Oil subsidies, aka money for nothing

One could say that the world revolves around oil, but that wouldn’t technically be correct. It would be more accurate to say that the world economy revolves around oil. Global transportation systems are roughly 95% dependent on oil and do not utilize solar or other renewable energies. Without fossil fuels, and specifically because we haven’t gradually been switching over to renewable energy, without all that readily available “dirty energy,” the world economy grinds to a halt.  And with that dreaded standstill, our modern civilization collapses into chaos. But it didn’t have to be this way.

Leaders and policymakers utterly failed to heed the advice of scientists several decades ago when they first sounded the alarm that a) we were relying too much on dirty energy which was overheating and destabilizing the climate, and b) many nations were reaching peak oil production, which would lead to a reliance on “dirtier” and more difficult to reach (and expensive) fossil fuel sources such as the Canadian tar sands, the Arctic and other deepwater drilling sites, along with hydraulic fracturing for shale. Today we find ourselves paying the price for that inaction as we collectively must choose between draconian methods to save ourselves or mass extinction.

The key component keeping us reliant on the deceptively “cheapest” and most abundant dirty energy sources on the planet is subsidization of oil. Without long-standing and deeply ingrained “privilege,” fossil fuels would have been shoved out of the market and replaced by renewable energy long ago since the true costs of production are so exorbitantly high that they would instantly become prohibitively expensive. On the flip side of that is the idea of substantially subsidizing renewable energy, allowing it to catch up and be competitive with fossil fuels. Indeed, the very concept of extended subsidization is often demonized by the Republican party here in the US, and can best be summarized by a Facebook post last summer by the Oklahoma GOP:

“The Food Stamp Program, administered by the U.S. Department of Agriculture, is proud to be distributing this year the greatest amount of free Meals and Food Stamps ever, to 46 million people. Meanwhile, the National Park Service, administered by the U.S. Department of the Interior, asks us ‘Please Do Not Feed the Animals.’ Their stated reason for the policy is because ‘The animals will grow dependent on handouts and will not learn to take care of themselves.’ Thus ends today’s lesson in irony #OKGOP.”

Of course, the Oklahoma Republican Party was comparing people on food stamps to animals in parks because that’s just how despicable and rotted out they are. Perhaps the Oklahoma GOP supporter named “Pat,” who commented in support of the “humans as park animals” metaphor should have their idea of fairness more aptly extended to the fossil fuel industry as well, rather than to his/her fellow humans. Pat enthusiastically wrote:

“Bravo!! Great truth!! Some need help in some cases but to continue to LIVE EXPECTING handouts is not right!!”

But why did we ever start underwriting the cost of fossil fuel production in the first place? A little backstory:

The first major oil discovery occurred in Pennsylvania on August 27, 1859. In the decades that followed, significant oil reserves were located all across the United States, especially in Texas, Oklahoma, Kansas and California. These discoveries dovetailed nicely with the advent of the automobile (the Model T Ford), spurring the creation of John D. Rockefeller’s oil company, Standard Oil in 1870. Due to newly passed anti-trust legislation in the US, in 1911 the company was split up into 33 separate entities (including what is now known as Chevron) and became known as Esso, which ultimately merged with Mobil, becoming modern day oil major ExxonMobil.

Oil was also discovered in the Dutch East Indies at the end of the nineteenth century, leading to the creation of Royal Dutch Petroleum, which later merged with the British corporation, British Shell Transport to become what is now known as Royal Dutch Shell. The early predecessors to Texaco, Gulf, Total, and BP were also formed during this time. It’s important to point out that it was the West that first developed the technologies to drill, refine, transport, store, and market early petroleum products from newly discovered oilfields. Many modern conflicts and current global crises stem from that early “uneven” expertise of Western oil companies who were initially welcomed in to the Middle East when the first discoveries were made in the 1930’s, but then quickly wore out their welcome. It’s here that the seeds for future conflicts, mutual distrust, and the eventual subsidization of oil can be found.

Western multinationals proceeded to use their head start in the oil business to take advantage of their host nations’ relatively weaker bargaining position. Beginning with Saudi Arabia in 1938, which awarded drilling rights to Standard Oil (leading to the creation of the company known as the Arabian American Oil Company, or Aramco), host nations found profits of their own natural resources dwarfed by those of the Western multinational oil majors they’d invited in to help. In the case of the Saudis, their portion of profits from the sale of oil was roughly 25% compared to the American’s 75% of profits. By 1950, the Saudi government had not only learned enough about the oil business to demand that they receive half of profits from their own oil, but, more importantly, they’d witnessed Venezuela’s Juan Pablo Perez Alfonso (future OPEC co-founder) threaten to nationalize Standard Oil and Royal Dutch Shell’s operations in his country unless Venezuela received 50% of the profits (he succeeded). With this in mind, the Saudis followed suit, threatening nationalization of Aramco if agreements weren’t changed to reflect an even 50-50 split.

With a steadily increasing need for oil in the US domestic market, fueled, in part, by the Cold War with the Soviet Union and a new war in Korea, the US government advised Aramco to agree to the 50-50 split in profits with the Saudis and guaranteed them 100% for future profits lost by using the Foreign Tax Credit. In this way, Aramco wouldn’t lose a penny when agreeing to an even split of profits with the Saudis and it wouldn’t cost the government anything either as it ends up being at the US taxpayer’s expense (subsidies being dressed up as tax credits).  And, more importantly, in the face of growing dissatisfaction with blatantly unfair oil deals, the US government hoped to avoid nationalization of shared oilfields in the Middle East and beyond. In the post World War II political climate, any limitations on access to oil was seen by US policymakers as a potentially devastating blow to strategic planning and security initiatives. In this way, the US taxpayer began footing the bill for the continued profitability of the petroleum industry while briefly tempering the bad blood created by the greed of the Oil Majors who had managed to enrage the host countries. Soon after the Aramco renegotiations with the Saudis, similar demands spring up in Kuwait, leading to the same agreement on splitting profits.

The situation proved much more contentious in Iran, with the Iranian parliament demanding full nationalization of the oil industry and the company it had created with the British, called the Anglo-Iranian Oil Company (later known as British Petroleum, or BP). What followed led to the establishment of British oil subsidies (shouldered by their taxpayers), along with decades of political and economic turmoil in Iran entirely manufactured by the West, assassinations attempted and completed, coups (for more on this, look up Churchill and Eisenhower’s CIA plan for Iran – code name Ajax) and puppet governments. Anti-American and anti-Western sentiments spread like wildfire in Iran. Similar dissatisfaction with Western oil multinational’s greed and manipulations was also brewing in Iraq, Cyprus, Syria, Lebanon, Jordan, Qatar, and Oman, leading to the eventual creation of OPEC.

While the British appeared to understand that their presence and attempts at dominating developing oil markets felt like remnants of colonialism to the host nations, the American oil majors had no such historical references and plowed ahead, making plenty of enemies along the way along with exorbitant profits. The legacy of this era continues: we all pay to subsidize the fossil fuel industry and while it’s impossible to state the exact amount of past subsidization thanks to the multi-faceted and protected nature of the various schemes, the IMF recently put the amount of subsidies shouldered by citizens around the world at $5.3 trillion for 2015, making oil the most subsidized commodity on Earth. This figure represents 6 ½% of total global GDP and translates into:

imf guardian

I suppose the history lesson here is that the extractive industry, working in tandem with world governments, will do whatever it takes for immense profits and every possible strategic advantage. They remain cloaked in the security and secrecy of those who require their innately heavy-handed tactics and seeming lawlessness.

For this reason, as the saying goes, there must be “no negotiation with terrorists” because unless their force is matched, nothing can or will change. Moreover, as long as their efforts to tank the environment are propped up, with many millions of dollars (and a few decades’ head start on the rest of us) funneled to corrupt(ed) “think tanks” who churn out drivel and utter nonsense, the general public will remain in the dark.

In short, those who are worried about our natural world need to play by the same rule book…we must play dirty. I’m sorry to say this, but as long as Big Green groups try to operate in good faith (whatever that means), just get along with, and pander to, polluters (like the American Geophysical Union does with ExxonMobil), we will remain at a strategic disadvantage. We already know that scientists cannot, by their very nature, step outside their training and thought-processes to fight the fossil fuel companies. So it’s up to the rest of us.

As my very favorite strategist, Sun Tzu, said thousands of years ago in The Art of War: