Have you heard about the secret conspiracy between the Saudis and the White House? I haven’t either, probably because there isn’t one. But events are playing out exactly as one would expect if such a conspiracy existed.
With no help from Barack Obama, the U.S. has launched an energy revolution, becoming the world’s leading oil and natural gas producer. This has dismayed environmentalists and donors in and out of the Obama administration. After all, Obama bet big — really big — on green energy. The oil and gas boom is not the energy revolution Obama was looking for.
Saudi Arabia and other petro-monarchies aren’t happy about it either (which is one reason the United Arab Emirates and other OPEC states bankroll anti-fracking propaganda in the West). Until recently, Saudi Arabia was the world’s biggest oil producer, and it is still arguably the most important one in global markets because its oil is so easy to get out of the ground. The cheaper it is to extract, the easier it is to maintain profits when prices go down. That means the Saudis have an outsized ability to affect the global price of oil.
And that’s exactly what they’re doing. “Saudi Arabia,” writes Nathan Vardi of Forbes, “is making a massive $750 billion bet in 2015 that the oil kingdom can endure lower oil prices longer than other major oil producing countries both within and outside OPEC, even including American shale.”
If the Saudis can keep oil at or below $50 a barrel, many American fracking and offshore operations will either have to close up shop — which is already happening — or never launch in the first place, because the profit just isn’t there.
This is typical behavior for the Saudis and for OPEC, which, after all, is an international price-fixing cartel that would be illegal under our antitrust laws if it were an American outfit.
The White House, meanwhile, is only too happy to take credit for low gas prices and our decreased dependence on foreign oil. It’s also happy to take advantage of them. Not only does the president boast — as he did in his State of the Union address — about low gas prices, despite having done next to nothing to make them possible (nearly all new oil and gas production has been on state or private lands), he’s taking a bow for the economic benefits as if he deserves the credit.
One small example: Obama is constantly touting a newly low unemployment rate as if it were the result of his policies. The odd thing is that, as American Enterprise Institute economist Mark Perry notes, literally all of the job gains of the past seven years were generated by one state: oil-rich Texas.
From December 2007 to December 2014, according to Perry, Texas has added 1.25 million payroll jobs and 190,000 nonpayroll jobs. Meanwhile, the other 49 states and D.C. combined have 275,000 fewer jobs than they did at the start of the recession.
One wonders: If Obama is responsible for all these job gains, why did he put them all in George W. Bush’s home state?
Anyway, back to the nonconspiracy. By artificially keeping oil prices low, the Saudis get to deal a powerful blow to the energy revolution in the U.S. (They also get to deliver a severe economic blow to their enemies the Iranians, which is nice.) In exchange, Obama gets an unearned political windfall and can claim vindication for his ineffectual economic policies.
Obama is paying back the Saudis by permanently taking the Arctic National Wildlife Reserve’s billions of barrels of oil off the table for all time. By doing so, he also puts the entire Trans-Alaskan Pipeline System on a starvation diet.
North Slope oil production is half of what it once was, and if it falls below 350,000 barrels per day, the TAPS itself will start to become economically and technically unfeasible. In other words, Saudi Arabia’s short-term economic hit is an investment in future dependence on Saudi oil.
Of course, there need not be a conspiracy, just a convergence of economic and political interests. But the fact remains that Obama could never have gotten away with restricting energy development in ANWR before an election or when gas prices were high.
This is Obama’s window, and it appears the Saudis are holding it open for him for as long as he needs.
Jonah Goldberg is a senior editor of National Review and a columnist for Tribune Media.