Former Saudi Arabia ambassador Prince Turki al-Faisal takes out a rhetorical bazooka and aims it right at Barack Obama and his administration in this month’s Foreign Policy magazine.
In a blistering essay, he calls Obama a demagogue, and says the United States is heading for a “disaster” if it continues leading its people towards the “mirage” of energy independence.
Al-Faisal thinks that Obama paints foreign energy producers with too broad a brush. He makes it seem like oil producing nations are nothing but evil, and damage the United States. Al-Faisal says Saudi Arabia has regularly helped America by cranking up oil production when global markets would be “jittery”–after the Iranian revolution, during the first Gulf War, and after September 11th.
While Americans are confused and angry about spiking oil prices, they’d be better off looking inward, says Al-Faisal:
High oil prices have undoubtedly given those calling for U.S. energy independence a new talking point. But here, too, it’s important to understand what is really going on. Following the irrational and unsustainable price spike of the past few years, Saudi Arabia undertook investments to make sure the world would not be surprised by such a supply failure again. After investing almost $100 billion to reach 12.5 million barrels per day of sustained capacity, today we hold about 4.5 million barrels per day of spare capacity (or more than 90 per cent of the global total), enough to replace the second- and third-largest OPEC producers overnight if the world needed more oil.
We admit that, like the United States and other countries, we were surprised by the way prices escalated in recent years. Many people blame demand from China and other emerging markets. But the sad fact is that four oil-producing countries failed to live up to production expectations. In 1998, Iran, Iraq, Nigeria, and Venezuela were producing 12.7 million barrels per day. Everyone — including major companies such as BP and our own planners at Saudi Aramco — expected them to be producing 18.4 million barrels per day in 2008. Instead, due to civil strife, failed investments, or in the case of Iraq, a U.S. invasion, they were producing only 10.2 million barrels per day. That drove the price part of the way up. Then speculators, in the form of hedge funds, did the rest.
Another factor in rising oil prices is the shortage in the world’s refining capacity. In the United States, for example, not one new refinery has been built in more than 30 years. Add to this problem another: “boutique oil,” the different grades of gasoline required in different localities. I encountered one of these anomalies when I visited Chicago three years ago. There is an oil refinery 50 miles from Chicago, but it does not supply the city with gasoline because the grade does not comply with Chicago’s standards. Instead, Chicago has to import its gas from the East Coast. Prices at the pump would be much lower if there were direct supplies from the refinery to the city.
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