a hotly debated topic.
Oh no, we are one million percent against all eminent domain, even for freeways, us libertarians.
There ain't no debate about it.
So there you have it.
To build, to export all this, the new oil fields and the new gas fields are in the middle of the USA.
They are in North Dakota and Pennsylvania and West Virginia and in Colorado, and the ports to export them are on the Atlantic coast or the Pacific coast.
So in other words, expect a lot of corporate welfare for Houston out of Washington, D.C. if it's Cruiser Trump.
Now, I'm sorry, hold it right there.
We'll be right back.
It's Michael Clare writing at Tom Dispatch and Antiwar.com about the oil wars.
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All right, you guys, welcome back to the show.
I'm Scott Horton.
It's my show, The Scott Horton Show.
I am talking with Professor Michael T. Clare, expert on global energy resources and policies and politics and everything.
And he writes fairly regularly for TomDispatch.com.
Always really great stuff.
And now, Michael, one of the things you talk about in here.
Oh, I wanted to say, first of all, David Stockman is basically my favorite new libertarian.
I think he's fairly new to Austrian school economics, or at least he's I think he's a fairly new convert to, you know, hardcore libertarianism, whereas before he was maybe softer.
He was a former budget director in the Reagan years.
But he's just, man, he writes the best anti-war stuff.
I mean, he's just great.
And one of the things that he's always saying about oil and about American intervention in the Middle East is that the cure for high oil prices is high oil prices.
Come on, guys, this is not even 101.
You got to know this to even get in the door to Economics 101, that when the prices go up, that's more incentive for people to, you know, explore, find further resources, or as we talked about before, makes more difficult to get oil profitable and so therefore, you know, available to the marketplace and this kind of thing.
And that'll drive your prices right back down again.
That's just how it works.
So we don't need to intervene over there for fear of prices going up or where prices go up.
The problem will correct itself, basically, you know, in no time.
And he often and you can say whatever you want about that.
But the real point I wanted to get to was he says that OPEC is a joke, because I guess maybe in their plan, they went too long with prices too high.
And now there's just so much new supply on the world market.
And I forgot what percent you say in here, but you talk about what percent of the market is actually controlled by Saudi and OPEC.
And it's such a small percent now that they really can't set prices.
And at this point, I think you quote the Saudi guy saying, or you talk about how if the Saudis did raise their prices, all it would do would be to cut them out, or if they cut production, it would barely raise the global price.
But it would mean that much less oil being sold by them.
And in the arithmetic of it, they would definitely be losing out on the profits.
So they've played their game this long, but maybe now the game is up.
That was what I said.
All that was to ask you if you think that may be right.
OK, well, there's a lot in there.
So let me try to untangle it.
I mean, I believe I believe basically that we're in a new world of oil and that this is a paradigm shift and it's going to be permanent.
And previously, we were in a world where scarcity was the dominant paradigm, where the demand for oil kept rising with China's rise, the demand for oil kept going up, up, up, up.
And that was an incentive for the oil companies to go out, like you say, and explore for more oil and produce more oil, because with all this demand increasing over more and more and more, the price kept rising.
So there was this incentive to explore, but it was kind of perception of scarcity, future scarcity driving all of this.
But now we're in a new world.
There is no oil scarcity, and it doesn't look like we'll ever have oil scarcity again in the future.
What what the problem now is we have demand scarcity.
The growth in China seems to have come to a halt and there is no China number two.
There's there's no country out there.
There's no place in the world, Europe, India, the United States, Japan.
There's nobody to replace China as the engine of world oil demand growth.
And I don't think that's going to change as far as we could see into the future.
But the oil companies with fracking can now produce more indefinitely, more and more oil.
So in a world where you have demand scarcity, prices can never go high.
So so the old economics were driven by by by supply scarcity.
But in this new world, I don't see that happening again.
And now and you're taking into account, of course, what we already talked about, that the Alberta tar sands, for example, are not profitable at these prices.
So some of these new sources that have been found are going to go right back offline.
But you're saying doesn't matter.
