“Did you know there’s an oil war? And the war has an objective: to destroy Russia,” said Venezuelan President Nicolas Maduro in a live television speech last week. “It’s a strategically planned war…also aimed at Venezuela, to try and destroy our revolution and cause an economic collapse.”
It’s the United States that has started the war, Maduro said, and its strategy was to flood the market with shale oil and collapse the price.
Russia’s President Vladimir Putin agrees. “We all see the lowering of oil prices.” he said recently. “There’s lots of talk about what’s causing it. Could it be an agreement between the U.S. and Saudi Arabia to punish Iran and affect the economies of Russia and Venezuela? It could.”
The evil Americans are at it again. They’re fiendishly clever, you know.
We are hearing this kind of talk a lot these days, especially from countries that have been hit hard by the crash in the oil price. Last Thursday, Brent crude hit $55 per barrel, precisely half the price it was selling for last June. The Obama administration’s announcement last week that it is preparing to allow the export of some U.S. oil to foreign markets may send it even lower. (U.S. crude oil exports have been banned since 1973.)
When the oil price collapses, countries that depend very heavily on oil exports to make ends meet are obviously going to get hurt. President Putin, who has let Russia get itself into a position where more than half its budget revenue comes from oil and gas sales (some estimates go as high as 80 percent) is in deep trouble: the value of the ruble has halved, and the economy has already slipped into recession.
Venezuela, where government spending is certainly more than 50 percent dependent on oil exports, is in even deeper trouble—and, like Putin in Russia, President Maduro of Venezuela sees this as the result of an American plot. Various commentators in the West have taken up the chorus, and the conspiracy theory is taking root all over the developing world.
So let us consider whether there really is an “oil war”. The accusation is that the United States is deliberately “flooding the market” with shale oil, that is, with oil that has only become available because of the fracking techniques that have become widespread, especially in the U.S., over the past decade. Moreover, Washington is doing this for political purposes, not just because it makes economic sense for the United States to behave like this.
In order to believe this conspiracy theory, however, you really have to think that a rational U.S. government, acting in its own best economic interests, would do the opposite: suppress the fracking techniques and keep American oil production low, in order to keep its imports up and the oil price high. But why on earth would it want to do that?
You will note that I am going along with the notion (a necessary part of the conspiracy theory) that all important business decisions in the United States are ultimately made by the U.S. government. That is ridiculous, of course, but we don’t need to refute this delusion in order to settle the question at hand, so let it pass.
Hydraulic fracturing (“fracking”) as a means of recovering gas and oil, particularly from shale formations, has its roots in early attempts dating back as far as 1947, but it was the development of cheap and reliable techniques for horizontal drilling in the late 1980s that slowly began to transform the U.S. oil industry.
By 2012, over a million fracking operations had been performed in U.S. wells—but in 2012, last year’s events in Ukraine were unforeseen and the United States and Russia were still on relatively good terms. Many oil-exporting countries were worried by the prospect that rising U.S. oil and gas production would shrink American imports and thereby cut their own profits, but it was still seen as a supply-and-demand problem, not a strategic manoeuvre.
The operators wanted to make a profit, and Washington liked the idea that rising U.S. domestic oil production might end the country’s dependence on imported oil from unstable places so much that it gave tax breaks and even some direct subsidies to the companies developing the fracking techniques. But that’s no more than what any other government of an oil-producing country would have done.
So did the U.S. develop fracking to hurt its enemies? The dates just don’t work for Russia: fracking was already making U.S. production soar years before Washington started to see Moscow as an enemy. As for Venezuela, it continues to be the fourth-largest exporter of oil to the United States, at a time when the glut of oil on the market would let Washington cut Venezuela out of the supply chain entirely.
And Barack Obama is not opening the flood-gates for massive American oil exports that will make the oil price fall even lower. The U.S. still imports a lot of oil, and will go on doing so for years. He has only authorized the export of a particular kind of ultra-light oil that is in over-supply on the domestic market: only about one million barrels of it, with actual exports not starting until next August.
If this is a conspiracy, it’s a remarkably slow-moving one.