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Portrait of an Oil-Addicted Former Superpower:
How Rising Oil Prices
Are Obliterating America's Superpower Status
By Michael T. Klare
TomDispatch.com
Thursday 08 May 2008
Nineteen years ago, the fall of the Berlin Wall effectively eliminated the
Soviet Union as the world's other superpower. Yes, the USSR as a political entity
stumbled on for another two years, but it was clearly an ex-superpower from
the moment it lost control over its satellites in Eastern Europe.
Less than a month ago, the United States similarly lost its claim to superpower
status when a barrel crude oil roared past $110 on the international market,
gasoline prices crossed the $3.50 threshold at American pumps, and diesel fuel
topped $4.00. As was true of the USSR following the dismantling of the Berlin
Wall, the USA will no doubt continue to stumble on like the superpower it once
was; but as the nation's economy continues to be eviscerated to pay for its
daily oil fix, it, too, will be seen by increasing numbers of savvy observers
as an ex-superpower-in-the-making.
That the fall of the Berlin Wall spelled the erasure of the Soviet Union's
superpower status was obvious to international observers at the time. After
all, the USSR visibly ceased to exercise dominion over an empire (and an associated
military-industrial complex) encompassing nearly half of Europe and much of
Central Asia. The relationship between rising oil prices and the obliteration
of America's superpower status is, however, hardly as self-evident. So let's
consider the connection.
Dry Hole Superpower
The fact is, America's wealth and power has long rested on the abundance of
cheap petroleum. The United States was, for a long time, the world's leading
producer of oil, supplying its own needs while generating a healthy surplus
for export.
Oil was the basis
for the rise of first giant multinational corporations in the U.S., notably
John D. Rockefeller's Standard Oil Company (now reconstituted as Exxon Mobil,
the world's wealthiest publicly-traded corporation). Abundant, exceedingly affordable
petroleum was also responsible for the emergence of the American automotive
and trucking industries, the flourishing of the domestic airline industry, the
development of the petrochemical and plastics industries, the suburbanization
of America, and the mechanization of its agriculture. Without cheap and abundant
oil, the United States would never have experienced the historic economic expansion
of the post-World War II era.
No less important was the role of abundant petroleum in fueling the global
reach of U.S. military power. For all the talk of America's growing reliance
on computers, advanced sensors, and stealth technology to prevail in warfare,
it has been oil above all that gave the U.S. military its capacity to "project
power" onto distant battlefields like Iraq and Afghanistan. Every Humvee,
tank, helicopter, and jet fighter requires its daily ration of petroleum, without
which America's technology-driven military would be forced to abandon the battlefield.
No surprise, then, that the U.S. Department of Defense is the world's single
biggest consumer of petroleum, using more of it every day than the entire nation
of Sweden.
From the end of World War II through the height of the Cold War, the U.S. claim
to superpower status rested on a vast sea of oil. As long as most of our oil
came from domestic sources and the price remained reasonably low, the American
economy thrived and the annual cost of deploying vast armies abroad was relatively
manageable. But that sea has been shrinking since the 1950s. Domestic oil production reached a peak
in 1970 and has been in decline ever since - with a growing dependency on imported
oil as the result. When it came to reliance on imports, the United States crossed
the 50% threshold in 1998 and now has passed 65%.
Though few fully realized it, this represented a significant erosion of sovereign
independence even before the price of a barrel of crude soared above $110. By
now, we are transferring such staggering sums yearly to foreign oil producers,
who are using it to gobble up valuable American assets, that, whether we know
it or not, we have essentially abandoned our claim to superpowerdom.
According to the latest data from the U.S. Department of Energy, the United
States is importing 12-14 million barrels of oil per day. At a current price
of about $115 per barrel, that's $1.5 billion per day, or $548 billion per year.
This represents the single largest contribution to America's balance-of-payments
deficit, and is a leading cause for the dollar's ongoing drop in value. If oil
prices rise any higher - in response, perhaps, to a new crisis in the Middle
East (as might be occasioned by U.S. air strikes on Iran) - our annual import
bill could quickly approach three-quarters of a trillion dollars or more per
year.
While our economy is being depleted of these funds, at a moment when credit
is scarce and economic growth has screeched to a halt, the oil regimes on which
we depend for our daily fix are depositing their mountains of accumulating petrodollars
in "sovereign wealth funds" (SWFs)
- state-controlled investment accounts that buy up prized foreign assets in
order to secure non-oil-dependent sources of wealth. At present, these funds
are already believed to hold in excess of several trillion dollars; the richest,
the Abu Dhabi Investment Authority (ADIA),
alone holds $875 billion.
