"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 46 mins Investors Up the Ante In $1.5B Uber Loan Deal
  • 3 hours Are Gold Miners Poised For A Breakout?
  • 4 hours Is The "Crypto Winter“ Over?
  • 6 hours China Says It Doesn’t Fear Trade War
  • 22 hours Twitter CEO: The World Will Have A Single Currency
  • 23 hours Asian Currency Correction Could Signal Looming Crisis
  • 24 hours Best Buy Drops Telecom Giant Over National Security Threat
  • 1 day The Pros And Cons Of The Federal Interest Rate Hike
  • 1 day Good News For Gold Bulls Despite Interest Rate Hike
  • 1 day Trump Hits China With $50 Billion In Tariffs
  • 1 day Russian Gold Reserves Hit Record High Amid Rising Tensions With West
  • 1 day Stocks Pull Back Following Interest Rate Hike
  • 2 days Will Regulatory Rollbacks Make Banks 'Too Big To Fail?'
  • 2 days Elon Musk’s $2.6 Billion Tesla Challenge
  • 2 days Tech Giants Could Be First Victims Of U.S. Trade War
  • 2 days Dow Gains Despite Fed’s Rate Hike
  • 2 days The Biggest Threat To Chinese Oil Futures
  • 2 days Spending Bill Could Cause U.S. Debt To Soar To 99% Of GDP
  • 2 days Precious Metals Slide Ahead Of Fed’s Interest Rate Decision
  • 2 days China’s Soft Power Grab May Be Bad News For Emerging Economies
Trump's Trade War Nears Boiling Point

Trump's Trade War Nears Boiling Point

Trump’s trade war appears to…

The App That Democratized Trading Is Now Worth $5B

The App That Democratized Trading Is Now Worth $5B

Investors and customers have rallied…

The Pros And Cons Of The Federal Interest Rate Hike

The Pros And Cons Of The Federal Interest Rate Hike

The United States Federal Reserve…



Information/Articles and Prices on a wide range of commodities: We have assembled a team of experienced writers to provide you with information on Crude Oil,…

More Info

The Evolution Of The Oil Weapon

In the age of derivatives, swaps, and electronic money transfers, a new form of warfare has emerged: financial warfare.

Recently, the US has passed sanctions on countries such as Syria, Venezuela, and North Korea, but the majority of energy related sanctions passed have been targeted at Iran and Russia.

An estimated 68 percent of Russia's government revenue is derived from oil and gas exports, while 80 percent of Iran's revenue comes from oil exports. That presents a very large target for the use of financial weapons.

To understand why financial warfare is now so commonplace, one must understand how it came into existence and what has been achieved taking such an approach.

The oil weapon first came into existence in 1965, when Egypt nationalized the Suez Canal. What resulted from this was a declaration of war by France, England, and Israel. As a way to counter this invasion, Saudi Arabia decided to ban exports to England and France. This embargo turned out to have minimal economic impact, as the US increased shipments to Europe, and international oil companies redirected shipments to England and France.

The next embargo imposed was in 1967, when Arab states imposed an embargo on the US, Britain, and West Germany. This embargo was enacted after a rumor surfaced that Britain and the US were providing air cover for Israeli planes, after Israel bombed Egyptian military airports in the 1967 war. This embargo failed, due to the fact that Arab oil revenues declined. This embargo also wasn't enforced properly, as Western countries were still receiving oil from Arab countries.

But the most famous incident came in 1973. This was when OPEC issued a new embargo on countries that provided military aid to Israel, in the Yom Kippur war. This proved to have a greater economic impact on Europe and the US, because Saudi Arabia displaced Texas as the world's swing producer.

The 1973 embargo led to an increase in domestic fuel prices, shortages of gasoline, and the rationing of gasoline fuel. This embargo changed the dynamics of US foreign policy.

After the 1973 embargo, Richard Nixon sent his secretary of state Henry Kissinger to Saudi Arabia with a proposed deal, to ensure that an embargo such as this would never happen to the United States again.

After some revisions, in 1976, the House of Saud and Henry Kissinger finally reached an agreement. The agreement did the following things, according to Marin Katusa's 2014 book, "The Colder War." The Saudi's agreed to:

1. Give the US as much oil as it desired, for general consumption and national security measures. Thus increasing or decreasing oil production to the benefit of the US

2. To only sell oil for US dollars, and to reinvest profits in US treasury securities.

In return, the US guaranteed:

1. The protection of the Saudi Kingdom from rival Arab countries

2. The protection of Saudi oil fields

3. Protection from an Israel invasion.

The Saudi's agreed to this because, even though they had vast amounts of oil, they didn't possess an army which could protect them from its surrounding enemies; which included Iran, Iraq, and Israel.

This deal not only secured a steady supply of oil to the US, but allowed the US to expand its global footprint.

How the US and the Saudi's colluded to topple the USSR

In 1982, a secret declaration for economic war with The Soviet Union was signed. This declaration included:

• No new contracts to buy Soviet natural gas
• Accelerate development of an alternate supply to Soviet gas for parts of Europe
• A plan to substantially raise interest rates on credit to the USSR
• The requirement of higher down payments and shorter maturities on Russian bonds.

This declaration made the USSR's debt load much more burdensome, but what delivered the final blow to the USSR was the doubling of oil production from Saudi Arabia in 1986. This pushed oil prices down to roughly 10 dollars per barrel, thus vastly decreasing the USSR's government revenue. This declaration combined with low oil prices, according to James Norman, author of the 2008 book, "The Oil Card," is what led to the collapse of the USSR.

Today, the international financial system is much more sophisticated. Still, using financial sanctions with the intention of creating a de facto embargo on oil is a widespread practice today - just look at the cases of Iran and Russia.


Source: http://oilprice.com/Energy/Crude-Oil/The-Evolution-Of-The-Oil-Weapon.html

By John Manfreda of Oilprice.com


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter