Belmont Club

Accidental Hero

President Obama’s foreign policy clout it growing from an unexpected source.  First some background. In the Caribbean, where Venezuela’s PetroCaribe diplomacy once ruled the roost, the Chavez enterprise is on the verge of collapse. The reason is it’s going broke from more competition. According to the AP.

The late President Hugo Chavez’s dream of leveraging Venezuela’s oil wealth to spread revolution across Latin America is crumbling under the weight of an economic crisis that is forcing his hand-picked successor to cut back on generous foreign aid.

Signs of the country’s waning influence are becoming more apparent. In early November, Guatemala withdrew from the Petrocaribe oil alliance launched by Chavez, saying it didn’t receive the ultra-low financing rates it had been promised by Venezuela when it first sought to join the 18-nation pact in 2008. Also in recent weeks, representatives of Brazil and Colombia have held meetings with their Venezuelan counterparts to collect overdue payment for food, manufactured goods and other imports.

It is being beggared by not only the mismanagement of the Venezuelan oil industry but by fracking. Megan McArdle explained that scarcity — artificial or natural — was OPEC’s friend. Abundance was its enemy.

As long as prices were high, all of this was fine; Saudi and everyone else were pumping a lot and taking in a lot of money. But fracking threatens to change that happy equilibrium. The supply of oil will once again start rising to meet demand. And that means that the price is likely to fall.

It probably isn’t headed back to $20 a barrel any time soon; at that price, shale oil projects wouldn’t be economic. But Venezuela and others cannot afford any sustained decrease in the price of oil. They have spent every petrodollar they got, neglecting investment in favor of other projects. With production declining they are absolutely dependent on the scarcity pricing that has prevailed over the last 5-8 years. They will be pressing for production cuts to maintain price.

Once productivity makes things cheaper, countries which relied upon geographical or natural advantages only find their position eroding. Even Russia is feeling the oil squeeze. The Strategy Page notes:

Government economists are lowering growth prospects (from 4 percent between now and 2030 to 2.5 percent and similar reductions for near-term growth). That is largely the result of world oil and gas prices declining because of the American fraking revolution. This has eliminated the fear of declining oil and gas supplies. Since oil and gas are the principal Russian exports and source of foreign currency, that is very bad for Russia.

The Associated Press noted that a quiet milestone had been passed in October. While Obamacare was failing,  “for the first month in nearly two decades, the U.S. in October extracted more oil from the ground than it imported from abroad.”  While nobody was looking or announcing photo-ops or declaring it would fundamentally change the world,  the world was being changed.

Staring success in the face, we are told the reason for this improvement:

Obama administration officials said President Barack Obama’s efforts to boost fuel efficiency for cars have been a driving factor, helping to reduce U.S. demand for gas and, in turn, lessening the need to import foreign oil. Officials said requiring auto companies to make cars that run on less gas has gone a long way toward realizing Obama’s goal of curbing global warming. They also credited the president with promoting drilling on federal lands and offshore as part of his strategy to encourage more U.S. energy production.

Sure. Ok. Of course. Why not? Ronald Reagan once remarked, “There is no limit to the amount of good you can do if you don’t care who gets the credit.” Just so long as it works.

Abraham Lincoln Democrat

Abraham Lincoln Democrat

Some say that socialism will never succeed. But that is not true. It will succeed on the day when it is content to be paid off at 5% and in return leave everyone else alone.


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