For many a decade the OPEC countries have dominated the exportation of oil and that fact remains true today. However, in recent times improvements to technology such as hydraulic-fracking have allowed the United States the opportunity to extract record amounts of oil domestically and export it in similar fashion; this increase in exportation positively affects the terms of trade for the United States. Yet, this is not the basis for Thomas Friedman's NY Times article A Pump of War?; rather, Friedman focuses on the "invisible"global oil war which pits the United States and Saudi Arabia against Russian and Iran and how the new technology and by extension improved terms of trade for the U.S. allow for a victory in foreign policy without putting boots on the ground.
With recent actions taken by the Russian government, it has been in the interest of the United States and other world powers to stop President Putin, and to date they have tried the method of economic sanctions which have done little to stop the Russian as well as Iranian oppression. In his article, Friedman suggests that the new technology in extracting oil allows the United States to "pump them to death — bankrupt them by bringing down the price of oil to levels below what both Moscow and Tehran need to finance their budgets." This occurs because the amount of oil that the United States has now flooded the market with in combination to the status quo output of oil from Saudi Arabia, has dropped the price of oil for weeks from the long stretch of barrels of crude oil costing between $105-$110 to now resting prices of $88. This forces Moscow and Tehran to sell their batches of oil at a lower price eventually leaving the budgets for their respective governments in the red as the exportation of oil accounts for well over 50% of GDP for both nations. This same process was used to dismantle the U.S.S.R by the Saudi government in 1985 and is hoped to work again today in age to stop Putin and Khamenei in their tracks.
Not only does improved technology in oil extraction improve the United States' terms of trade, but it also helps gain victories in foreign policy without putting boots on the ground.
The last sentence of the article says, "If only we could do tax reform, and replace payroll and corporate taxes with a carbon tax, we’d have a formula for resiliency and success far better than any of our adversaries." This confuses me a bit because a carbon tax would increase the cost of oil. Wouldn't that increase make the U.S. less competitive against Russia and Iran? Or would the carbon tax only be implemented towards U.S. consumers which would lower domestic demand and increase the supply for exports. This is an interesting article and I wish they had gone into further detail about the carbon tax.
ReplyDeleteI am very interested in what the United States could do if it could figure out a method of exporting its natural gas reserves. Currently one of Russia's main threats to the rest of the world is that it would cut off the natural gas pipelines from Ukraine to the rest of Europe. This would seriously disrupt an already ailing European economy, but if the US were able to export its ample supplies of natural gas it could not only create gains in its own economy but also help solidify the European economy and remove one of Russia's tactical advantages.
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ReplyDeleteUndoubtedly, the dropping oil prices over last few weeks is one of the most hottest topic around world. We focus on it a lot even in other classes, which implied multiple assumptions and predictions. In my personal opinion, the improved technology of extracting oil is a positive signal to U.S. and its allies, which is contributing to the politic policies for U.S. more than to the increasing trade term.
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