He posits that when oil prices are low, western nations have leverage to push for democratic reforms and freedoms, plus pressure from the citizens themselves for such changes also gains traction. But, when oil prices spike, those same external and internal pressures can be ignored. In fact, flush with money, authoritarian leaders tend to use that income to suppress political rivals, shut down newspapers which criticize them, and beef up their personal and military apparatus, while being able to trade concessions from the west for an increase in oil production that will reduce global oil prices.
In essence, Friedman is saying that our addiction to oil (and natural gas in the last decade), funds the very people who actively desire the decline of global democratic nations, or at the very least, want them weakened. He illustrates his theory with a chart that seems to reveal a correlation between these phenomenon. What is really interesting is that "Hot, Flat, and Crowded" was written in 2008, so there has been another 14 years of the rise and fall of oil prices to check his theory.
But let me backtrack a bit.
I found a chart from the US Energy Information Administration (EIA) which listed the US crude oil purchase price per barrel from OPEC from 1974 to May 2022. Using the January price for each year as a benchmark, the cost was between $7 and $10 per barrel from 1974 to 1979, spiked to $34.59 in March 1981, dropped below $30 by Feb 1982, then steadily fell through the $20's until Feb 1986 when it went into the $teens until the end of the century with a short rise over $21 in Jan 1997 but also falling under $10 for a while in 1999. Now, I know that this is a big generality, but weren't those years, especially 1990 to 1999, a time when America actually had a few balanced budgets, and, did not involve itself in many foreign conflicts? Is it possible that because the tyrants of the world, did not have the money to fund their atrocities things were relatively quiet?
With the new century, prices still stayed low (below $30) until 2004, when they began to rise steadily, into the $40's, then over $50 per barrel in 2005, then over $70 in Sept 2007, over $80 in Nov 2007, over $95 in March 2008, peaking at $128 in July 2008. The economic meltdown gave us brief relief, but by 2011 we broke the $100 per barrel mark again and stayed over $90 until Sep 2014. Is it a coincidence that Russia invaded Crimea that year?
Another oil price crash from late 2014 through mid 2016 kept prices below $50 a barrel until mid 2017 but prices mostly stayed in the $50's and $60's until the pandemic of 2020 when oil prices fell back into the teens for a few months in the spring of that year. At this time, most global oil producers scaled down their production as their break even points were far above this low price. But when recovery from the pandemic outpaced the return to higher production, oil prices spiked passing $50 then $60 then $70 in 2021, then $80 in Jan 2022. Which brings us to Russia invading Ukraine, and then a dramatic spike due to the western countries boycotting Russian oil.
Now, as they say, hindsight is 20-20, but were all those pundits wrong who did not point to rising oil prices as a reason for Putin's decision to invade? Or is it a coincidence that he became aggressive at the exact two times when oil peaked in price in the last 10 years?
Friedman, of course would have no way of knowing about that oil price spike leading to Russian aggression since he wrote his book in 2008, although he did correlate some of the reform attempts by Gorbachev when oil was low. Mostly though, he focuses on the nations of the middle east, especially Saudi Arabia and Iran as examples of when oil was cheap, reformers were tolerated, but when oil spiked, leaders clamped down on freedoms.
The sad part of all of this is that when oil was cheap during so many of those years before 2008 when his book was written, and since then, America and the European nations didn't take full advantage of the drop in cost. Could we have kept oil prices at the pump higher by increasing the federal gas tax and investing that extra money in greener fuel sources? Could we have continued to increase our average gas mileage standards, including trucks, to keep the pressure on global oil supplies thereby keeping the price down rather than reverting to our gas guzzlers when the price dropped down?
I have said a few times this past month, that we should not let the price at the pump drop much below $4 a gallon, certainly not below $3.50, but should instead raise the federal gas tax to match the drop in price, thereby providing extra money for green investments, rewarding those who choose to buy cars that either get 50 and 60 miles per gallon, or who buy e-cars, and also providing a first strike option to reduce the gas tax should prices take an unexpected turn due to an uncontrollable global event.
Currently, the tax is only 18.4 cents per gallon (24.4 for diesel) and hasn't been raised since 1993. Compared to national gas taxes in European countries which are all over $1.50 per gallon, most over $2 and a few over $3, and it is obvious that we are not paying the true cost of our gas when you figure in the cost of pollution and greenhouse gases that are ruining our environment, not to mention that portion of our defense budget that goes to the various expenses related to the issues that Petropolitics have created ever since we helped the Arab world and Russia figure out how to get their oil out of the ground.
The main point of Friedman's book is that we should be focused on creating a green revolution which would not only begin to reduce our dependence on foreign energy sources, but would also create tens, if not hundreds of thousands of good paying green industry jobs, demonstrate America's leadership in tackling the climate change crisis, and, bonus, defund the type of authoritarian leaders who use their petro dollars to suppress freedoms in their own country (Saudi Arabia, Iran), attack other sovereign countries (Russia), and indoctrinate and radicalize their citizenry to demonize western nations.
Of course, as I have said, this book was written in 2008, and, while oil prices were low as compared to now, America did not follow Friedman's advice. We are still using more oil than we produce, despite US oil production tripling since 2008. And, even in those months when we produce as much as we consume, oil is sold to the American consumer at global market prices, plus we still sell oil overseas. While drill, baby, drill makes for a good bumper sticker or yard sign, the fact is we have been drilling, yet still we find ourselves whining about high pump prices. And, in the meantime, global oil consumption and production is just about at 100 million barrels per day, so increasing our production by even 20% year over year, is only another 2 million barrels a day.
Reducing and replacing our oil dependence is the only realistic way to become energy independent, and yet 14 years after Friedman's book we are only baby steps on our way, and even those steps are being constantly assailed by those beholden to the fossil fuel industry, and those who choose to ignore the data.
Sadly, I found 3 posts I had written about oil back in 2010. I say sadly because, at the time, I was reacting to the deep water Horizon oil disaster, and I say sadly because there wasn't enough done since then to try to prevent what is happening today. Here are those posts.
And lastly, as I have done before, here is a link to the story I wrote, in 2011, which cast a negative light on our energy policy, and foretold our continued dependence on foreign energy sources, although with a slight twist.
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