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Is OPEC A U.S. National Security Threat?

Pentagon National Securtiy

Republican Kevin Cramer from North Dakota is cosponsoring a bipartisan bill that will set up a commission to probe whether OPEC has used unfair means to bolster its dominance over the market and propose possible remedies on the grounds that the matter is important from a national security standpoint, reports the Financial Times.

Though similar efforts in the past against OPEC have been ineffective, another cosponsor, Republican Trent Franks, is optimistic about the outcome this time around.

“If our bill does nothing more than to raise this question on to the agendas of business leaders and policymakers . . . it will have achieved something,” he said.

The move holds significance due to the forthcoming Presidential elections, a flurry of U.S. shale bankruptcies, the growing closeness between Russia and Saudi Arabia, and souring relations between the U.S. and Saudi Arabia.

Recently, Saudi Arabia threatened to dump $750 billion of U.S. treasury securities and other American assets if the U.S. passed a bill allowing the family members of those killed in the 9/11 terror attacks to sue Saudi Arabia in U.S. courts. Nonetheless, the threat was unfounded as Saudi Arabia only holds $116.8 billion, and the OPEC nations combined hold $281 billion in U.S. treasuries as of February 2016, reports Bloomberg. Related: Fed Pours Cold Water On Oil Price Rally

A few experts believe that Saudi Arabia might have more holdings under different custodial accounts, similar to Belgium, which is believed to be the Chinese custodial account.

However, such a brazen threat by the Saudis has triggered a debate on U.S. energy security and the Saudi intention to finish off the U.S. shale oil producers.

Another point of debate is that the dollars earned by the Middle East from exporting oil to the U.S. funds terrorist groups. Hence, if domestic production falls, the U.S. will be forced to import more, which in turn will financially strengthen terrorist groups.

“If we didn’t have to buy so much oil from certain parts of the world, terrorists would not have enough money to buy a box of sparklers to use against us,” Mr. Franks said.

On the other hand, former Saudi oil minister Ali al-Naimi rejected claims that Saudi Arabia was out to harm U.S. shale oil producers.

"Let me say for the record, again, we have not declared war on shale or on production from any given country or company. We are doing what every other industry representative in this room is doing. We are responding to challenging market conditions and seeking the best possible outcome in a highly competitive environment.”

"Efficient markets will determine where on the cost curve the marginal barrel resides," he said, reports Reuters.

However, many like Dennis Blair, former director of National Intelligence and head of the Navy's Pacific command, don’t believe the Saudi’s clarification.

"In a worldwide oil market, we are still at the mercy of fluctuations in Chinese economic growth or Saudi production decisions," Mr. Blair said, reports the Washington Examiner. Related: The Biggest Winner Of The Oil Bust: Interview With Aeromexico

He opines that the full benefits of the shale revolution and modernization won’t show effects until the U.S. tackles the OPEC manipulation of the markets. He has highlighted the policy changes needed to safeguard American energy security in a report for the Congress and the new President.

However, the Democratic Party’s presidential aspirants plan to enforce tough guidelines for fracking.

Hillary Clinton, the front-runner for the Democratic Party’s presidential nomination, has promised to impose tougher conditions on fracking.

“By the time we get through all of my conditions, I do not think there will be many places in America where fracking will continue to take place,” Clinton said during a debate in March, whereas Bernie Sanders, her rival, said, “I do not support fracking”, reports Reuters.

The sufferers of these policies are the shale oil drillers. They have to counter OPEC, lower oil prices, tightening lending norms and tougher fracking rules back home. Whereas, the other state-held oil producing companies get complete support from their respective governments.

If the U.S. really wants to focus on energy security, they should start supporting the shale oil drillers.

By Rakesh Upadhyay for Oilprice.com

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  • John Scior on May 24 2016 said:
    It might be beneficial to the legislator that OPEC is an International organization not an American one. It is in fact is a cartel which by definition would make it ( if under American jurisdiction ) a violation of anti-trust laws. I like in your article, the linkage between petro dollars and the funding for terrorists. An external cost in US consumption of imported oil is the financial cost associated with fighting the war on terrorism. Another indirect cost is that those dollars leave our economy and go elsewhere. Just strictly looking at oil, if say you put fracked oil from the Dakotas in your fuel tank, you support the people and companies in America that pulled it from the ground. This money is used to buy other goods and services and has a "multiplier" effect vs when we use imported oil, the money leaves our economic system to the benefit of another economic system.
  • afisher on May 24 2016 said:
    John, you seem to have overlooked that the Congress just passed laws that Big Oil that generates oil/gas in the US is now approved to sell it offshore. Does that help the US citizens or just the profit of the companies? The US Congress (heavily backed by Big Oil) is trying to bully OPEC and create a look over there distraction for the US consumer as they attempt to bail out Big Oil by raising the price of US supplies.
  • Douglas on May 24 2016 said:
    I wrote about this in my blog in February.

    Let's just put it this way. If a multinational corporation did to the US banking and energy sector what SA has done with OPEC in tow, they would all be in jail for life. Martha Stewart got 6 months for something someone else did and amounted to less than 4K in profit. These guys have committed war against the US banks, energy sector employees and all of the ancillary and supporting companies that give the remaining few in American that want to work, real jobs. All of this blatant attack against our nation and we stand by and give them our military support?

    We need to put our foot down and get all of these third world gremlins out of our pockets and send them back to the sand box they crawled out from.
  • Don Hickman on May 30 2016 said:
    U.S. Customs law prohibits the dumping of products into the U.S.

    Also, there should be reguirements to identity the country of origin of petroleum products so that American consumers can make a CHOICE of there energy purchases and verify where the dollops are being sent.

    ALL AMERICANS SHOULD BE ABLE TO PURCHASE AMERICAN OIL FROM AMERICAN SOIL!

    WE SHOULD BE ABLE TO PURCHASE A QUART OF OIL, LABELED AND IDENTIFIED THAT THE PRODUCT IS AMERICAN MADE!

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