Crude reality

[unhappycamper]

Will a Middle Eastern oil disruption crush the economy? New research suggests the answer is no -- and that a major tenet of American foreign policy may be fundamentally wrong.


Crude reality
By Jeremy Kahn
February 13, 201

For more than a month, the world has been riveted by scenes of protest in the Middle East, with demonstrators flooding streets from Tunisia to Egypt and beyond. As the unrest has spread, people in the West have also been keeping a wary eye on something closer to home: the gyrating stock market and the rising price of gas. Fear that the upheaval will start to affect major oil producers like Saudi Arabia has led speculators to bid up oil prices — and led some economic analysts to predict that higher energy costs could derail America’s nascent economic recovery.

The idea that a sudden spike in oil prices spells economic doom has influenced America’s foreign policy since at least 1973, when Arab states, upset with Western support for Israel during the Yom Kippur War, drastically cut production and halted exports to the United States. The result was a sudden quadrupling in crude prices and a deep global recession. Many Americans still have vivid memories of gas lines stretching for blocks, and of the unemployment, inflation, and general sense of insecurity and panic that followed. Even harder hit were our allies in Europe and Japan, as well as many developing nations.

Economists have a term for this disruption: an oil shock. The idea that such oil shocks will inevitably wreak havoc on the US economy has become deeply rooted in the American psyche, and in turn the United States has made ensuring the smooth flow of crude from the Middle East a central tenet of its foreign policy. Oil security is one of the primary reasons America has a long-term military presence in the region. Even aside from the Iraq and Afghan wars, we have equipment and forces positioned in Oman, Saudi Arabia, Kuwait, and Qatar; the US Navy’s Fifth Fleet is permanently stationed in Bahrain.

But a growing body of economic research suggests that this conventional view of oil shocks is wrong. The US economy is far less susceptible to interruptions in the oil supply than previously assumed, according to these studies. Scholars examining the recent history of oil disruptions have found the worldwide oil market to be remarkably adaptable and surprisingly quick at compensating for shortfalls. Economists have found that much of the damage once attributed to oil shocks can more persuasively be laid at the feet of bad government policies. The US economy, meanwhile, has become less dependent on Persian Gulf oil and less sensitive to changes in crude prices overall than it was in 1973.

These findings have led a few bold political scientists and foreign policy experts to start asking an uncomfortable question: If the United States could withstand a disruption in Persian Gulf oil supplies, why does it need a permanent military presence in the region at all? There’s a lot riding on that question: America’s presence in the Middle East exacts a heavy toll in political capital, financial resources, and lives. Washington’s support for Middle East autocrats makes America appear hypocritical on issues of human rights and democracy. The United States spends billions of dollars every year to maintain troops in the Middle East, and the troops risk their lives simply by being there, since they make tempting targets for the region’s Islamic extremists. And arguably, because the presence of these forces inflames radicals and delegitimizes local rulers, they may actually be undermining the very stability they are ostensibly there to ensure.



unhappycamper comment: Just to clarify: The United States spends hundreds of billions of dollars every year to maintain troops in the Middle East. . . .

[fasttense]

1. American troops - making it safe for corporations everywhere. n/t