Oil Ties: U.S. Relationship with OPEC May Harm Nation, Payoff for OPEC

Oil Ties: U.S. Relationship with OPEC May Harm Nation, Payoff for OPEC

It’s not an unfamiliar sight: Oil prices go up, and influential U.S. politicians, sometimes even presidents, run to Saudi Arabia hat-in-hand, hoping that Middle Eastern royalty thousands of miles away will lower gas prices at the station on the corner and keep voters happy. 

This all-too-common scene has helped to keep gas prices in the United States below those in Europe, but now that oil prices have plummeted to 2010 levels, influential members of the Organization of the Petroleum Exporting Countries (OPEC), such as Saudi Arabia, may finally move to cash in the many favors granted to the United States, putting the nation’s growing domestic oil market in jeopardy and potentially harming U.S. job creation.

While Americans were still feasting on turkey leftovers, it was widely reported that OPEC agreed to keep oil production stable at a meeting in Vienna despite a reduction in global demand, a move that surprised analysts and led to a drop in already-low oil prices–currently hovering around $65 per barrel.

OPEC’s decision to maintain its production target of 30 million barrels of oil per day may appear to be good news to U.S. oil consumers today, but the self-inflicted wound that is OPEC’s decision is actually a well-planned, long-term strategy to keep its tight hold on its most important energy markets by dropping prices so low that competitors are forced to cut production and lower market shares.

The most important and threatening competitors to OPEC’s powerful position are U.S. energy producers, especially those in the growing shale industry. According to a 2014 Congressional Research Service report, domestic oil production has skyrocketed, going from 5.2 million barrels produced per day in 2009 to 7.2 million in 2013–and the numbers continue to climb.

Increased domestic oil production has many benefits. Not only does it keep U.S. dollars out of the hands of many regimes that do not share American concerns about human rights, it has led to the creation of millions of jobs and has resulted in billions of dollars of economic growth. According to a report by the Fort Worth Chamber of Commerce, drilling of the Barnett Shale near Fort Worth, Texas has on its own generated more than $65 billion in economic activity and created more than 100,000 jobs since 2001. North Dakota alone now produces more than 1 million barrels of oil per day, a state record, and its oil production has led to the creation of hundreds of thousands of jobs and billions of dollars of economic development.

OPEC is reasonably concerned about the growing energy independence of the United States, but perhaps even more disturbing for OPEC is that the United States has started to offer increasing amounts of its available energy production overseas, as evidenced by President Barack Obama’s offer in March to provide natural gas to the European Union.

OPEC’s recent effort to drive energy production down in the United States–by keeping prices lower than U.S. energy producers can compete with–is potentially just the first step in a long line of moves designed to keep the world addicted to Middle Eastern oil. How long will it be before OPEC, with Saudi Arabia leading the charge, knocks on the White House’s door saying, “Remember all those times we bailed you out of trouble? It’s time to pay up.”

In George Washington’s famous farewell address to the nation, he warned about the potential dangers of what he referred to as “entangle[ments]”: “But even our commercial policy [with other nations] should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences… constantly keeping in view, that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character…”

Apparently Americans didn’t listen. Although Middle Eastern oil consumption amounts to less than 13 percent of total oil consumption, U.S. politicians have continued to pander to OPEC in the hopes that production will be increased and political gains at home will be made. Further, trillions of dollars have been spent over the past three decades on various efforts to secure and stabilize the very unstable Middle East, largely because of the region’s importance to the global oil market.

Nations like Saudi Arabia often complied with U.S. requests, fully aware that at some point, the tables may be turned and OPEC may need a favor of its own. Now that U.S. domestic oil production is booming, the time for that request may be rapidly approaching, and the costs could be devastating to American independence and economic growth.

Justin Haskins (Jhaskins@heartland.org) is an author, blogger, and the editor at The Heartland Institute, a leading free-market think tank based out of Chicago, IL. You can follow him @TheNewRevere or visit his personal site online at http://traskhaskins.com/.


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