I Did That (nope). He Did That (wrong). WE Did That (you betcha!)

The photo on the left was taken three weeks before the 2008 election in the middle of October. George W. Bush was still President. The Great Recession was in full gear. The mighty Lehman Brothers had just fallen. Banks globally were reeling. At the time, this Convenience store located at East Nashville’s 5 Points was branded under the BP banner. That is me driving a ZENN Electric Vehicle: A low-speed electric vehicle I sold during that time through my company VerdeGoh! This was from a promotional photo shoot we did for my nascent electric vehicle business. Yes. At that point in time, the price-per-gallon of regular gasoline was $3.39. Even though we were in the middle of a recession and demand for gasoline was down at that time. I guess I could have made a sticker with photo of George W. Bush pointing and the caption reading “I did that” on it, but the thought didn’t occur to me back then.

A week ago, I was at the stop-light at that very intersection. The same convenience store now operates at a Marathon-branded fuel station. Nonetheless, it’s the same place. By some accounts, we are presently in a recession again. Look on the sign. Last week, almost 14 years later, the price-per-gallon of regular gasoline was $3.25. Yep. 14 years later and it’s 14 cents cheaper.  How ‘bout them apples? In a time of historic inflation, how could this be?

Okay then. It’s time for a cursory crash course in the history of oil and America’s role in its dominance as the world’s most notorious commodity. Maybe we’ll find some answers.

The concept of the petrodollar first arrived towards the end of World War II when the United States made an oil trade agreement with Saudi Arabia. In the late 1930’s, it was discovered that Saudi Arabia was sitting on top of vast quantities of oil. Likely even, the world’s largest reserves. President Franklin D. Roosevelt deemed Saudi Arabian oil of vital strategic importance to U.S. national security. In February of 1945, Roosevelt met with Saudi King Aziz at the Suez Canal and the two decided to strengthen ties. This arrangement mandated that Saudi Arabia, with other oil-exporting nations soon following, would accept U.S. dollars as payment for oil and that the U.S. dollar would be the global standard currency used by entities to purchase oil. While initially this arrangement only involved Middle Eastern oil-producing nations, over the decades, the practice became more universally accepted ultimately extending to the entire global trade of oil. Saudi Arabia quickly became the world’s largest exporter of oil.

Under President Richard Nixon , two dramatic events further entwined the U.S dollar with global oil trade. The global economy had historically been run on a system where each nation’s currency was linked to the value of gold. Thus, a country’s supplies of gold correlated to its currency’s value. In 1971, stagflation (a period of high inflation during low economic growth) hit the U.S. economy something fierce. Many of the oil-producing nations were sitting on a surplus of U.S. dollars from their oil exports and wanted to redeem those dollars for gold. In response, the Nixon Administration eliminated the gold standard as the currency backer for the dollar. Speculation as to the real value of U.S. currency spooked the international markets. The value of the U.S. dollar plummeted.

Over a decade before, in 1960, those (largely) Middle Eastern oil-producing nations had created the Organization of Petroleum Exporting Countries (OPEC) to protect their interests. Those founding members were Iraq, Iran, Kuwait, Venezuela and Saudi Arabia. In 1973, the United States backed Israel in the Yom Kippur War. The OPEC cartel responded by cutting production and imposing an oil embargo on the U.S. This embargo is immediately more successful than the one OPEC attempted just six years earlier after the Six Day War. The result was sky high crude prices. An almost 40% increase in just a couple of months! This led to energy rationing across the U.S. and coincided with our own untimely domestic decline in oil production. U.S. fuel stations put limits on customer purchases, restricted sales to certain days based on license plate numbers and closed on Sundays to help mitigate the supply-and-demand deficit and high prices. Citizens hoarded gas. Tough times in the U.S. in that year before my birth.

