Oil and national security

The United States has imposed economic sanctions on Russia, Iran and North Korea. Unfortunately sanctions alone never get the job done (for example Saddam Hussein and the U.N. Oil for Food program). While current sanctions have caused some hardships, it has been the collapse in the price of oil since 2014 that has been a true limiting factor.

Although the Saudis are currently an ally, it would be foolish to ignore the fact that much of the radical jihadist ideology that has plagued the West for years is rooted in the Wahhabi version of Islam that Saudi Arabia has been exporting for decades.

The price of oil was over $100 per barrel from 2011 through part of 2014, at one point hitting more than $120 per barrel. Russia, Iran, Saudi Arabia and others assumed oil would stay above $100 and began to budget accordingly.

Advanced technologies unlocked vast shale oil formations in the continental United States and debunked the myth of peak oil. Thanks to the increased production of shale oil and gas, the U.S. is now the top energy producer in the world.

Our energy companies developed “fracking” and “horizontal drilling” technologies. With every well drilled, our guys get more experienced and more efficient, the technology gets better and the cost to produce a barrel of “light, sweet crude” gets cheaper and cheaper.

Russia and OPEC can no longer dictate the price of oil. This year the price of oil has remained below $55 per barrel and is about $45 today. When the price of oil rises, the number of producing oil rigs in the U.S. rises too, effectively putting a cap on price. If the price falls, uneconomical wells can be taken off line. The U.S. rig count now determines the global price of crude.

The world is awash in oil. There is a huge amount of crude on ships at sea and we have historic quantities of oil in storage here in the United States. Countries that rely on oil revenues for a large percentage of their national budgets have had to slash spending. This could be a national security boon to the United States and put our adversaries at a disadvantage.

Since the 2014 sharp decline in the price of oil, Russia has had to slash the money going to regional governments and there is a growing discontent with the Kremlin and Vladimir Putin. On June 12, thousands of Russians engaged in organized protests in 150 cities across the country.

The loss of oil revenue is so severe that it has forced the Kremlin to dramatically reduce their military spending. For the first time since the 1990s, Russian military spending will be reduced by 5 percent beginning in 2018. The Kremlin plan to modernize 70 percent of its forces by 2020 has been scrapped.

The money Russia does spend will be on land and air forces with a focus on proven/existing systems and platforms. There will not be a resurrection of the Russian navy and no fifth-generation MiG stealth fighter. For their budget to balance, Russia needs the price of oil to stay above $60 per barrel.

Saudi Arabia has the cheapest lifting costs in the world. They can pull a barrel of oil out of the ground for less than $9 per barrel. However their budget break-even price is about $79 per barrel.

Saudi Arabia is a very wealthy nation; it is also a huge, mostly uninhabited sandbox with few natural resources other than oil and gas. The Saudi population in 1970 was less than 6 million people. Today the Saudi population is more than 32 million and growing and that growth isn’t limited to Saudi citizens. Saudi Arabians (like many Arabs) consider manual labor (anything that means getting their hands dirty) or service and sales jobs as unacceptable. Most of the people working in their private sector are non-citizens. The population is clustered in urban areas and most, outside of the royal family, rely on government subsidies for necessities like food, electricity and fuel.

The government of Saudi Arabia is now operating at a deficit and is filling the gap with money from their sovereign wealth fund. The new crown prince is in charge of reform and modernization, but he is finding it difficult to balance reduced subsidy spending with a stable population.

After decades of exporting the radical Wahhabi brand of Islam and funding terrorist groups all over world, the Saudis now claim to recognize radical Islam, including the Muslim Brotherhood, as a security threat. Well, a threat at least to the House of Saud.

The Islamic Republic of Iran is currently trying to revive its oil industry after years of sanctions that crippled their oil industry but not the theocratic government of the world’s largest supporter of terrorism. The break-even price Iran needs to balance its budget is about $55 per barrel. The ayatollah isn’t seeing the oil revenues he may have hoped for, but that hasn’t stopped him from supporting terrorist forces and organizations in Iraq, Syria, Lebanon and Yemen.

