[News] The Spoils of Economic War: How the US, Saudis Profit From Sanctions on Venezuela and Iran

Anti-Imperialist News news at freedomarchives.org
Fri Jun 7 13:14:50 EDT 2019


  The Spoils of Economic War: How the US, Saudis Profit From Sanctions
  on Venezuela and Iran

6 June 2019

The Spoils of Economic War: How the US, Saudis Profit From Sanctions on 
Venezuela and Iran

The United States has been playing the role of the world's economic 
bully. So far, the U.S. has imposed sanctions against Afghanistan, 
Burundi, Burma, Cuba, North Korea, China, Cyprus, Haiti, Libya, Lebanon, 
Belarus, Crimea, Eritrea, Iran, Iraq, Central African Republic, 
Democratic Republic of the Congo, Russia, Syria, Somalia, Sudan, South 
Sudan, Russia, Ukraine, Venezuela, Yemen and Zimbabwe.

But if unilateral harassment has proven itself historically ineffective 
at achieving conventional geopolitical objectives, why does the U.S. 
insist on bullying Venezuela and Iran?

A glance at the political economy of international oil markets, an 
industry used as a battlefield to further the aims of 
war, provides insight into the seemingly irrational realm toward which 
President Donald Trump has been leading U.S. foreign policy.

        U.S. energy independence requires manipulating markets

Since international markets are highly speculative, many 
believe that price trends cannot be manipulated; however, that is not 
true. When energy commodities and strategic raw materials are involved, 
the U.S. does not sit back as a patient price taker but prefers to throw 
the dice as a price maker.

Between 2006 and 2014, when China's economic boom was increasing the 
demand for international commodities, structural changes occurred that 
paradoxically favored the U.S. a few years later. First, high oil prices 
allowed the fracking industry to become a financially viable option.


    /*US Renames Natural Gas to 'Freedom Gas' Made of 'Freedom

This, in turn, helped the U.S. gradually overcome the dependence it had 
experienced for 30 years, and which made it the world’s largest oil 
importer in 2016, with a voracious appetite of around 12 million barrels 
per day (bpd).

In December 2018, for the first time in the last 75 years, the U.S. 
became a net oil exporter thanks to "thousands of wells producing from 
the Permian region of Texas and New Mexico to Bakken in North Dakota and 
Marcellus in Pennsylvania," the Los Angeles Times reported.

"We (the U.S.) are becoming the dominant power in the world," as Michael 
Lynch, president of Strategic Energy and Economic Research, Inc. said.

Trump is reaping the fruit of energy independence, a condition he did 
not contribute to at all. This abundance of energy is fragile, however, 
because maintaining it depends on keeping oil prices as high as possible.

Therefore, to force this to happen, anything that threatens to diminish 
global oil supplies is actually good for the U.S., including the 
blockade of Venezuelan and Iranian exports.

And that's not all...

        If you can't make more pie, make sure you control the slices

While the U.S. now has enough oil to be able to export some of its 
reserves, Trump’s homeland can't satisfy the world's energy demands 
completely. This opens up business opportunities for Saudi Arabia and 
other allies who can also benefit from economic sanctions against 
Venezuela and Iran.

Before April 2018, when the U.S. began applying a new round of sanctions 
against the Persian nation, Iran was OPEC's second largest producer and 
exported almost 3 million bpd. Since then, however, its oil production 
has been reduced by more than 1 million bpd.

In Venezuela, U.S. foreign policy has achieved a similar result: between 
February 2018 and January 2019, the Bolivarian Republic's average oil 
output decreased from 1.5 million bpd to 1.1 million bpd, which is 
almost 50 percent below its production levels in 2006.

    Oil production in Venezuela and Iran fell further in May. In both
    countries, production is down more than 30% since US sanctions were
    imposed. Looks like sanctions will continue to be one of the forces
    shaping the oil market. #OOTT
    pic.twitter.com/i0mKrsUn5T <https://t.co/i0mKrsUn5T>

    — Sergi Lanau (@SergiLanauIIF) June 6, 2019

These combined results have triggered a trend towards the contraction of 
global oil supplies, which could be worsened if the Libyan civil war 
adds another cut of 1.2 million bpd in the near future.

Nevertheless, the oil market’s invisible hand is not enough to ensure 
that those high prices the U.S. desperately needs, since global supply 
basically meets global demand, moving around 99.5 million bpd, according 
to data from the International Energy Agency (IEA).

This won't change one its own — global economic growth will not easily 
lead to a new boom in oil demand. On the contrary, factors such as the 
U.S. trade war against China and Brexit could reduce growth prospects 
all over the world.

In this context, where oil demand remains more or less fixed, putting 
Venezuela and Iran out of business changes the portion of pie each 
country gets. And, of course, only the lucky ones get to continue 
enjoying their slice of the oil markets. Among these is Saudi Arabia, a 
country that will be able to capture more clients and expand its oil 
output without violating its OPEC commitments.