There's so much downward pressure on the price of oil that, you know, they're never going to go back to the way it was, say, 10 years ago.
There's still way more production than that, even at these prices.
That's that's my impression.
I mean, what would have to change to alter this equation is that trying to go back to 10% per year growth, and nobody sees that on the horizon.
Europe, Europe is just not possible, because they're cutting back on their oil usage.
And maybe India becoming another China, but that's 25 years into the future.
So I just don't see where the demand is going to come from to justify these multi multi billion dollar investments in expensive high price oil like Canadian tar sands.
Yeah.
Well, you know, to the degree, it's not already too late, everybody listen well and place your bets on the market.
It sure is amazing to see, you know, 2016 ghost towns there in in North Dakota or South Dakota right adjacent there I saw, you know, they basically had built a town.
And now it's gone.
Like the old mining towns of the 19th century.
Yep.
Now, you know, there'll be there'll be periods that the price of oil will go back over $50 a barrel.
I think that's likely to happen.
And at $50 a barrel, the shale producers in North Dakota can make a buck.
And so they'll, they'll go back into operation at that point.
But it's not going to be the glitzy golden days of $100 barrel oil, you know, they'll be scraping by pinching pennies.
And they'll be able to operate but but not in Canada, and not in offshore Brazil, and not in the North Sea, the North Sea is going down the tubes.
And, and Arctic oil, I think that's finished.
So, in other words, I think, or would you agree that the price as high as it was that didn't really reflect how scarce it was, or to a degree it did, but it was also maybe just another bubble, like in the stock market, the housing market, and wherever the inflationary bubbles go.
In a way it was, but the bubble, the bubble was China.
If you read, if you go back and read the prospectuses that the oil companies sent out to their shareholders in 2010, 2011, 2012, 2013, up until 2014, they say there's a great future market for our oil, because China is going to continue to grow at 10%, or something like that, per year, and all their new middle-class people are going to buy cars, and so there'll be a huge increase in demand.
And then in another 10 years or so, India is going to follow, and Brazil, and Turkey, and South Africa, and there will be no stop to the upward demand in oil.
That's what, so in that sense, it was a bubble of, a bubble of global growth driven by China.
And that, that, that is gone, and so far as I could tell, it's not about to turn around.
Yeah, well, and we know from reading Patrick Coburn, it's hit the governments in Kurdistan and Iraq really hard, the Baghdad and Erbil governments really hard, I assume that's true for Russia and Iran as well?
All of these places, Nigeria is in very bad trouble, Azerbaijan, Kazakhstan, Algeria, all these countries, they're not taking in the money they used to, so they can't pay off their public with public works, with subsidies, with handouts, and as a result, people are becoming more restless.
There are protests, there have been protests in Russia, in Azerbaijan, in Algeria, in Nigeria, and in Venezuela, the Chavez government was thrown out of Congress.
This is the kind of future we could expect in all these countries.
A lot of upheaval, yeah.
Patrick Coburn was saying that the Baghdad government's revenues have just been cut to half of what they owe, in terms of just salaries for their civil servants.
Yeah, and those people have started protesting.
We don't read about it much, but there have been mass protests of civil servants in Iraq.
We haven't been paid for three months, six months, and we're going to stop working.
How are they going to finance the military to fight the Islamic State if they don't have any money?
Right, and who are having their own problems.
Maybe that's the one silver lining on this, is even when Obama lets them truck their oil to Turkey, they can't get much for it.
All right, listen, I'm sorry I've kept you over time here, Michael, but I really do appreciate you coming back on the show.
I love reading your stuff.
Great, good talking with you, Scott.
Really appreciate it.
All right, y'all, that is the great Michael Clare.
He's at TomDispatch.com, and today on AntiWar.com, with this one, I forgot, we changed the title to, well, there's three or four titles on every Tom Dispatch article.
We're calling it Energy Wars of Attrition today on AntiWar.com.
I would also have you know that he is a professor of peace and world security studies at Hampshire College, and the author of The Race for What's Left.
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