U.S. Problems Just Beginning

Dependence on Foreign Resources Threatens U.S.

Wednesday, September 13, 2006

Dangers lurk in America’s overreliance on foreign nations, and often hostile nations, to supply essential resources. If you think the world is a friendly place for Americans, you might reconsider. Wars in Iraq, Afghanistan, Yugoslavia, the war on terror, and nuclear confrontations with Iran and North Korea, have all had one common result—growing international dislike for America. There is a reason so many American tourists traveling abroad stitch Canadian flags to their backpacks and travel luggage. As anti-American sentiment has engulfed much of the world, the United States is finding itself reliant on nations with strengthening anti-U.S. bias for important resources. A coming crisis could now be developing as many of America’s suppliers are seeking to reduce their dependence upon trade with the U.S. A recent example of a nation that has publicly declared that it wishes to reduce its dependence on the U.S. is America’s fourth-largest supplier of crude oil—Venezuela. Venezuelan President Hugo Chavez has publicly stated he wants his nation to become less reliant on the U.S. to purchase its oil, preferring to send more of its crude to China. Chavez wants oil sales to China to grow three-fold over the next three years. Since Venezuela currently sends 68 percent of its crude oil exports to the U.S., it is probable that Venezuela will have to curb the amount of oil it sells to the U.S. if Chavez is to meet his projected Chinese sales. For America this could be a big problem, since Venezuela provides approximately 12 percent of its total crude imports. Saudi Arabia is another country that is also pursuing a policy of reducing its oil trade with the U.S. in favor of China and India. According to global geo-strategy analyst Joseph Stroupe, “Almost none of the world’s oil and gas producers want to be inordinately dependent on the U.S. market any longer.” He says that other key Middle Eastern regimes are following suit, as are Latin America, Africa and several key Central Asian nations. It is becoming “difficult to name more than a handful of resource-rich states that are liberal democracies and that are still significantly aligned with the West,” notes Stroupe. America’s oil import disposition is a perfect example of how the U.S. relies on unstable or increasingly hostile countries for its vital energy needs. Until the recent spike in oil prices, few realized the extent of America’s reliance on foreign oil. America is by far the world’s largest oil consumer, importing 63.5 percent of its daily oil needs. In 2004, America imported as much oil as Japan, Germany, China and India combined. In his 2006 State of the Union speech, President Bush highlighted America’s dilemma. “[W]e have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.” To say that America’s imported oil often comes from unstable parts of the world may be understated. Consider a partial list of America’s major cude oil and oil products suppliers: Saudi Arabia, Ecuador, Algeria, Russia, Angola, Nigeria, Venezuela, and Iraq. Each of these countries provides more than 100,000 barrels of oil per day (bpd) to the U.S. Venezuela and Saudi Arabia provide more than 500,000 bpd. Yet, the above nations could be described as either volatile, totalitarian, less-than-democratic, far-left-wing, or radically oriented with a distinctly anti-Western political posture. A recent study by Wall Street Journal and the Heritage Foundation ranked these countries 62nd, 107th, 119th, 122nd, 139th, 146th, and 152nd out of 157 in terms of economic freedom (Iraq was not rated, but would probably be somewhere near the bottom). Of America’s major oil suppliers, only Canada, Mexico and the UK can be considered fairly secure. Yet, even Canada and the UK may not provide as much future oil to the U.S. as expected. Canada is continually increasingly its strategic energy deals with China and the East (Asia Times, August 25). Pipelines are now being constructed to pump oil from Canada’s tar sands to the west coast for shipment to China. United Kingdom oil is also not secure. The North Sea oil fields are old and are experiencing intensifying production declines normally associated with aging. Resource nationalization is another increasingly common global trend now threatening America. Several foreign governments have started kicking out American and other international corporations, and confiscating (or what amounts to virtually confiscating) their local properties and operations. For example, in 2005, Russia forced the privately-held oil company Yukos into bankruptcy so that the Russian state-owned oil companies Rosneft and Gazprom could pick up the pieces on the cheap—at the expense of American and other international and Russian shareholders. These moves, among others, left the Kremlin with almost complete control over the Russian oil and gas industry as well as complete control over which nations would be the