In the Middle East last week, President Bush announced an agreement providing Saudi Arabia assistance in defending its oil facilities and export installations. Politicians, pundits, and “the best and the brightest” of the foreign policy establishment took little notice — and offered no objection — but it’s beyond us why the US taxpayer is being forced to underwrite line items of the Saudi national budget.
Ask yourself this question: If the U.S. did not lend a hand to help the Saudis defend their oil production and export infrastructure, what would happen? There are two possibilities: (a) the Saudis leave their security — and that of oil, their economic lifeline — to chance; or (b) they would pay for those security investments themselves. Which do you think is more likely?
If you think like an economist, you would answer (b). Simple economics suggest that oil producers will provide for their own security needs as long as the cost of doing so results in greater profits than equivalent investments could yield. Because Middle Eastern governments typically have nothing of value to trade except oil, they must secure and sell oil to remain viable. Given that 70-80 percent of the Saudis’ state revenue — and 44 percent of their GDP — comes from oil sales, Middle Eastern governments have even more incentive than we do to worry about the security of oil-production facilities, ports, and shipping lanes.
The conceit that such undertakings are beyond the abilities of the Saudi government is risible. According to the Energy Information Administration, the desert kingdom earned $194 billion from oil sales last year. And it’s not as if the Saudis won’t spend it on security when they feel that they must; recall that they spent $33 billion to underwrite the costs associated with the 1990 Persian Gulf War, 55 percent of the total bill, and more than five times what the U.S. spent on wartime operations ($6 billion).
What if all the money in the world can’t turn the Saudi military and security apparatus into a capable defensive force? While we doubt there’s something in the Saudi DNA that prevents that country from defending itself, the Kingdom could always pay others for security services if necessary.
If you think like many American foreign-policy analysts, however, you would probably answer (a). Nation states (except ours, of course) are routinely characterized as thoughtless, counterproductive, or irrational actors on the world stage when bereft of adult (that is, U.S.) supervision.
While we’re skeptical about that proposition, what if the Saudis were to under-invest in security for some reason? The correct response would be a global effort to subsidize those investments. After all, given that oil is a fungible, global commodity, a successful terrorist attack on a Saudi oil installation would increase the price of crude to all consumers everywhere to the same degree.
While it might be hard to get the U.N. to undertake such a mission, the International Energy Administration — an organization representing the major oil importing countries — could collect revenues from member states to jointly underwrite the necessary security investments. As it is, the U.S. is akin to the fellow who habitually goes out to lunch with his colleagues and always gets stuck with the bill.
While it’s unclear to what extent this new agreement increases our commitment to Saudi oil security at the margin — after all, the U.S. military has explicitly been paying for an “oil mission” for decades now — the time is ripe to reconsider our policy with regards to oil producers in the Middle East.
There are two good reasons for that.
First, our mere presence in Saudi Arabia arguably increases instability in the region and provides fodder for al-Qaeda propaganda regarding western intentions in the Persian Gulf. If Osama bin Laden is to be believed, there would have been no attack on the U.S.S. Cole, no attacks on 9/11 — and presumably, no war in Afghanistan or Iraq — were it not for the preexisting U.S. military presence in Saudi Arabia, a presence necessitated by the “oil mission.” While it’s probably true that a full-scale retreat from our cozy relationship with the Saudis would not persuade al-Qaeda to lay down its arms, it would likely make it harder to for that organization to sell its mission to the Arab street.
Second, it makes no sense to subsidize oil investments by OPEC cartel members on one hand and shake our fists at them with the other. While there’s probably little we can do to “bust” the cartel, a policy of not helping cartel members is a start.
It remains an article of faith that the U.S. oil mission and related activities abroad are subsidies to U.S. oil companies and/or U.S. motorists. In truth, it is nothing of the kind. It is a taxpayer-financed gift to oil-producing regimes that, given their membership in the OPEC cartel and intermittent flirtation with Islamic militants, they have done little to earn.
– Jerry Taylor and Peter Van Doren, the editor of Regulation, are senior fellows at the Cato Institute.