In the mid-1800’s, the process of creating kerosene from crude oil arrived as a more economic option than the coal and oil shale derived methods. This prompted crude oil sourced kerosene’s meteoric rise as the predominant and disruptive fuel source for lamp oil. In less than 20 years, kerosene essentially replaced whale oil. By 1880, the U.S. possessed 85% of the world’s crude oil production and refining and kerosene was our country’s 4th largest export. By the end of that decade, Standard Oil (owned by John D. Rockefeller) owns 90 percent of U.S. oil pipelines and refineries. In 1906, the Supreme Court ruled against Rockefeller and Standard Oil was broken into multiple different companies. Companies that would go on to become Exxon, Amoco, Mobil, Chevron and more. Those entities would proceed to dominate the global oil market for decades.

Henry Ford launched the Model T in 1908 and thus began the automotive age. Post World War II, the American economy boomed and with it came the golden age of the automobile. Demand for gasoline from refined oil sky-rocketed. Not only in the domestic United States, but also in a Europe benefiting from post war economic redevelopment. At the end of World War II, the U.S. was a net oil exporter. A couple of decades later, we were importing almost a third of our oil to help meet demand. America’s obsession with the automobile, and thus oil, was moving into high gear.

The 1970’s remained tumultuous for the international oil markets. In 1975, some of the OPEC cartel’s most prominent leaders were kidnapped and almost executed. That same year, the world’s top economies came together to form the International Energy Agency as a group to address oil supply crises and develop strategies to manage emergencies when they would arise. This group was called the Group of Six. It still lives on today as the G7 group (formally G8, until Russia was kicked out for annexing Crimea from Ukraine in 2014). Striking oil workers in Iran in late 1978, dropped Iran’s daily output of 5 million barrels to essentially zero. The Iranian Revolution and American hostage crises in 1979 caused more embargoes and chaos, causing global oil prices to double.  Gas shortages returned to the U.S. along with long lines, high prices and hoarding. President Jimmy Carter gave numerous speeches in 1980 focused on energy conservation, innovation and a phase-out of oil price fixing. It culminated that year with the passing of the Energy Security Act which aimed to incentivize power-generation alternatives to oil such as solar and geothermal, but also ethanol, biomass and coal-derived synthetic fuel. The bill also encouraged fuel economy standards for new automobiles. However, by September of that year, two dominant OPEC members - Iran and Iraq – would be at war, Iran was still holding over 60 Americans hostages in Tehran and Ronald Reagan was on his way to winning the Presidency. In 1973, the United States imported roughly 450,000 barrels of Saudi oil per day. By the end of 1979, it would be $1.35 million barrels a day.

In 1981, President Ronald Reagan’s Administration completely deregulates crude oil pricing. This allows U.S. producers to raise prices and increase production. For a brief time in the early 80’s, the U.S. was back down to almost 25% oil imports from over 45% in the mid 70’s. This was progress, but due to some of the elements of the Energy Security Act, a supply glut quickly outstripped demand. Oil prices plummeted and U.S. producers again started looking overseas for partners with lower production costs. By the end of the decade, the Iran-Iraq war had ended, but more trouble was on the way.

In the summer of 1990, Iraq invades its neighbor Kuwait because of the disputed Rumaila oil field which straddled the nation’s border. As the U.S. was now back to importing half of its oil (much of it from Saudi Arabia), President George H.W. Bush gives a speech on August 8th the included the words:

“My Administration, as has been the case with every President from President Roosevelt to President Reagan, is committed to the security and stability of the Persian Gulf…Iraq has amassed an enormous war machine on the Saudi border capable of initiating hostilities with little or no additional preparation. Given the Iraqi government’s history of aggression against its own citizens as well as its neighbors, to assume Iraq will not attack again would be unwise and unrealistic. And therefore, after consulting with King Fahd, I sent Secretary of Defense Dick Cheney to discuss cooperative measures we could take. Following those meetings, the Saudi Government requested out help, and I responded to that request by ordering air and ground forces to deploy to the Kingdom of Saudi Arabia.

Let me be clear. The sovereign independence of Saudi Arabia is of VITAL interest to the United States.”