The ADIA first made headlines in November 2007 when it acquired a $7.5 billion
stake in Citigroup, America's largest bank holding company. The fund has also
made substantial investments in Advanced Micro Systems, a major chip maker,
and the Carlyle Group, the private equity giant. Another big SWF, the Kuwait
Investment Authority, also acquired a multibillion-dollar stake in Citigroup,
along with a $6.6 billion chunk of Merrill Lynch. And these are but the first
of a series of major SWF moves that will be aimed at acquiring stakes in top
American banks and corporations.
The managers of these funds naturally insist that they have no intention of
using their ownership of prime American properties to influence U.S. policy.
In time, however, a transfer of economic power of this magnitude cannot help
but translate into a transfer of political power as well. Indeed, this prospect
has already stirred deep misgivings in Congress. "In the short run, that
they [the Middle Eastern SWFs] are investing here is good," Senator Evan
Bayh (D-Indiana) recently observed. "But in the long
run it is unsustainable. Our power and authority is eroding because of the amounts
we are sending abroad for energy."
No Summer Tax Holiday for the Pentagon
Foreign ownership of key nodes of our economy is only one sign of fading American
superpower status. Oil's impact on the military is another.
Every day, the average G.I. in Iraq uses approximately 27 gallons of petroleum-based fuels.
With some 160,000 American troops in Iraq, that amounts to 4.37 million gallons
in daily oil usage, including gasoline for vans and light vehicles, diesel for
trucks and armored vehicles, and aviation fuel for helicopters, drones, and
fixed-wing aircraft. With U.S. forces paying, as of late April, an average of
$3.23 per gallon for these fuels, the Pentagon is already spending approximately
$14 million per day on oil ($98 million per week, $5.1 billion per year) to
stay in Iraq. Meanwhile, our Iraqi allies, who are expected to receive a windfall of $70 billion this year from
the rising price of their oil exports, charge their citizens $1.36 per gallon
for gasoline.
When questioned about why Iraqis are paying almost a third less for oil than
American forces in their country, senior Iraqi government officials scoff at
any suggestion of impropriety. "America has hardly even begun to repay
its debt to Iraq," said Abdul Basit, the head of Iraq's Supreme
Board of Audit, an independent body that oversees Iraqi governmental expenditures.
"This is an immoral request because we didn't ask them to come to Iraq,
and before they came in 2003 we didn't have all these needs."
Needless to say, this is not exactly the way grateful clients are supposed
to address superpower patrons. "It's totally unacceptable to me that we
are spending tens of billions of dollars on rebuilding Iraq while they are putting
tens of billions of dollars in banks around the world from oil revenues,"
said Senator Carl Levin (D-Michigan), chairman of
the Armed Services Committee. "It doesn't compute as far as I'm concerned."
Certainly, however, our allies in the region, especially the Sunni kingdoms
of Kuwait, Saudi Arabia, and the United Arab Emirates (UAE) that presumably
look to Washington to stabilize Iraq and curb the growing power of Shiite Iran,
are willing to help the Pentagon out by supplying U.S. troops with free or deeply-discounted
petroleum. No such luck. Except for some partially subsidized oil supplied by
Kuwait, all oil-producing U.S. allies in the region charge us the market rate for petroleum. Take that
as a striking reflection of how little credence even countries whose ruling
elites have traditionally looked to the U.S. for protection now attach to our
supposed superpower status.
Think of this as a strikingly clear-eyed assessment of American power. As far
as they're concerned, we're now just another of those hopeless oil addicts driving
a monster gas-guzzler up to the pump - and they're perfectly happy to collect
our cash which they can then use to cherry-pick our prime assets. So expect
no summer tax holidays for the Pentagon, not in the Middle East, anyway.
Worse yet, the U.S. military will need even more oil for the future wars on
which the Pentagon is now doing the planning. In this way, the U.S. experience
in Iraq has especially worrisome implications. Under the military "transformation"
initiated by Secretary of Defense Donald Rumsfeld in 2001, the future U.S. war
machine will rely less on "boots on the ground" and ever more on technology.
But technology entails an ever-greater requirement for oil, as the newer weapons
sought by Rumsfeld (and now Secretary of Defense Robert Gates) all consume many
times more fuel than those they will replace. To put this in perspective: The
average G.I in Iraq now uses about seven times as much oil per day as G.I.s
did in the first the Gulf War less than two decades ago. And every sign indicates
that the same ratio of increase will apply to coming conflicts; that the daily
cost of fighting will skyrocket; and that the Pentagon's capacity to shoulder
multiple foreign military burdens will unravel. Thus are superpowers undone.
