The shale oil industry = ‘fracking’ - has been sustained through unlimited finance. Led by pirate entrepreneurs such as Aubrey McClendon, founder of Chesapeake Energy (once described by Forbes as America’s ‘most reckless billionaire’) and companies like Halliburton, fracking was driven by a geopolitical concerns regarding oil prices and production. In 2006, the US imported 60% of its oil but the US now leads both Saudi Arabia and Russia in crude oil production, breaking OPEC’s stranglehold on global prices.
Money makes the world go around. But sadly, when it costs nothing people don’t value or respect it, and now there is a lot more of it on the loose. On 23 March theFederal Reserve unleashed QE In nity by announcing a plan for $700 billion in quantitative easing — $500 billion worth of US government bonds and $200 billion worth of bonds issued by Fannie Mae and Freddie Mac(agency-backed securities). This virtual unlimited print-ing of money will have long-term collateral effects.
Drill Baby Drill
The shale oil industry = ‘fracking’ - has been sustained through unlimited finance. Led by pirate entrepreneurs such as Aubrey McClendon, founder of Chesapeake En-ergy (once described by Forbes as America’s ‘most reck-less billionaire’) and companies like Halliburton, fracking was driven by a geopolitical concerns regarding oil prices and production. In 2006, the US imported 60% of its oil but the US now leads both Saudi Arabia and Russia in crude oil production, breaking OPEC’s stran- glehold on global prices.
While this development has led America to boast of ‘energy independence’ and resulted in financial concerns for the oil-dependent economies of Russia and Saudi Arabia, it has not been without a high cost to both the US environment or its capital investors. Producing oil and gas mining in the US was only profitable when oil prices were sky high. Very few fracking companies actually made money, relying on Wall Street funding, supported by historically low interest rates post the financial crisis of 2007-8.
As natural gas prices continued to fall from 2012, fracking equipment idled and by 2016 about 60% of the fracking equipment in the US was reported to be inactive. It got a lot worse in February 2020 with the oil price war between Russian and Saudi Arabia. It is now dire with the Covid-19 economic crash. A sharp increase in oil production resulted in oil prices falling under $30 a barrel. It should be noted that $55 is the cost most US producers need to break even. In response many oil and shale producers are putting on the brakes. There is ongo-ing anxiety regarding servicing the fracking industry’sdebt build-up.
The crash in prices has led the Trump administration to consider federal assistance for oil and gas producers, especially shale companies riven with debt who are likely to go out of business should the downturn in oil prices be prolonged. Moody’s Investor Service reports that oil and gas firms have $40 billion in debt due in 2020.
Spend & Sanctions Solution
Trump is understood to be considering blocks on all imports of crude from Saudi Arabia which are already enroute. Arguments relating to ‘national security’ aboundwith curtailment of the fracking industry seen as quickly lurching US energy security back in the hands of OPEC members and Russia. Covid-19 more than anything has alerted governments to the need for self-reliance particularly in times of crisis. Supporters of continued fracking also argue that a ban would result in the doubling of energy costs for American families with a substantial jump in the cost of living and destroy over 19 millionjobs within ve years. It is estimated this job loss alonewould cost the US economy up to $7.1 trillion in this period.
In summary, there is a prospect that Trump will autho-rise an in nite ow of cash into a bottomless hole in theground.
US Military Industrial Complex
Strategic Treasury drivers are just as potent as the political motives behind the US placing financial and physical sanctions on US competitors – Iran and Venezuela in oil, and Russia in gas. The US military/industrial complex is a combination of military power connected to economic interests, including weapons manufacturing, private security firms like Blackwater, logistics companies like Halliburton and it has historically protected specific economic interests, such as oil.
The current situation in the Middle East can best be described as tumultuous. Libya’s civil war has escalated, with Russian mercenaries and Turkish forces joining the fray. Syria’s civil war continues to spread, with amassive new wave of refugees fleeing violence in Idlib. The Yemen war continues unabated. Large-scale popular protests are challenging Iraq’s government, which is bracing for fallout from the growing confrontation between the United States and Iran. Israel is moving to annex a large Palestinian area in the Jordan valley, as the prospects for a two-state solution dissolve.
During 2020, months of escalating tensions between theUS and Iran have further destabilised the area. There are those that fear the current pandemic and entrenched US hostility will only push Iran deeper into the arms of China and Russia and strengthen those in the regime who reject reconciliation with the West.
- Australia Asia Research Group