We Can Bankrupt the Global Jihad

Saturday, October 26, 2013

After the "Arab Spring," Saudi Arabia gave its citizens a raise. Saudis citizens don't pay income taxes. Most of them don't even work. The Saudi government pays them, and to avoid the fate of the leaders in Egypt, Libya and elsewhere, the Saudis increased their citizens' pay and pensions. They committed future funds to these payoffs.

This has presented the counterjihad movement an opportunity to strike a decisive blow into the heart of the global jihad.

Jihadist projects are funded largely through Saudi Arabia and Iran, two OPEC nations. The Taliban is a Saudi oil-money project, for example. So is the Muslim Brotherhood and the OIC. Hezbollah is an Iranian oil-money project.

OPEC is a cartel formed of primarily Islamic countries. OPEC was founded for the purpose of raising world oil prices. Jihadist activities around the world have been on the rise because jihadist funding has been on the rise. The source of that funding is oil profits, which have been on the rise.

What keeps the whole thing functioning is oil's monopoly over the most important commodity on earth — transportation fuel.

In the 1980's, because the rising cost of oil, many new programs were started to create a freer fuel market. Brazil launched its ambitious ethanol program, many new ethanol distilleries were built in America, Roberta Nichols created a massive methanol experiment in California, etc. But in the mid-80's, OPEC flooded the world market with oil in order to drop world oil prices, which made all of these potentially-competitive fuels no longer competitive on price, which crashed Brazil's program, put half the U.S. ethanol facilities into bankruptcy, and prompted California to abandon its methanol experiment.

It was a classic monopolist move. It's the oldest trick in the monopolist's book: Drop your price to send the competition into bankruptcy.

Once their competitors were sufficiently crippled, OPEC started raising the world oil price again.

But competing fuels have recently begun to reappear. Brazil permanently changed to flex fuel vehicles (rather than ethanol-only vehicles) for example, which has protected them from OPEC's manipulations (when oil prices drop, drivers buy gasoline; when oil prices rise, drivers buy ethanol). Brazil's economy is booming.

In the United States there is a growing clamor to use methanol as a fuel, ideally in flex fuel vehicles. Methanol can be made inexpensively from America's abundant natural gas, and can be sold for half the cost of gasoline without any subsidies. If it was available as a fuel, people would buy methanol because it would save them a lot of money. But right now, it is not available as a fuel in the U.S. One bill now in Congress is trying to change that.

So let's say the bill passes into law and methanol becomes available, and people start using methanol for fuel. Gasoline would have to drop in price to compete, or it wouldn't sell. Everything would be wonderful. But...

Wouldn't OPEC just drop the world price of oil to crush this new competitor?

This is where things have changed in an important way. This is our new opportunity. Saudi Arabia controls what OPEC does. The Saudis are sitting on the easiest oil to produce in the world, and therefore theirs is the cheapest oil to produce. Because of this, they dictate what the rest of the OPEC nations will do. But if methanol becomes a fuel in America, Saudi Arabia (and the global jihad movement) will be between a rock and a hard place — and it could be the end of both OPEC and the third jihad.

If the Saudis decide to lower the world price of oil to make the U.S. lose interest in methanol, they would not make enough money to fulfill their commitments to pay off their subjects, who would probably rise up and throw the monarchy out. But if the Saudis keep the price of oil high, they would lose their income, because who would buy gasoline at $4.00 a gallon when methanol is available for half the price of an equivalent gallon? Not many.

Gal Luft, the co-director of the Institute for the Analysis of Global Security, wrote:

Since the beginning of the Arab Spring, Saudi King Abdullah almost doubled his Kingdom's budget, committing billions in subsidies, pensions and pay raises in an effort to keep his subjects from storming the palaces.

This expensive response effectively raised the price of oil needed for the Saudis to balance their budget from under $70 a barrel before 2011 to at least $110 a barrel by 2015.

When oil is $100 a barrel, gasoline is about $3.50 to $4.00 a gallon. Methanol can sell at about $2.00 an equivalent gallon. Oil would have to be $50 a barrel to compete.

In other words, what happened in the 1980's can no longer happen. Saudi Arabia can no longer afford to drop the price of oil low enough to eliminate the competition. If we introduce vigorous fuel competition now in America, it will be the end of oil's monopoly for good, and funding for the global jihad would evaporate as Saudi Arabia and Iran would be forced to struggle to simply stay afloat.