Russia's Gusher
If anything demonstrates the critical role of oil in determining the fate of
superpowers in the current milieu, it is the spectacular reemergence of Russia
as a Great Power on the basis of its superior energy balance. Once derided as
the humiliated, enfeebled loser in the U.S.-Soviet rivalry, Russia is again a force to be reckoned
with in world affairs. It possesses the fastest-growing economy among the G-8
group of major industrial powers, is the world's second leading producer of
oil (after Saudi Arabia), and its top producer of natural gas. Because it produces
far more energy than it consumes, Russia exports a substantial portion of its
oil and gas to neighboring countries, making it the only Great Power not dependent
on other states for its energy needs.
As Russia has become an energy-exporting state, it has moved from the list
of has-beens to the front rank of major players. When President Bush first occupied
the White House, in February 2001, one of his highest priorities was to downgrade
U.S. ties with Russia and annul the various arms-control agreements that had
been forged between the two countries by his predecessors, agreements that explicitly
conferred equal status on the USA and the USSR.
As an indication of how contemptuously the Bush team viewed Russia at that
time, Condoleezza Rice, while still an adviser to the Bush presidential campaign,
wrote, in the January/February 2000 issue of the influential Foreign
Affairs, "U.S. policy must recognize that American security is
threatened less by Russia's strength than by its weakness and incoherence."
Under such circumstances, she continued, there was no need to preserve obsolete
relics of the dual superpower past like the Anti-Ballistic Missile (ABM) Treaty;
rather, the focus of U.S. efforts should be on preventing the further erosion
of Russian nuclear safeguards and the potential escape of nuclear materials.
In line with this outlook, President Bush believed that he could convert an
impoverished and compliant Russia into a major source of oil and natural gas
for the United States - with American energy companies running the show. This
was the evident aim of the U.S.-Russian "energy dialogue" announced
by Bush and Russian President Vladimir Putin in May 2002. But if Bush thought
Russia was prepared to turn into a northern version of Kuwait, Saudi Arabia,
or Venezuela prior to the arrival of Hugo Chávez, he was to be sorely
disappointed. Putin never permitted American firms to acquire substantial energy
assets in Russia. Instead, he presided over a major recentralization of state
control when it came to the country's most valuable oil and gas reserves, putting
most of them in the hands of Gazprom,
the state-controlled natural gas behemoth.
Once in control of these assets, moreover, Putin has used his renascent energy
power to exert influence over states that were once part of the former Soviet
Union, as well as those in Western Europe that rely on Russian oil and gas for
a substantial share of their energy needs. In the most extreme case, Moscow
turned off the flow of natural gas to Ukraine on January 1, 2006, in the midst
of an especially cold winter, in what was said to be a dispute over pricing
but was widely viewed as punishment for Ukraine's political drift westwards.
(The gas was turned back on four days later when Ukraine agreed to pay a higher
price and offered other concessions.) Gazprom has threatened similar action
in disputes with Armenia, Belarus, and Georgia - in each case forcing those
former Soviet SSRs to back down.
When it comes to the U.S.-Russian relationship, just how much the balance of
power has shifted was evident at the NATO summit at Bucharest in early April.
There, President Bush asked that Georgia and Ukraine both be approved for eventual
membership in the alliance, only to find top U.S. allies (and Russian energy
users) France and Germany blocking the measure out of concern for straining
ties with Russia. "It was a remarkable rejection of American policy in
an alliance normally dominated by Washington," Steven Erlanger and Steven
Lee Myers of the New York Times reported, "and it sent a confusing
signal to Russia, one that some countries considered close to appeasement of
Moscow."
For Russian officials, however, the restoration of their country's great power
status is not the product of deceit or bullying, but a natural consequence of
being the world's leading energy provider. No one is more aware of this than
Dmitri Medvedev, the former Chairman
of Gazprom and new Russian president. "The attitude toward Russia in the
world is different now," he declared on December 11, 2007. "We
are not being lectured like schoolchildren; we are respected and we are deferred
to. Russia has reclaimed its proper place in the world community. Russia has
become a different country, stronger and more prosperous."
The same, of course, can be said about the United States - in reverse. As
a result of our addiction to increasingly costly imported oil, we have become
a different country, weaker and less prosperous. Whether we know it or not,
the energy Berlin Wall has already fallen and the United States is an ex-superpower-in-the-making.
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Michael Klare is a professor of peace and world security studies at
Hampshire College and author of the just-released Rising Powers, Shrinking Planet: The New Geopolitics
of Energy (Metropolitan Books). A documentary film based on his previous
book, Blood and Oil, is available from the Media Education Foundation and can
be ordered at bloodandoilmovie.com.
A brief video of Klare discussing key subjects in his new book can be viewed
by clicking here.
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