Why Are We in Saudi Arabia?

By Michael Kinsley

Is it about oil, or is it about order? Those who say the gulf crisis is about oil note that U.S. military forces would not be massing to protect one distant feudal monarchy and restore another if the barren sands of Arabia had nothing underneath. Those who say it's about something finer -- re-establishing a civilized world order -- argue that we would not be going to all this trouble if the threat to our energy supply came in the traditional way: by a meeting of oil ministers in a Geneva hotel.

Obviously, both sides are right. It's about oil and about order. Neither cause alone would lead President Bush to spend American wealth and risk American blood on this huge scale. But the debate has focused too much on what we need to achieve to re-establish order: Saddam Hussein dead, or off his perch, or out of Kuwait, or merely cowed from further territorial ambition? We need a clear war aim with respect to oil as well. And the only such aim that would begin to justify the cost and the danger is one directed at our beneficiaries, Kuwait and Saudi Arabia, as well as our enemy, Iraq: the oil price-fixing conspiracy must end for good.

The free-market price for oil is something like $10 per bbl. That is what it sank to in 1986, when OPEC was in total disarray. At the last OPEC meeting, in July, production quotas were assigned to achieve a price of $21. That's what our "friends" the "moderates" wanted. Saddam wanted $25. The difference between $10 oil and $21 oil means, for the U.S., an extra $33 billion a year for oil imports. That doesn't even count an equal sum paid to domestic producers, or the dampening effect on the economy.

The extra $11 per bbl. would bring in about $22 billion a year for the Saudis. But now, thanks to our decision to defend them from Iraq, oil is selling for over $30 per bbl. That should temper our gratitude for their decision to pump an extra 2 million bbl. a day. It means another $22 billion or so, plus an $18 billion premium on the 5.4 million bbl. a day they were already pumping. Meanwhile, we are paying for the oil and also paying untold billions to defend their right to pump unmolested.

The U.S. has never been clear-minded about our national self-interest in cheap oil. Republican administrations, ostensibly devoted to the free market, have tolerated or even subtly promoted the oil price-fixing cartel. As part of the Nixon Doctrine in the early 1970s, the U.S. looked the other way as Saudi Arabia and Iran raised oil prices, hoping they would spend the money on military equipment and become the "twin pillars" of Middle East stability. (What a laugh! The Middle East military machines financed by high oil prices have been those of Ayatullah Khomeini and Saddam Hussein.) In 1986 Vice President George Bush actually went to Riyadh and begged the Saudis to reduce oil production in order to "stabilize" -- i.e., raise -- prices.

Bush's mission was on behalf of America's domestic oil producers. But as a net importer, America has an overall national interest in paying as little as possible for oil. The oil price-fixing cartel is in flat violation of U.S. antitrust laws. American oil producers are, in effect, auxiliary members. If the OPEC ministers met in Houston, they could be arrested on the spot. Perhaps the fact that they meet in foreign countries makes them immune from our law, but it should not make them immune from our contempt. And American soldiers should not die in the desert defending the oil kingdoms' right to flout the basic rules of free enterprise, to our enormous detriment.

But doesn't cheap foreign oil create the danger of dependency? Well, what is that danger? It is twofold: a run-up of price and a cutoff of supply. True, our interest is in paying as little as possible for oil in the long run, not just today. Too low a price could be sucker bait, discouraging alternative energy sources and conservation, and setting the stage for a bigger rip-off tomorrow. It is impossible to say what price today minimizes the long-run cost of oil for consumers. What you can say for sure is that oil producers have exactly the opposite objective: maximum revenue in the long run. Letting a producer cartel fix the price cannot be good for consumers.

And even if $21 oil, as opposed to $10 oil, today would save us from $50 oil in a few years, why pay that extra $11 to oil producers? Why not buy the oil for $10, slap on an $11 tax and pocket the difference ourselves? That would raise about $40 billion a year -- just about enough to cancel the budget summit. (Last month's crisis. Remember?) A tax on imports alone would raise half that, allowing domestic producers to keep the difference. Yet the policy of two Republican administrations -- read their lips -- has been that it is better for the money to go into the treasury in Riyadh than into the Treasury in Washington.

As for a reliable supply, every year that we pay $10 instead of $21 for foreign oil, we could buy an extra year's supply to sock away if we wanted to, and we would still come out ahead. Meanwhile, more domestic oil would remain in the ground for future use.

Almost any way you look at it, it is senseless to pay a penny more than necessary for oil. Consider the environment. Why aren't conservatives these days clamoring for the restoration of a free market instead of clamoring to open up fragile strips of America's coastline? What sense is there in wrecking Alaska to get at $30 or $40 oil when it flows out of the Saudi desert for a fraction of that cost?

Everybody says OPEC will never fully recover from the Saddam Shock. But that is not good enough. Whatever we are fighting for, it is surely not so that the oil ministers of Iran, Iraq, Saudi Arabia and Kuwait can once again drink tea together around a conference table. There should be a new understanding that all efforts to allocate production and set prices for oil are an affront to both the values and the interests of the U.S. During the first oil crisis in 1973, people who urged an occupation of the oil fields to end the oil gouge were dismissed as crazy. Surely occupying the oil fields and not ending the gouge is crazier.