Oil prices have already responded to the U.S.'s politically-motivated 
supply shortages. The average crude oil spot price rose from US$56 per 
barrel in January to US$67 per barrel in May, a 16 percent increase. 
This would not have been possible without the sanctions that prevented 
Venezuela from selling over 50 percent of its production in February.

Certainly, the international average oil price will most likely remain 
below US$100 per barrel, but current unstable equilibrium prices are 
enough to keep U.S. companies in the fossil-fuel business at home and 
abroad. One of the short-term costs of this maneuver could be price 
volatility. However, it seems that Trump administration has assimilated 
such an eventuality — global stability hasn't ever been one of the 
U.S's. foreign policy priorities.

Looking at it pragmatically, the negative consequences of 
harassing Venezuela and Iran are outweighed by a very lucrative reward: 
2 million oil barrels per day.

"The U.S. currently removes about two million barrels of oil per day 
from the world's supply through sanctions on the Iran and Venezuela 
industries. But Washington hopes that soaring U.S. oil production - now 
at an all-time high of more than 12 million barrels per day - will keep 
global markets well-supplied and hold prices down," Reuters commented on 
May 5.

The political manipulation of supply and demand is a risky rent-seeking 
game. And this is where Trump's personality could play a key role — he 
is not a risk-averse player. So far, he seems unconcerned with the 
collateral damage arising from his economic warfare.

One of them is that U.S. sanctions "will help oil producers because the 
prices will go up, and Russia will be one of the most significant oil 
producers," said Robert Malley, former Middle East aide to President 
Barack Obama, as reported by RIA Novosti.

We are no longer living in that “good old world” in which U.S. 
geopolitics had to do with ensuring the flow of cheap natural resources 
from the closest friendly provider.

"Hence, paradoxically, a regional production crisis near U.S. territory 
could be good for the U.S. in the medium term," Giancarlo Elia Valori 
wrote in Geostrategic and added that "the U.S. is entirely in favor of 
an increase in the oil barrel price - and hence indirectly in favor of 
tension in Venezuela."

        The "almighty" dollar would fall from grace with back up from oil

Trump opens war fronts everywhere, which wouldn't seem to make sense 
unless they were a distraction. But they're not.

The rise of China as a global power has been silently transforming the 
international monetary system, another element triggering the U.S. 
into endless economic bullying.

Since the abandonment of the gold standard in 1971, the U.S. dollar is 
not linked to any assets, becoming a fiat currency. In these kinds of 
cases, only a country's output could back the currency in the long 
term. But what happens when monetary expansion occurs faster than 
increases in productivity?

Bringing new meaning to the "In God We Trust" motto coined so long ago, 
the dollar’s value depends on its capacity to remain an international 
reserve currency; that is, a currency other countries hold as part of 
their foreign exchange reserves and use in their international transactions.

In a world where economic agents don't ask the Federal Reserve to 
convert their notes into gold or any other physical asset, trust is the 
only thing keeping the U.S. upright. As a result, the dollar has 
remained a mighty currency because most international transactions are 
traded in U.S. dollars.


    /*Even Saudi Arabia Threatens to Ditch Dollar for Oil Trade Over US
    Bullying Policies*/

On Jan. 30, U.S. National Security Advisor John Bolton 
in fact, revealed very little when he blatantly admitted that the coup 
attempt in Venezuela was really about grasping for oil resources. In 
reality, aggression by the U.S. hides something much more than that.

If the dollar stops being the world's most traded currency, the U.S. 
will not be able to issue the notes it needs to finance an almost 
50-year-old federal deficit which rose from US$666 billion in 2017 to 
US$779 billion in 2018.

"The U.S. budget deficit by year is how much more the federal government 
spends than it receives in revenue annually. The Fiscal Year 2020 U.S. 
budget deficit is expected to be US$1.1 trillion.

"That's the biggest deficit since 2012," wrote Kimberly Amadeo in The 
Balance, noting how President Trump has ramped up the U.S. deficit to 
pay for record-high levels of military spending.

The dollar losing status as the world's preferred currency would 
give the U.S. problems paying for imports in an economy where its lack 
of international competitiveness has given it a trade deficit since 
1976, which widened to US$50 billion in March.

Last but not least, if the dollar stops being almighty, the U.S. will 
have a very difficult time maintaining itself as a first-world-class 
economy, since it's federal debt exceeded US$22 trillion in February. 
This amount represents over 76 percent of what the U.S. is able to 
produce in one year. Nevertheless, this is most likely to get worse: the 
debt-to-GDP ratio in the United States will rise to 150 percent by 2049, 
according to the Congressional Budget Office.

Besides preventing Venezuela and Iran from exporting their natural 
resources, the U.S. is actively seeking to avoid the dollar's collapse, 
an inevitability in the next few years, as the history of previous 
empires has already shown.

This is why the Trump administration is prone to fighting the use of 
barter, virtual currencies or other alternative international payment 

U.S. sanctions are not whimsical expressions of this president. They are 
tools used to retain hegemonic power in a multipolar world no longer 
willing to tolerate such an aspiration. At the core of U.S. bullying is 
not ideological disagreement but economic decline.

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