Bailed Out by Oil

Before 1973:  The trans-national oil companies of Britain, Netherlands and the US  (Shell, BP, Standard Oil, Esso, Gulf, Texaco and Mobil – ‘the Seven Sisters‘) managed to use their overwhelming financial power to keep the oil prices low, with low royalties to the producer governments.

The price of oil in 1947 was US $2.20 a barrel. With the production costs (including royalties) of 20 cents and tax of ~50 cents a barrel in their countries, the oil companies made a huge corporate profits but also subsidised the growth of capitalist countries: the money so earned was circulated into nation building activities like science, infrastructure, etc (the companies were barred from holding any gold). By 1973, oil was still selling for less than $3 per barrel, way behind annual inflation.

Oct 1973: Protesting US support of Israel Occupation, the Arab allies of US (led by Saudi Arabia) began the oil embargo for countries that supported Israel unconditionally. When it ended in March 1974, the price for oil rose to $11.65 per barrel.

The US allowed the OPEC (Organisation of Petrol Exporting Countries), led by Saudi Arabia, to raise oil prices but on one condition: that their oil will be sold only in US dollars. Since then, the petrodollars are being recycled backed into the US (to buy US debts, arms and goods) to help its economy.

Since oil-energy is the engine of production of worldly goods and comforts, it remains the bedrock of human civilisation. Having control over its spigots, the US got itself unlimited powers on how it wants to run the world.

Preying the Hunts

1973: The Hunt family of Texas, oil tycoon who made their money in Libya, began buying silver as a hedge against inflation. Gold still could not be legally held by private citizens.

By 1979, the Hunt Brothers and other investors controlled a pool of more than 200 million ounces of silver, equivalent to half the world’s deliverable supply! The price of silver rose, the silver/gold ratio was 15.74/1, very close to the historical ration of 15/1.

1980-88: The New York Metals Market (COMEX) and the Federal Reserve intervened changed trade rules: silver dropped to 50% value and later settled at $10.80. The investors were hung dry, while the Hunts were convicted of conspiring to manipulate the silver market. Every US taxpayer was warned in no uncertain terms: only the US government has the monopoly to manipulate the markets. This has remained the ultimate mantra of economics since.

With its house in order and oil in its pocket, the US spread across the world despite reversals like loss in Vietnam Invasion and spread of socialist creeds in its society.

Globalisation

By 1980s: the relatively cheap petrodollars was sent to NICs (Newly Industrialised Countries – Singapore, Hong Kong, Taiwan and South Korea). While the half of the world was under the communist rule, the Capitalist countries explained the slowdown in domestic growth as Overseas Expansion and that the economy is not shrinking but growing beyond its borders.

The US government (convinced by its financial companies) forced their trade partners to buy US Treasuries that always yielded low returns; the acceptance of low returns was taken as being grateful of US security against the communist Soviet Union.

US Treasuries (bills, notes, bonds, securities) are US government debts that are issued by simply printing dollars on paper or creating money on computers (called Quantitative Easing – QE).

The Great Party Time

1991: After two years of the fall of Berlin Wall, the Soviet Union collapsed. The great human experiment in materialist ideology, that results in more than 100 million deaths across the world, failed – no doubt hurting the sentiments of many of its beneficiaries and ideologues.

1992: The post-Soviet economic ‘reform’ in Russia backfired with an inflation was 2,520%, when the prices were decontrolled suddenly in the most appalling manner. The rouble devalued from 40:1 US dollar (in 1991) to about 30,000:1 (in 1999). The result was massive wealth began shifting across the Atlantic seeking safe haven in the US shores, just as it did in the 19th century Britain.

All this wealth, from easily picked investments (from mining projects to supplying computers) and ill-gotten money deposited in US banks from Eastern Europe and Russia, began the great party time in the US and its allies. It was indeed a celebration worthy.

No ethics, No science

The fall of communism, and disappearance of its threat, did not bring in the sense of rule of law or fair play into US economic and financial institutions. Humility was lost to the great party-time.

Instead, the US institutions continue to print money with impunity and no responsibility, while its corporations continue to take these digit-dollars to gullible or semi-literate societies selling their materialist dream in exchange of paper money. At home, they sold the same dream that kept people ever in debts to these institutions.

For the resourceful countries in the Middle-East, Canada and Australia, it is not a problem; they had deep pockets to comfort their poor and buy their opponents. For the rest of the world, such practices became a source of instability and wanton destruction of societies.

Summary

Winning the geopolitical battle, the US seems to have lost the cultural war to the anarchists and the communists. And that is a shame, for such a great nation whose founding fathers believed in morality, fairness, rule of law and hard work in their pursuit of happiness (which I believe are the components of Shari’ah too).