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The Oil Card
Global Economic Warfare in the 21st Century
By James R. Norman
Challenging the conventional wisdom behind oil pricing, this compact book sheds an entirely new light on the workings of "free" commodity markets and oil industry supply and demand "fundamentals." Its purpose is to look at the use of oil as an economic weapon.

The book assembles a now well-documented chronology of how the US and its allies, including Saudi Arabia, pushed down oil prices dramatically in the 1980s, and kept them low for a decade. It was a concerted and stunningly successful effort to break the former Soviet Union by depriving it of desperately needed hard-currency income.

It then raises the question whether those same price-control levers have lately been pushed in the opposite direction to rein in another target: the oil-short Peoples Republic of China. Contrary to popular perceptions, media commentary and official explanations, the book methodically lays out the geopolitical logic and the market mechanisms behind the stunning 12-fold run-up of oil prices from 1998 to mid-2008. It also offers an explanation for the sudden price drop from almost $150/barrel to under $100 as Russia again flexed its muscle by invading Georgia.

This timely and unorthodox analysis offers a clear and compelling explanation for the huge and otherwise unjustified gyrations in oil and other commodity prices in recent years. It also contains unique viewpoints on the reasons behind the US invasion of Iraq in 2003 and the fall of Russian oil major Yukos. The book will appeal to a broad audience—from students and practitioners of geopolitics to hard-pressed consumers and energy producers wondering how long windfall prices can defy gravity.


Jim Norman is a veteran business journalist and energy reporter. He is currently a contributing writer for McGraw-Hill's Platts Oilgram News, where he was a senior writer for 10 years before retiring in mid-2007. He has also been a senior editor at Forbes magazine and for 10 years was at BusinessWeek, where he was Houston bureau chief in the mid-1980s. Prior to that, he won an AP award for investigative reporting (on an oil and gas scam) while a reporter for the Ann Arbor News in his home state of Michigan. He lives in New York City.

At Platts, Norman has been noted for his coverage of oil industry finance, economics, deal-making and chicanery. His "prophetic press reports," as early as 1998, were cited by Paul Volcker's UN Independent Inquiry Committee for laying bare the likelihood of kickbacks and money laundering involving the Iraq Oil-For-Food program. His critical analysis of Enron accounting and governance in mid-2001 helped trigger the SEC investigation which led to Enron's downfall.


Jim, Could I ask you to spell out a few salient facts for our members about how the world oil price (I presume the "spot" price mostly) is manipulated for the purposes of economic warfare, and who are the principal players involved. Without giving too much away, of course.

Thanks, David
Turns out it is not THAT hard to manage the price of even a global, fungible commodity like crude oil. The key levers are the Saudis, the majors and the futures market. In the 1980s, the record is now clear, we leaned on the Saudis to cut thier price with netback pricing and to boost production. The oil majors inexplicably boosted their output in the early 1980s in what would now be considered an irrational spending spree. And the NYMEX crude contract came into existence in 1983, characterised in its early years by persistent "short" selling of paper barrels by little-known players. The result was to drive down crude prices from $40/bbl to the low teens and hold them there for a decade to deprive the Soviets of hard currency.

Add to that a spate of US government actions to boost vehicle fuel efficiency, stop using fuel oil to make electricity, slow the SPR fill rate. There was also a global PR effort to make people think the world had plenty of reserves (big write-ups by the Saudis and others).

Since 1998, the levers all seem to be pushed in the other direction, which I say is aimed at slowing economic growth in China (a big oil import, of course). There is unprecendeted restraint and production discipline by the Saudis and OPEC, the majors (after a spate of mega=mergers) are skimping on cap-ex and have not grown the liquids output at all despite soaring prices. Then there has been a torrent of buying of "paper" barrels on the NYMEX and the unregulatoed ICE. This has been fueled by a series of US regulatory moves which have enabled and encouraged pension and other managed money to plow into commodities.

That's it in a nutshell. The actual mechanics and evidence are explained in mind-numbing detail in the book. Kris Millegan, the publisher, would be thrilled if a few more people would put in orders.

Since it went to press in early July, crude prices have peaked and tumbled sharply. But rather than undermine the thesis, I think it reinforces the basic argument that crude prices have been moving out of all relation to actual supply/demand fundamentals and have mainly been a function of geopolitics (which, coincidentally, XOM's Lee Raymond himself has stated over and over in his congressional testimony). The recent downdraft coincided exactly with Russia's renewed uppityness and invasion of Georgia. I would argue it has been a 2x4 upside Putin's head to remind him just how nasty a world of low oil prices can be. Conversely, China "caved" a bit in May and June, making nice with Japan on the E China Sea dispute and easing threats against Taiwain. The PRC also relented and has let its currency rise faster against the dollar. These have been the top three agenda items for US policymakers.

My hunch is that if Moscow persists in its waywardness, you could see crude fall by half again to under $50. It could theoretically go to (or below) marginal production costs, which for the majors is maybe about $20 or $25 and half that for the Saudis. The world has amply crude supply.

I'd appreciate all thoughtful feedback on this, but would ask that people read the book and consider its proofs before unloading on me.

Cheers. JN
Thanks Jim. That makes perfect sense to me.

I suppose what we're looking at is a balancing trick by the western players here. On the one hand Russia bends her knee to lower oil prices, but this benefits China. China does likewise over lower prices, but this benefits Russia. It would be a cleft stick scenario except, I guess, that it is not usually time critical as the chokehold on China can be temporarily released in order to get two firm hands to squeeze the throat of Russia, and then switch back to choking China once Russia steps back in line?

Yes. US policy has long been to keep Russia and China at each other's throats. Oil prices could gyrate as we side with one or the other against the odd man out. We can live with prices either way. One or the other of them can't, very well. Russia is by far the weakest player in this game and I think will either have to get back in step with us or opt for a tense and ultimately futile reallignment with Beijing.
Of course, the other option (or partial remedy perhaps) may be for Russia to supply China exclusively and set their own price band - thereby telling the west to go to hell?