china, gold, usa - blood

Today we will take a look at how the U.S. military is helping to prevent an economic disaster by securing U.S. oil needs and maintaining the free flow of oil globally. Success in their mission will mean the rising prices of oil and gold will be graduated in a more or less controlled fashion - failure in their mission mean sky rocketing oil and gold prices leading to a world wide economic meltdown.

It seems the only time the U.S. dollar makes a rally these days is when someone from the Federal Reserve or a politician states some innuendo about a strong U.S. dollar policy.

Talk is cheap. Facts speak volumes.

Though usually ignored by the main stream media and many gold gurus, the war for resources is building momentum and those investors who are paying attention will reap enormous profits over the coming months and years.

The Growing Demand for Oil

We are living in an age where oil demand is escalating at an unprecedented rate while global production is on the decrease. Today one barrel of oil is found for every 6 consumed.

The day of reasonably priced $35 barrel oil has come to an end. Over 2005 and the coming years the United States will need to further exert its military muscle in order to maintain reliable supplies.

With about 5% of the world's population, the U.S. consumes about 25% of the world's total supply of oil. It's hard to believe that just 50 years ago, America was producing half the world's oil and today we can't produce even half of our own needs.

From 1970 to date, our demand has increased from 17.7 million barrels of oil per day to nearly 21 million barrels. At the same time domestic oil production is decreasing, having dropped from 10 million barrels per day in 1970 to a projected 5.58 million barrels in 2005.

As a nation the United States depends on foreign oil for 60% of our needs and that amount will only get bigger over time.

The Department of Energy forecasts consumption demand will be 26 million barrels a day or greater by 2020, imports representing two-thirds of the supply.

US Oil Production and Consumption Forecasts - US Dept. of Energy Data



Million Barrels per Day

For America to maintain economic and military dominance, oil consumption will need to sharply increase. At the same time, other nations are also competing for the same supplies. The world's second largest consumer, China increased their oil consumption by 40% last year. Going forward China will present one of the largest obstacles facing the security of the United States - an economic powerhouse who isn't afraid to flex its own military muscle.

As Secretary of Energy Spencer Abraham pointed out, oil and economic strength go hand in hand. "Energy security is a fundamental component of national security. Military force will be an increasingly important prerequisite to safe guard the flow of foreign oil."

Maintaining the Flow of Oil - Securing the Dollar and the Economy

History has shown that American foreign policy has always taken a strong stance toward securing the lifeblood of the U.S. economy - oil. This started 60 years ago when imports only accounted for 10% of American oil consumption.

Back in 1945 President Roosevelt met with King Abdul Aziz ibn Saud of Saudi Arabia to set in motion the now famous "protection for oil" arrangement. From the point of view of keeping some control over 25% of the world's oil reserves - this deal was good. The U.S. gets oil and the Saudi Royals live a life of unbelievable wealth and opulence.

Safeguarding the Saudi Royals from external and internal enemies has largely been handled by CIA operatives working within the country. To say the CIA has its hands full is an understatement. Saudi Arabia is an excellent candidate for a revolution and is choc-a-block full with extremists. As you will recall, 15 of the 19 9/11 hijackers were Saudis and Saudi charities have been linked to al Qaeda. Al-Qaeda has also been very active in terrorizing and killing western workers in Saudi who are the backbone of their economy.

Saudi Arabia is a time bomb ready to explode and it will.

Saudi's ruling King Faud doesn't have long to live and when he dies; a major civil upheaval is predicted. Power struggles amongst the remaining ruling class will likely involve terrorist cells who have had the support of certain members of the royalty.

With 25% of the world's oil reserves at stake the CIA and U.S. military cannot fail. I'll discuss the Saudi situation in more detail in the future.

Over the 1970's the necessity to use the U.S. military to safeguard the flow of oil became more pronounced. America's dependence on foreign oil imports started to shoot up in a dramatic way. In 1973 imports represented 30% of the U.S. oil consumed which quickly hit 40% by 1976 and then 45% in 1977.

Obviously this was not a good trend. Then troubles really started. In 1978 the Iranian revolution began and within the same time frame the Russian invasion of Afghanistan took place.

By 1980 these mounting troubles over oil prompted President Jimmy Carter to create what would be known as the Carter doctrine which states that any attempt by an outside force to gain control of the Persian Gulf region will be regarded as an assault on U.S. vital interests and will be repelled by any means necessary including military force in order to keep the oil flowing.

It was this doctrine which justified the deployment of troops to Saudi Arabia when Saddam Hussein invaded Kuwait in 1990.

This also might explain why the very first military objective in the current invasion of Iraq was to secure the oil fields and refineries of southern Iraq and when entering the city of Baghdad, the military made a bee-line for the oil ministry building while allowing looters to ransack other government offices.

American forces will be occupying Iraq for many years to come. Today the U.S. military is responsible for protecting Iraq's oil piplines and refineries where many American companies and personal now work.

The critical role of the U.S. military to protect our economic life blood was made abundantly clear by General Peay during a House subcommittee meeting in 1997 where he stated "With over 65% of the world's oil reserves located in the Gulf states - the international community must have free and unfettered access to the region's resources" or he warned "economic calamity" would occur for developed and developing nations alike.