recipients of Russian energy resources. Since then, varying yet startling numbers of other resource-rich regimes around the world have started replicating or threatening to replicate the Russian model. Quickly following on the heels of Russia’s oil and gas nationalization was Venezuela, then Bolivia, and Ecuador. In each of these cases, international oil companies, often including American-based corporations, operating within these nations saw their assets threatened. Local governments commonly levied massive tax and royalty hikes (Calgary Herald, May 12). If the American or other international companies argued, often times the local governments would send in the army to forcibly seize control of the operations, as was the case in Bolivia and Ecuador. Just weeks ago, the African nation of Chad ordered U.S. oil company Chevron to leave the country for allegedly refusing to pay taxes. Chad’s president said he would set up a national oil company to take over the oil fields formerly operated by Chevron. In this case, China will be the likely benefactor. Earlier this year, Chad broke off diplomatic relations with U.S. ally Taiwan and instead formally recognized China. Chadian oil formerly pumped by U.S.-owned Chevron will now likely head to the Orient. American mining companies are also becoming targets of foreign government nationalization. In Indonesia, American miners Freeport McMoRan and Newmont are currently facing threats to ownership of their operations. Indonesia is forcing Newmont to sell 51 percent of its gold-mining operation to domestic Indonesian companies. Indonesian politicians are also after chunks of the McMoRan’s world-class copper mine. Three years ago, Indonesia kicked out Western companies Rio Tinto and bp (Edge, Singapore, May 15). According to Canadian Business, investors are now increasingly worried about Mongolia and Peru jumping on the resource nationalization bandwagon. Although these countries are not heavyweight mineral exporters, “[w]hat makes investors nervous is the possibility that other countries could follow suit” (May 22). Worryingly, America’s inability to protect American companies clearly illustrates how much international influence America has lost. As Stroupe says, the U.S. no longer has “the global leverage to shape [these] unfolding developments in its favor” (op. cit.). As a result, America’s multinational oil and resource companies are being marginalized. Each time an American resource company gets kicked out of a country, not only does it mean that an American company has been robbed of its investment, but more importantly it could mean that America is forced to look for another supplier for that resource. As is the case with oil, finding a new supply is much easier said than done. The world’s demand for oil and other resource commodities is rapidly increasing. China and India especially seem to be snatching up each new resource supply that enters the market. Oil, gold, silver, copper, zinc, nickel, and many other commodities, have all recently set multi-year or -decade price records—some, like oil, have set nominal all-time price records. America is facing a massive problem—as a nation it relies on the kindness of foreigners to provide the things Americans need most. The sad reality is that America relies on foreign nations for everything from manufactured goods to energy, raw commodities and strategic minerals to providing money to finance its massive fiscal deficits. Evidence is mounting that foreign nations are starting to take notice of America’s weakness. Unfortunately, many of America’s enemies already realize their power over the U.S. In the case of energy dependence, it is certainly evident that many Middle East leaders understand this is a weak spot. In 1990, the late Yasser Arafat said, “When the North Sea oil dries up … the United States will want to buy Arab petroleum. And when the American oil fields themselves run dry and oil consumption in the United States increases, the American need for the Arabs will grow greater and greater” (The Heritage Foundation, April 7). Russia too understands the weakness of relying on foreign nations to supply essential needs. This past January, Russia turned off the gas tap to Ukraine (and consequently much of Europe) in what was seen as a political as well as an economical dispute. Does America see its own weakness? If Americans truly understood the implications of being resource dependant upon unfriendly foreign nations, especially at a time of intensifying anti-Americanism, global instability, and resource competition, America would be acting quickly. Sadly, this is not the case. The Bible speaks of a time when America will be besieged by its enemies. America’s over-reliance on foreigners for essential needs is a sign that time is drawing near. However, there is light at the end of the tunnel—a time when there will no longer be international competition over resources. For more information, refer to The Wonderful World Tomorrow—What It Will Be Like.