Breaking OPEC’s Grip

By Robert Zubrin:

“To wage war, three things necessary:

money, money, and yet more money.”

– Gian-Jacopo Trivulzio,

Marshal of France, 1499

A lot has changed since the turn of the 15th century, but Marshal Trivulzio’s famous aphorism still holds a great deal of truth. Yet Americans don’t seem to be heeding its implications. In fact, in waging the war on terror, the United States seems to be doing its best to fund its enemies.

Consider the following: In 1972, the U.S. paid out $4 billion for oil imports, an amount equal to 1.2 percent of our defense budget at that time. In 2006, we paid $260 billion — about half of what we paid for national defense. Over the same period, Saudi oil revenues have grown in direct parallel: from $2.7 billion in 1972 to $200 billion in 2006 — which will likely exceed $300 billion this year. Much of that money is being used to fund an international network of front organizations and Wahhabist madrassas devoted to spreading terrorist ideology. Meanwhile, Iran is using its share of the take to fund its nuclear bomb program, as well as terrorist groups like Hezbollah.

If something isn’t done to break the Organization of Petroleum Exporting Countries (OPEC) — the cartel that dominates and manipulates the global oil market — the situation is likely to get much worse: With China and India industrializing rapidly, world demand for fuel is going up. OPEC is positioned to exploit this new demand with radical price hikes that go well beyond the 50-percent increase it effected during 2007 alone. Venezuela’s Hugo Chávez and Iran’s Mahmoud Ahmadinejad are already calling for prices of $200 per barrel. In short, we Americans are financing a war against ourselves — and the way things are going, we may soon be paying the enemy more than we are paying our own military.

The enemy’s unconstrained ability to loot us is also threatening our economy. Consider this: Congress is raiding the public purse to put $140 billion back in the pockets of American consumers, in the hope that this will provide an economic stimulus to prevent recession. Yet by paying $100 per barrel of oil, we are allowing OPEC to set oil prices high enough to take more than triple that amount out of Americans’ pockets. If Chávez and Amadinejad have their way, our economy will soon be drained at a rate of nearly $900 billion per year, an economic de-stimulus tax package six times as large as anything Congress has put on the table to push the other way.

The economic depression resulting from $200-per-barrel oil would be nothing compared with an oil cutoff, which could be accomplished by an OPEC or Arab League embargo, or result from the irrational action of any number of lunatic forces at large in the Gulf. In 1973, the Arab oil embargo threw our economy into chaos — and, at that time, we produced 70 percent of the oil we used annually. Today, we produce only 40 percent of our own fuel, and the consequences of another cutoff would be catastrophic. Our continuing vulnerability on this score is a sword of Damocles hanging over the head of Western civilization — a disaster waiting to happen, and a tool for blackmail that prevents us from taking the necessary steps to defeat the Islamist threat.

In light of this, the top priority of U.S. national-security policy must be to break the oil cartel. This imperative has been apparent since the 1973 oil embargo, but no progress has been made. The only policy solution we’ve tried — domestic energy conservation — has failed, and will continue to fail for two reasons. First — putting aside the near-impossibility of getting American consumers to use less fuel — global demand will continue to grow, so it’s scarcely conceivable that domestic conservation efforts could affect the global oil price. Second, even if we could hypothetically create global conservation, OPEC could simply cut production to keep demand — and prices — high.

However, there is now a way to break OPEC, a surprisingly simple one. What is needed is for Congress to pass a law requiring that all new cars sold (not just made, but sold) in the U.S. be flex-fueled — that is, be able to run on any combination of gasoline or alcohol fuels. Such cars already exist — two dozen different models of flex-fuel vehicles (FFVs) are being produced by Detroit’s Big Three this year — and they only cost about $100 more than identical models that can run on gasoline only. (The switch to FFV requires only two minor upgrades: in the materials used in the fuel line and in the software controlling the electronic fuel injector.)

FFVs currently command only about 3 percent of the new-car market. After all, there is little upside for consumers to own one, with alcohol-fuel pumps being nearly as rare as unicorns. Little wonder: Why should gas-station owners dedicate one of their pumps to alcohol fuels (like E85 — a mix of 85-percent ethanol and 15-percent gasoline — or M50 — a mix of half methanol and half gasoline) when only a tiny percentage of cars can use them? But, within three years of the enactment of an FFV mandate, there would be 50 million cars on American roads capable of running on high-alcohol fuels. Under those conditions, fuel pumps dispensing E85 and M50 would be everywhere — creating, for the first time, an effectively open market in vehicle fuels, and competition for OPEC oil.

By mandating that all new cars sold in the U.S. have flex-fuel capacity, we would induce all foreign automakers who want access to the American car market to switch their lines to flex fuel as well, effectively making flex fuel the international standard. In addition to the 50 million FFVs we’d see in the U.S. in three years, there would be hundreds of millions more worldwide that could be powered by any number of alternative fuels derived from numerous sources around the globe, forcing gasoline to compete everywhere. This would effectively break the vertical monopoly that the oil cartel currently holds on the world’s fuel supply, constraining prices to the $50-per-barrel range (where alcohol fuels become competitive).

Such a development would also create a market that would mobilize tens of billions of dollars of private investment into techniques for the production of cellulosic ethanol and other advanced alcohol fuels. Those investments will further reduce the price of alcohol fuels and will radically expand America’s and our allies’ potential resource base (although methanol already can be produced from any kind of biomass, without exception, as well as coal, natural gas, and urban trash).

With such a production and distribution infrastructure in place, we could proceed to not merely contain the petrotyrranies, but crush them at our pleasure by implementing tax and tariff policies that favor alcohols over petroleum. Instead of sending the U.S. president to beg Saudi dictators for favorable treatment from OPEC dictators, we could defeat these often anti-American and terror-supporting regimes. Effectively, we could take over a trillion dollars a year that is now flowing to the oil cartel, and direct it towards the world’s agricultural and mining sectors instead. This would not only be of great benefit to U.S. farmers and miners, but an enormous boon to the third world, which otherwise faces brutal looting through the regressive tax imposed by OPEC’s unconstrained price hikes. There is not just a strategic and economic case for breaking the oil cartel, but a strong humanitarian case, as well.

The Islamists’ power lies in their control of oil. Our strength is in biomass and coal. These can be readily turned into alcohol fuels. By standardizing technology that makes such alcohols usable to the vehicles on the road, we will open the fuel market in a way that will destroy the monopoly-inflated value of our enemies’ resources, while greatly increasing the value of our own resources and those of our friends and allies.

Instead of financing terrorism, we could be funding world development. Instead of selling controlling blocks of Citibank or CNN to Saudi princes, we could be selling tractors to Africa. That is the way to win the war on terror.

— Robert Zubrin, a senior fellow at the Foundation for Defense of Democracies and a contributing editor of The New Atlantis, is an astronautical engineer and author of Energy Victory: Winning the War on Terror by Breaking Free of Oil.