Lies and Epic Corruption Fuel Pricing of Oil

By Raymond J. Learsy

Why are Americans paying nearly $4 for a gallon of gas while in Iran the cost is $1.44 a gallon, Saudi Arabia 61 cents a gallon and Venezuela 6 cents a gallon?

The question needs be asked “why are we paying so much while the countries listed are paying but a small fraction of that amount?” The answer to that question will permit us to understand the depth of the misinformation and manipulation of the oil market, on issues that are of primordial importance to the American economy, our national security the environment and our economic independence.

Gouging Starts With OPEC Manipulation

The massive differences between who is paying what has come about through the manipulation of the pricing of oil and its pass through to gasoline. If you don’t already know it, the price gouging starts at the well, not necessarily at the pump.

American ignorance of how oil is priced combined with what we are taught to believe and is reported to us by an unquestioning press gives those interested in maintaining high prices an open field to lead us down the garden path and to put our way of life at risk.

Only with a real understanding of the realities of oil markets and how oil prices come about can we petition our government to take forceful and meaningful action. Presently the oil companies and oil interests are playing within an information vacuum having the game all to themselves pocketing our ignorance in the billions upon billions of dollars year after year.

Americans must learn to ask, cui bono? Who benefits and why does it continue? They must learn the role played by OPEC (Organization of Petroleum Exporting Countries) of which Iran, Saudi Arabia and Venezuela are long standing members. When you read OPEC, read: a cartel of oil suppliers that manipulates the price of oil ever higher by colluding to restrict competition. OPEC is the bully on the block, forcing up the price of oil at their periodic meetings, setting limits on production. They say that they are pumping oil at or near capacity which is reported as unquestioned fact by our press, when in fact both their reserves and production capability are far greater than they acknowledge. As example, Saudi Arabia is generally reported to have some 264 billion barrels (bbl) in their ground reserves, yet the Saudi oil minister was quite boastful in 2004 at an oil conference in Houston assuring his audience “that amount could readily be increased by another 200 billion barrels.”

But far be it for our credulous press to remind him of that. Even to this day, the price for Brent Crude (European oil pricing standard) exceeded $115 a bbl — some $40 more than the $75/bbl that Saudi King Abdullah declared as being “a fair price” a little over a year ago. In July, the Saudis wanted plaudits for increasing their production to 9.7 million barrels, even though a short while back they were boasting that capacity to pump oil had been increased to 12.5 million barrels a day.

This is but one example of how the Saudis and the oil industry take us for fools while lining their pockets when in fact they are producing approximately the same quantities that they produced in 1978-79. And yet our government does little, never a significant reprimand or even asking hard questions while having a naval flotilla sailing the Persian Gulf at a cost to American taxpayers of nearly $100 million a day whose undeclared but real purpose is to protect Saudi Arabia from Iranian aggression. Perhaps our government needs a lesson from Walmart.

Walmart tells their suppliers how much they will pay for a product and if the supplier doesn’t like it, that supplier’s product does not go on to Walmart’s shelves. Clearly as the world’s largest consumer of oil we could have significant market power, as would any major buyer of a product or commodity, yet it is rarely if ever opted by our government, and therein too lays a tale.

Maintaining the Status Quo

The role played by our government needs to be closely examined, starting with Congress, the Executive Branch and its agencies, such as the Commodity Futures Trading Commission (CFTC) and the Department of Energy, as keepers of the Strategic Petroleum Reserve, and the Department of the Interior.

The commodity exchanges both in the US and abroad, in such venues as London, Dubai and Singapore, provide trading platforms for speculators, players who are neither producers nor consumers, who in their turn play the oil market for their proprietary profit too often pushing prices ever higher to the great detriment of consumers.

Institutions such as bank holding companies among which rank JPMorgan Chase, Goldman Sachs and Morgan Stanley are among the players. Many of the larger banks and financial institutions who are supposed to invest your deposits for such endeavors as businesses and mortgages are using money in your savings accounts, guaranteed by taxpayers through the Federal Deposit Insurance Corporation (FDIC), as poker chips. 

Media Silence and Disinformation

Last but not least is the irresponsibility of the press and the role they play in the dissemination of erroneous assumptions and disinformation, lulling us all into a zombie-like acceptance of what they categorize as a market reflecting the workings of supply and demand.

Notorious for serving us up barely edited OPEC or oil company/industry flak handouts has been the New York Times, forever rationalizing every market distortion as the workings of market forces. The Times, for one, reached its apogee in May 2008 when oil was barreling toward its all time high of $147/bbl in June.

There, crowned with a Nobel Prize and with the imprimatur of the New York Times in hand, our Nobel Laureate and Times columnist Paul Krugman instructed us that that the vertiginous price of oil was not the result of runaway speculation but rather of fundamental factors. “There is no good evidence that prices have gotten out of line…” he pontificated. This was an oil-flack’s PR dream come true, and permitted us all to pay near $5 a gallon at the pump with unquestioning equanimity. It was later established that Krugman’s dismissal of speculation as a major factor of oil prices reaching the stratosphere was nonsense. But stating that prices had not gotten out of line, without any mention of OPEC’s machinations, was consummately irresponsible. 


What Americans Do Now Determines Their Future

Americans must clearly understand that the withdrawal from our oil addiction and our poisoned relationship with too many of our oil suppliers/”pushers” — like withdrawals from all addictions — may be painful, but the results will be a healthier economy and society. It is time for citizens of all political persuasions to fight political complacency. Americans cannot afford to remain ignorant victims of the conditions and machinations that underpin the ongoing oil extortion by OPEC, oil interests, and the financial institutions while our government sits idly by.

International agencies remain mute, and our press stays unfocused. Such is the power of money to achieve silence. Rather than simply grumbling helplessly at the gas pump, Americans must learn to ask, cui bono? Who benefits, how, and what are the consequences?

Americans must be made aware of how oil prices and policies are manipulated, and they must learn more about where that money goes, and to hold their elected representatives, at every level, responsible.

Raymond J. Learsy is a member of the Woodrow Wilson International Center for Scholars. Learsy is the author of the recently released Oil and Finance: The Epic Corruption.

From The Progressive Populist, October 1, 2011

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