By Bill Wilson — Everything we will ever need to know about the Obama Administration may come down to a single decision. And that is whether Obama, along with newly sworn in Secretary of State John Kerry, approve the Keystone XL pipeline from the Alberta tar sands to the U.S.
For, contained in that decision is not just the future energy independence of North America — the U.S. currently depends on foreign sources for 45 percent of our fuel — but perhaps the future prosperity of the American economy.
If completed, the expanded pipeline — there actually is another Keystone pipeline from Alberta operated by TransCanada that already delivers about 590,000 barrels of oil a day — will add another 500,000 barrels a day to the mix.
The fact the Chinese are waiting in the wings to claim this energy for themselves would be reason enough to approve it. Beijing has offered to pay for building an alternative pipeline to the Pacific coast to have the oil shipped there.
For now, global production keeps up with global demand, but developing economies like China and India — oil importers both — invariably are leading to higher demand.
Which means every drop we fail to develop here, whether in the deep waters of the Gulf of Mexico, or fail to gain access to, as in Canada, is driving up prices at the pump.
The recent run-up in gasoline prices provides yet another warning to the Obama Administration of the types of price pressures the American people will be faced with in the future should we fail to become energy independent. Since Jan. alone, the price for a gallon of regular gasoline has jumped by $.44 to $3.69 on Feb. 18, reports the Energy Information Agency.
But even all of that pales in comparison to the growing danger posed to the petrodollar and more generally, the U.S. dollar’s status as the world’s reserve currency — that makes Obama’s opposition to Keystone all the more inexplicable.
As part of the resolution to the 1973 oil shock, the petrodollar was born when Richard Nixon convinced Saudi Arabia to only accept dollars for payment of oil in return for protecting their oil fields and a guaranteed return on investments in U.S. treasuries.
It was a move that cemented the dollar as the world’s reserve currency, since ample dollars were needed by all oil-importing nations in order to transact in the most essential of commodities in the global economy.
But since that time, the U.S. has not been a responsible steward of the reserve currency, racking up more than $16.58 trillion in debt with artificially low interest rates that seemingly get lower by the year, offering little return on investment for foreign creditors. Right now, some $5.5 trillion of debt is held overseas.
However, the single largest holder of U.S. debt is not a nation or a Wall Street investment house. It is the Federal Reserve, the nation’s central bank, which holds $1.6 trillion, and government agencies, which hold another $4.8 trillion. At $6.5 trillion, that means the government holds about 40 percent of its own debt.
Classical economist Adam Smith warned that such a policy — printing money to pay the debt — was “a real public bankruptcy [that] has been disguised under the appearance of a pretended payment.”
Even if the Saudis continue to agree to denominate oil in dollars and to ignore our obvious insolvency — other nations are not. Russia, Iran, and Venezuela all have taken serious steps to obliterate the petrodollar, first by accepting payment in other currencies. China and India, as customers, are aiding this process along.
These steps make perfect sense, if one anticipates a collapse of the dollar, to already have built a financial system that is capable of delivering energy even without dollars to transact with. And the more these alternative modes of payment are utilized, the weaker the dollar becomes.
The Achilles’ heel may be the House of Saud itself. A WikiLeaks an official U.S. diplomatic cable released in 2011 found that Saudi Arabia may be overstating its oil reserves — said to total from 716 billion to 900 billion barrels — by as much as 40 percent.
Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, was cited in the cable as disagreeing with the official estimates, and that “[i]n his view once 50 percent of original proven reserves has been reached … a steady output in decline will ensue and no amount of effort will be able to stop it. He believes that what will result is a plateau in total output that will last approximately 15 years followed by decreasing output.”
If true, that would mean the Saudis on their own could not perpetuate the petrodollar regime if they wanted to — and that the system might collapse sooner than anyone thinks.
Which brings us back to the Keystone XL pipeline. If the demand for dollars to buy oil is reduced, then the very foundation of our financial system is put in jeopardy. Our saving grace is to generate as much oil, natural gas and coal as we can and sell it for dollars, thus maintain the need for other nations to get and keep dollars.
Our salvation includes developing North American energy resources, like deepwater drilling in the Gulf of Mexico, like the Bakken shale oil, and like making certain the Alberta oil sands flow via the pipeline to here and not to Beijing.
It also includes dismantling the out-of-control Environmental Protection Agency (EPA). The agency is regulating carbon emissions and stormwater without any guidance in the law. It is ruining the nation’s coal industry. It is engaged in a sue-and-settle racket with radical environmentalist groups to expand its powers via judicial fiat. And its regulations threaten America’s future ability to develop and utilize natural resources.
Developing energy here and removing regulatory impediments alone will not obviate our financial problems, which are profound, but they can at least keep provide a foundation for future economic growth. Improved economic prospects will boost our ability to service the national debt without relying on petrodollars or outright monetization. It will reduce inflation and the cost of doing business here in the U.S.
Cheap fuel will pave the way for expanded manufacturing capacity here, creating millions of jobs.
If, however, the Obama Administration rejects Keystone XL, and if it turns its EPA loose on shale oil producers in North Dakota, Pennsylvania, and elsewhere as it has on coal producers — it will have put America on a dangerous path toward a dark and weakened future.
And it will have done so knowing the consequences. Knowing the dollar’s reserve currency status was threatened. Knowing the oil would wind up overseas anyway or just remain in the ground. And worst of all, doing this while knowing that everything depended on taking a different path.
Yes, we’ll know just about everything we need to know about the Obama Administration based on its Keystone XL decision — and its continued war on energy, growth and prosperity via the EPA.
Bill Wilson is the President of Americans for Limited Government.