This is an unprecedented opportunity. And you can help make it happen: If you are an American, join the fuel competition revolution. Go to openfuelstandard.org and sign up for their updates and urge your Representative to co-sponsor the bill. If you are in any other country, let your fellow counterjihadists know about this bill and what it could mean for the world, and let everyone around the world urge Americans to pass this bill. The U.S. is the largest consumer of transportation fuel in the world. If fuel competition happens here, it will spread to other countries. And it will be the death knell of the third jihad.

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It’s Time to Shock O.P.E.C.

Sunday, October 20, 2013

The following important article is by Frank Gaffney of the Center for Security Policy:

Forty years ago this week, America received a harsh lesson about the dangers of relying on others for energy. President Nixon’s decision in the midst of the Yom Kippur War to resupply Israel with U.S. weaponry gave members of the OPEC cartel an excuse to embargo oil supplies to this country and drive up prices worldwide. It became known as the “oil shock” of 1973.

Ever since, politicians of both parties have promised to reduce our dependency on unreliable foreign sources. To that end over the past four decades, they have invested untold sums on various schemes – from imposing price controls, producing synthetic fuels and subsidizing ethanol production, curbing demand and diversifying overseas sources of supply for oil and natural gas.

Thanks largely to private sector initiatives and funds, however, real progress has lately been made on this longstanding national objective. Finally, the widespread application of technology like horizontal drilling and hydraulic fracturing (better known as fracking) and a series of discoveries of vast quantities of natural gas around the United States and off its coasts have transformed our situation from one of energy dependency to potentially that of the largest energy exporter in the world.

The geopolitical and economic significance of this transformation will be the focus of conferences sponsored by two influential, bipartisan groups in Washington this week. Former Cabinet and sub-Cabinet officers, senior military personnel and other experts will convene on Tuesday under the auspices of the U.S. Energy Security Council and on Wednesday under that of Securing America’s Future Energy (SAFE) to discuss the oil embargo, the intervening years and where we are today vis a vis those who used energy as an economic weapon against us in the past.

It is very much to be hoped that these conversations will not simply repeat nostrums about the inadvisability of being dependent upon unreliable – to say nothing of  actually hostile – energy sources. Or, worse yet, simply revel in the change of fortunes that will, in the absence of further Obama administration obstructionism, enable us to become again a huge net producer of energy. (Regrettably, between its pursuit of cap-and-trade restrictions on carbon emissions, overreaching EPA regulations, the campaign to destroy the coal industry and further shenanigans with respect to the Keystone XL pipeline, there is ample reason to expect more official impediments to our energy security, not fewer.)

What is needed now is a strategic approach to using our newfound energy leverage to cause some oil “shocks” of our own.

For starters, the windfall of natural gas deposits being found in this country opens up an opportunity to transform the sector in which we are still almost entirely dependent on oil and its byproducts: the transportation of people and goods via automobiles, buses and trucks.  If natural gas can become widely used in eighteen-wheelers and turned into methanol for use in most modern cars, we could dramatically reduce the amount of gasoline we are obliged to import from the Islamists of OPEC.

What is more, as Nobel laureate George Olah observed in an op.ed. article he co-authored in the Wall Street Journal last week, recent breakthroughs in chemistry are allowing another vast U.S. resource – carbon dioxide – to be cost-effectively converted into methanol. Far better to burn it in our automobiles and in modified surface transportation and maritime diesel engines than to pay exorbitant sums, as Team Obama has in mind, to try to store it underground.

Best of all, by enabling these alternatives to oil and gasoline to become available across America, we can create fuel choice for consumers – and competition for the cartelists. The predictable effect would be to drive oil prices down, especially as the scores of other developing nations capable of manufacturing their own alternatives to gasoline begin to do so, as Brazil has already done with ethanol.

The result could be to break the back of OPEC, once and for all. That, in turn, would help dry up the funding that has done so much for decades to power jihadism and undermine our economy.

This is no longer simply a desirable thing to do. It is absolutely imperative. As Center for Security Policy Senior Fellow Kevin Freeman has observed, Mideast oil producers seem determined to join the Chinese and Russians, among others, in terminating the U.S. dollar’s status as the world’s international reserve currency. Should they succeed in this gambit, the profound and debilitating economic and strategic ramifications will make the oil shock of forty years ago look like the good old days.

Adopting bipartisan Open Fuel Standard legislation and taking such other steps as are necessary to enable fuel choice can help us withstand as well disruptions in oil supply and/or skyrocketing price increases in the event of a new regional war in the Middle East. We can and must be in a position to deliver the next oil shock, not be its recipient.

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