Mere weeks after this speech, I started my senior year of high school. I remember that entire fall semester me and my friends wondered if the United States would reinstitute a draft to support what was sure to be a major United States involvement in a Persian Gulf war. I turned 18 on January 8th, 1991. On January 17th, the United States began naval and aerial bombardment of Iraqi forces in Kuwait. The overwhelming U.S. led, coalition ground assault Desert Storm started in late February. The coalition forces routed the Iraqi army in less than 100 hours. The conflict ended by the first of March. I’ll never forget the harrowing images from the “Highway of Death” where Coalition forces rained hellfire on (predominantly) Iraqi forces fleeing Kuwait City on a highway leading north out of the city. 

Early in his first term, President Bill Clinton’s Administration pushed for more low-emissions, fuel efficient vehicles. However, at the same time, a new class of car – the SUV (Sport Utility Vehicle) – emerged as a new American favorite vehicle of choice. Gas-guzzling SUVs were classified as trucks, therefore they were exempt from the new fuel economy standards. SUVS were more popular and more profitable for auto-makers. Particularly the U.S based ones. In the 90’s, U.S. oil consumption grew over 20%

But all that was now decades ago. More top-of-mind is likely other more recent developments.

President George W. Bush and his Administration decided to invade Iraq as part of the response to the terrorist attacks of 9/11. Under the council of his advisors, including Dick Cheney (his Vice President and his father’s Secretary of Defense), President Bush adopted the concepts of regime change and nation-building as laid out by the Project for the New American Century think tank. Dick Cheney had long been a proponent of expanding the power of the Executive Branch. President Bush’s two terms oversaw such presidential powers expansion. This was a development that would lead to unintended consequences down the road. We need to remind ourselves that, coincidentally or not, 15 of 19 hijackers from 9/11 were citizens of Saudi Arabia. Additionally, while air traffic was grounded across the entire United States by the afternoon of 9/11 through 9/13, high profile Saudi Nationals were provided special treatment in hastening their exodus from the United States via air travel (https://www.vanityfair.com/news/2003/10/saving-the-saudis-200310). I distinctly remember walking out of my office in downtown Nashville late in the afternoon of 9/11 and seeing a lone, large commercial jet flying across the clear blue skies above our skyline. Was it Air Force I returning from Florida? Or, was it a plane ferrying others? I’m not sure we’ll ever know but I do know the phrase “No blood for oil” stays with me to this day.

If we look at the numbers over the past 20+ years, ironically, we’ll actually see a general trend of reduction in our oil imports from Saudi Arabia. It peaked at over 2.2 million barrels per day in 2003. It remained relatively level through President Bush’s second term at around 1.5 million barrels per day but came down to near 1 million barrels per day due to the Great Recession at the start of President Barack Obama’s first term. Near the end of President Obama’s first term, it peaked at almost 1.6 million barrels per day. But due to increased domestic production, lower demand (more efficient cars) and technological improvements, it would never be that high again. By the end of Obama’s second term we were back down to only importing 1 million barrels per day.  During Obama’s two terms, daily U.S. oil consumption ranged from 17.5 million barrels per day to 18.5 million barrels per day depending on the year. In 2016, the multi-national, climate change abatement plan The Paris Agreement went into effect, with the United States as a co-signatory.  

In President Donald Trump’s first year in office, our imports of Saudi Arabian oil went from 1.3 million barrels per day to 670,000 barrels per day as domestic production continued increasing. In his first year, Trump also walked away from the Paris Agreement. United States oil consumption jumped to 19.5 million barrels daily in the first few years of Trump’s Presidency. Our Saudi oil imports briefly went up again in 2018 but then continued downward through to the COVID-19 pandemic crisis that began in earnest in the U.S. in March of 2020. In wake of the COVID-19 outbreak and economic panic, President Trump brokered a deal between the United States, Saudi Arabia and Russia in April to cut oil production to match dried-up demand. To put it in perspective, pre-pandemic, global daily usage of oil was approximately 100 million barrels per day, but by April of 2020, usage was 35% less at roughly 65 million barrels consumed daily. In the summer of 2020 there was one odd anomaly. There’s was short-term but a massive Saudi oil  import spike hitting 1.2 million barrels per day. Presumably, this may have been to shore up our National Strategic Reserve while throwing the Saudi’s a bone for agreeing to the production reduction. I have not been able to substantiate this though. For further discovery, here’s a good resource for the above listed Saudi oil import stats  - https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUSSA2&f=M

Okay. If you’ve lasted this long through the bland appetizers and pedantic background music, now we’ll get to the entree.

