We need a tariff on oil

(This appears in today’s American Thinker.)

Oil tankers are used to store oil, as well as transport it.  Rates for these tankers are brokered, and right now they’re going through the roof.  The world is rapidly running out of storage space for crude.  By June it could well be full up.  At that point, some producers are going to have to shut down.  You can’t pump it if you don’t have any place to put it.

The Saudis, of course, know all this, and you can bet your bottom dollar they won’t be forced to shut down their production.  They’re paying top dollar for the dwindling number of tankers still available.  The Saudis don’t care how much it costs.  They’re going to drive other producers out of business.  Period.  Money doesn’t matter.

They are strutting their stuff, the big dog of the oil patch, and they have mind boggling amounts of money.  The 34 year old boss, Mohammad Bin Salman, is the new kid on the block.  He’ll be in power for 40 years.  He can take the long view, and in the long run he wants all the world to know what kind of a man they’re dealing with.  A badass, just like his grandfather.  A guy who can’t be intimidated, a guy who doesn’t make threats that he doesn’t back up.

The main Saudi target is the American shale industry, but I doubt President Trump will allow that to happen.  We want to be not only energy independent, but energy dominant.  That requires a healthy shale industry.  Trump will impose a tariff on oil, getting the American, protected, market back up to reasonable levels  —  above $35 a barrel.  Americans who are still driving will still be getting inexpensive gas.  And most Americans aren’t driving, so they won’t care.

Once the Saudis have driven other foreign production out of business, they’ll end the price war, and the President can remove the tariff.  With an intact shale industry, we will always be energy independent.

The last time the Saudis really put the screws to the other oil producers was in the early 80’s.   I remember it well.  I was in the state legislature of Alaska, an oil dependent state, and economy.  They drove the price on the spot market down to $8 a barrel.  Alaska was going broke.

And so were the Russians, who got 90% of their hard currency from selling oil.  Their oil revenue collapsed, they couldn’t possibly afford an arms race, and they were forced to cut a deal with President Reagan.

This was all part of the Reagan administration’s plan.  In one of his very first acts after assuming office, the new President used all his good will and political capital to push an arms sale to Saudi Arabia through Congress.  It just squeaked through the Senate, 53-47.

Israel was extremely angry about this sale, and used all its influence in Congress to defeat it.  The Saudis were acquiring AWACS planes, which would give them early warning of an air strike from Israel.  With AWACS deployed against it, the Israeli Air Force lost the element of surprise.

Strangely enough, shortly after the Saudis took delivery of their AWACS, and got it up and running, they announced a price war.  The other world producers were not doing their share in holding down production, so the Saudis were going to give them a lesson they would never forget.  They flooded the world with oil, and broke the back of the Soviet Union.

Don’t underestimate Mohammad Bin Salman.  He’s out to prove himself, and he knows how to do it.  It’s a family tradition.

Fritz Pettyjohn was a State Senator and State Representative from 1983-1991.

{The world is running out of oil tankers, and the companies that own them are engaged in a merry bout of price gouging.  For stocks like NAT and DHT the oil glut is a bonanza.}






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