Iran received a cash infusion from the U.S. after signing a nuclear deal with the previous administration. Observers claim that Iran is living up to its part of the agreement. That is a hard claim to verify: Iran learned to take their nuclear project deep underground after watching Israel destroy the nuclear facilities in Iraq (1981) and Syria (2007).

The country many view as the No. 1 threat to our national security, North Korea, has no oil. What it does have is a nuclear program that has now demonstrated the ability to put a nuclear warhead on an intercontinental ballistic missile. The Kim regime has conducted six nuclear tests and fired more than 16 ballistic missiles so far this year. International pressure and sanctions don’t appear to be working.

The North Korean nuclear and ballistic missile tests are conducted not only for the stated purpose of developing a nuclear deterrent. They also serve as a marketing tool. Kim is demonstrating his capabilities to those who can afford to purchase them.

North Korea desperately needs foreign currency and has a history of proliferation. The nuclear facility Israel destroyed in Syria in 2007 was an exact replica of the North Korean Yongbyon nuclear reactor. The Israelis actually had video taken of North Korean technical advisers inside of the facility.

The Islamic Republican Guard Corps operates 42 missile centers in collaboration with North Korean technical experts. The Iranian Shahab-3 and Ghadr missiles are derived from Nodong missiles imported from North Korea, and Iran has continued to develop more advanced ballistic missile delivery systems and facilities based on North Korean designs.

Kim Jong-un believes that he needs a nuclear deterrent. But he is unlikely to start a nuclear war. Kim isn’t suicidal. The ayatollah, however, is another story. The real danger lies with North Korea selling a nuclear weapon, or the technology to build one, to Iran.

Once Iran goes nuclear, Saudi Arabia will feel compelled to buy its own weapons from Pakistan. Of course, Israel already has nukes.

The lifting cost in the United States for a barrel of shale oil is about $23 and about $21 for a barrel of non-shale oil. Our government doesn’t balance a budget, regardless of the price of oil, so there is no U.S. break-even price.

We have a unique opportunity to use oil to our national security advantage. The U.S. government should do everything in its power to drive down the price of oil and keep it down. Now is the time to dramatically deregulate oil production and eliminate taxes on oil exports.

If we can push the price of oil below $30, and keep it there, the loss of revenue will mean continued reductions in Russian military spending. Many regional governments in Russia are already teetering on insolvency. Without adequate oil revenue, Putin will face increasing unrest at home while being forced to curtail his projection of military power abroad.

Oil under $30 means the Saudi Arabian government will continue operating at a deficit and continue tapping its sovereign wealth fund to pay for unsustainable subsidies to its citizens. There is a complex, perennial uneasiness between the large Saudi royal family and the very strict Council of Senior Scholars which advises the king on all religious matters. An extended period of cheap oil will mean less money available for the export of Wahhabi Islam and may force Saudi Arabia to focus more on growing unrest at home.

To put this in perspective, the Saudi budget break-even price is higher than that of Iran, Iraq, Kuwait, the UAE and Qatar. It is only slightly lower than the break-even price for Algeria.

With lifting costs under $10, Iran will try to balance its budget by increasing production. On the flip side, cheap oil should hamper Iranian attempts to lure foreign investment. At a minimum, oil under $30 should mean fewer dollars to spend on its nuclear and ballistic missile programs and less money to support the Islamic Republican Guard, the Quds Force, Shiite militias in Iraq and Syria, Hezbollah in Lebanon and the Houthis in Yemen.

It is hard to quantify what cheap oil would mean to North Korea. But I suspect that cheap oil would result in fewer dollars available to radical Islamic nations or organizations who want to purchase North Korean nuclear technology, weapons or ballistic missiles.

The current glut in oil supply should soon cause another crash in prices, and a U.S. cheap oil policy would enhance the effectiveness of sanctions levied against Russia, Iran and North Korea. Our adversaries don’t have our technological capabilities or expertise. Oil producing countries that fund and foment radical Islam will have less money to do so and, as a bonus, U.S. energy companies will compete for a larger share of the global oil market.

Advantage: The U.S., if we choose to use it.

Snyder is a resident of Kalispell.