The United States has been both a driving force of the global economy’s dependence on oil while also being economically at that system’s mercy since crude oil was first commercially commoditized. Further, since the end of World War II, we have developed and have seen the results of our intimate involvement with the Kingdom of Saudi Arabia. Every President since FDR has worked alongside the Saudis protecting this relationship. We have gone to war for Saudi Arabia, spending the people of the U.S.’s treasure and spilling our soldiers’ blood for them, because of us. We turned a blind eye when their citizens killed almost 3,000 Americans in the largest terrorism attack on our soil, because of us. We let them off the hook when agents of the Saudi government murdered U.S. journalist Jamal Khashoggi and then savagely dismembered him inside the Saudi consulate building in Istanbul, Ultimately, because of us. Because of our decades-long, insatiable need for oil. It’s been this way for decades. But perhaps, could times be changing now?

In the week prior to the insurrection on the United States capitol, the United States imported ZERO crude oil from Saudi Arabia for the first time in 35 years. It was a milestone built on the past decade of intentional work by the United States to curb our need for substantial oil imports. In 2021, President Joe Biden rejoined the Paris Agreement which pledges the United States to reach 2005 U.S. emissions levels by 2030 and achieve zero net emissions by 2050. As the COVID-19 urgency waned, the U.S. and global economy improved in late 2021 through 2022 and demand for oil increased. Production however, did not keep up to meet the demand. Both domestic U.S. and global oil producers seemingly held back production, instead opting against consumers choosing to reward shareholders instead with the profits from high oil and gas prices. For instance, Chevron made a record high  $11.62 billion in Q2-2022 profits and ExxonMobil enjoyed an unprecedented almost $18 billion for the same quarter! However, the biggest whopper was what Saudi Arabia (Saudi Aramco) pulled in for Q2-2022… $48 BILLION in profits! Go here to see this graphic. You might want to be sitting down.
https://pbs.twimg.com/media/FadVTHhXgAMWQAE?format=jpg&name=medium

Substantial alternative energy, fuel and transportation incentives and initiatives are built into President Biden’s  Inflation Reduction Act signed earlier this week. Imports of Saudi oil are at historic lows. Electric Vehicle sales are up and will enjoy fresh new tax incentives soon. A month ago, when prices were still high from the recent gas price spike, Biden approached the Saudi’s about increasing production and our imports. Even Biden was willing to turn a blind eye to the Saudi’s actions because of that precious commodity they hold. That said, he was met with a lukewarm response.

While our relationship with The Saudis is definitely changing, they may not be fully throwing in the towel with us just yet. A few weeks ago, former President Trump hosted the Saudis at his Bedminster, N.J. club for the high-profile LIV Golf (a new competitor league to the PGA tour) tournament a mere 50 miles from Ground Zero. After completing the amateur round the day before the tournament began, Trump responded to 9/11 victim families who were protesting by spouting “Nobody’s gotten to the bottom of 9/11.” The Saudis spent a reported $100 Million to Trump’s club for this event. That’s a whopping number, but it pales in comparison to the $2 Billion investment the Saudi’s made in Trump’s son-in-law Jared Kushner’s new private equity firm a few months ago. The Saudis seem to be hedging at least some of their bets on the former United States President and his cadre. What this all means, remains to be seen.

On the good news front, gas prices continue to fall after having an almost 2-month long day-over-day average decrease. Macro-economic forces are somewhat predictable, but still beholden to the decisions of GROUPS of people. But they are not the result of any one person. When oil and thus gas prices at the pump go either up or down, no, it’s not the doing of the current United States President. Our continued addiction to oil has dirt and blood on the hands of all of our Presidents since World War II. Ultimately, as long as we continue craving our global commodity drug – OIL – we need to learn to say, it’s on us. All of us. We need to say…We Did That!