The New War for Resources - Safeguarding U.S. Oil Supplies

The Bush administration are no dummies when it comes to the global oil economy. They know U.S. oil production has peaked and is now on a downward plunge. Bush pledged to make energy security a top White House priority when he entered office in 2001.
(For details, see my article Fahrenheit Oil and Gas)

In just days after the Bush administration took control of the White House, Vice President Dick Cheney headed up the new energy task force. Their acute awareness of the tightening U.S. oil supply was revealed when Cheney confirmed that U.S. production had peaked in 1970 and by 2000 output was 39% below the peak. Cheney pointed out that "dependence on foreign sources of oil is at an all-time high and is expected to grow…the U.S. and global economies remain vulnerable to a major disruption of oil supplies. The Gulf will be a primary focus of U.S. international energy policy."

In May of that year Bush publicly commented that the nation's security was at risk because of dependency on foreign oil which is in the hands of nations, "some of whom do not share our interests."

Plans to invade Iraq were pushed through. All the while, there was no mention made about oil. This would be a political hot potato the White House would rather avoid.

You may not like the way the current administration has mislead the public into why they are in Iraq or the methodology used to secure our oil needs. But the fact remains, the U.S. needs to secure oil flow and Iraq's oil was the logical target.

The strategic importance of securing Iraqi oil fields was clearly outlined by Fadel Gheit, a Wall Street oil analyst with Oppenheimer and Company. From Linda McQuaig's book, It's the Crude, Dude , Gheit, observers …

Nestled into the heart of the area of heaviest oil concentration in the world is Iraq, overflowing with low-hanging fruit. No permafrost, no deep water. Just giant pools of oil, right beneath the warm ground. This is fruit sagging so low, as it were, that it practically touches the ground under the weight of its ripeness."

Not only does Iraq have vast quantities of easily accessible oil, but its oil is almost untouched. "Think of Iraq as virgin territory.... This is bigger than anything Exxon is involved in currently .... It is the superstar of the future," says Gheit, "That's why Iraq becomes the most sought-after real estate on the face of the earth." "This is the big dance. Everybody wants to be there."

Gheit just smiles at the notion that oil wasn't a factor in the U.S. invasion of Iraq. He compares Iraq to Russia, which also has large undeveloped oil reserves. But Russia has nuclear weapons. "We can't just go over and ... occupy (Russian) oil fields," says Gheit. "It's a different ballgame." Iraq, however, was defenseless, utterly lacking, ironically, in weapons of mass destruction. And its location, nestled in between Saudi Arabia and Iran, made it an ideal place for an ongoing military presence, from which the U.S. would be able to control the entire Gulf region. Gheit smiles again: "Think of Iraq as a military base with a very large oil reserve underneath .... You can't ask for better than that."

Oil Security Challenges Ahead

Nearly two-thirds of the world's oil reserves come from chronically unstable, violent prone Mid East countries whose dislike of American culture and policies have been forged for decades.

Since 9/11, al-Qaeda terrorists in Saudi Arabia have been attacking Western Oil workers in a bid to drive them out and bring the U.S. and the despised Saudi leaders to their knees.

The situation in the Middle East is getting worse not better. I predict that within the next few years, American troops will be engaged in our biggest mission to date; securing Saudi Arabia.

As the Iraqi campaign has shown, we are in for a bitter fight ahead. At stake are 25% of the global oil supplies from Saudi Arabia and another 10.7% from Iraq.

Adding to the difficulties is the rising global consumption of oil, especially from China. Over 2004, China's oil demand increased 40%. Even the recent pickup in OPEC output did not produce enough excess capacity.

The Chinese have are very aggressively trying to acquire resource companies and make long term contracts with countries whose resources can help supply their demand needs. Last year China made a cozy oil deal with Iran which has the White House concerned.

The executive director of the Institute for the Analysis of Global Security, Gal Luft, stated "Without a comprehensive strategy designed to prevent China from becoming an oil consumer on par with the U.S., a superpower collision is in the cards."

The United States must rise to the challenge to secure oil. Historians will no doubt debate if the current course of action was the best one. In this crazy world, military power takes precedence over diplomacy.

Conclusion

Washington insiders are well aware that the U.S. needs to secure oil supplies and are clandestinely using the military in order to do so. You may not like their methodology but the facts are facts. The days of cheap oil are over and military involvement will need to be increased if the United States wants to maintain its status as an economic and military powerhouse. In the age we are living in, oil, economic power, and military might go hand in hand.

Gold is destined to climb further.

Securing Iraqi oil fields has cost $200 billion so far and will undoubtedly run up to at least double that amount over the next four years. Added to this is a good chunk of the over $400 billion defense budget. Hundreds of billions more are needed to secure the entire Persian Gulf and other world hot spots.

As Vice President Dick Cheney has pointed out, oil and gas shortages are very real. With the U.S. having a growing dependency on oil imports which are estimated to hit 90% by 2020, our economic future is at serious risk. If supplies are not maintained to keep up with the huge increased global demand our already shaky economy will be quickly derailed.

The inflationary pressures that the rising costs of oil will bring is also bullish for gold as real assets will inflate while paper money buys less and less.

Meanwhile, Iraq is an ongoing problem and Saudi Arabia is a ticking time bomb.

Having some exposure to gold, oil and gas investments makes complete sense.

In the next issue I'll cover the Chinese situation. The world's second biggest consumer of oil is preparing for a major showdown with the U.S. militarily and economically. The consequences for the dollar, gold, and oil are going to be huge.



Bill Ridley
Publisher