How Oil Lubricates Our Enemies

by Victor Davis Hanson

The American Enterprise Online

With the collapse of the Soviet Union, Marxism was discredited as an unworkable — and often murderous — alternative to consumer capitalism. Eastern Europe was freed and began to prosper in a manner unimaginable just a decade earlier. China and India jettisoned statism, and found prosperity by emulating Hong Kong, Japan, Singapore, South Korea, and Taiwan. South America was democratizing and began to liberalize its economies (with mixed success).

Here in the U.S., Americans grew freer and richer than at any time in their history. In contrast, Europe’s creeping democratic socialism left much of the continent with low economic growth, high unemployment, a demographic crisis, and a growing cultural pessimism. In short, there was global proof that the more individual freedom and capitalism, the more the good life followed.

Why, then, are socialists such as Hugo Chavez in Venezuela and Evo Morales in Bolivia now expanding an anti-capitalist bloc in Latin America — nationalizing companies, jailing dissidents, and whipping up the cult of Che Guevara and Fidel Castro from Peru to Mexico? Why here at home, when the stock market is near all-time highs, the unemployment rate low, and home ownership at record levels, with interest rates and inflation both in check, do the American people express little confidence in their economy and President Bush’s leadership?

And given that there are more democracies now than in the history of civilization, why is the United Nations proving more illiberal than ever — blackmailed by Saddam Hussein to waffle on sanctions, mired in a tawdry $50 billion scandal, and unable to bring a renegade theocracy in Iran to meet minimal compliance with international nuclear nonproliferation standards?

The answer to all of these diverse anomalies is oil, oil, and more oil. During the last two years, a booming global economy, uncertainty in the Middle East, and the arrival of newly capitalist but petroleum-poor India and China have created a seller’s market unprecedented in the history of the oil industry. The resulting jump in the price of petroleum has distorted both politics and perceptions of what works in economics and politics, and what does not.

Take away the $300-500 billion in windfall profits piled up in the coffers of the oil-exporting nations recently, and Hugo Chavez becomes just another spluttering Castro, hardly able to pay for his bankrupt populism in Venezuela, much less export it beyond his borders. Without petroleum largesse, Iran’s Mohammed Ahmadinejad could afford neither a multi-billion-dollar nuclear weapons program nor costly subsidies for terrorist groups like Hezbollah and Hamas. Vladimir Putin’s crackdown on capitalists, political freedom, and further Russian reforms comes only because he controls energy exports vital to the world economy.

And huge petroleum profits don’t just empower dictators, subsidize nuclear proliferation, and curtail economic reform. They also have pernicious psychological effects. Americans hit with gasoline price hikes of nearly a dollar a gallon have fallen to despairing over our economy. Try telling furious motorists that the extra cost for most drivers amounts only to about $500-700 per year — a pittance compared to sky-high housing prices that leap tens of thousands of dollars annually. No matter: people see the numbers on the gas pump, and less cash in their wallets, and figure the U.S. is teetering on the brink.

Foreign policy is warped as well. Because of its dependency on Middle East gas and oil, Europe’s high talk about human rights doesn’t apply much to Arab extremists with energy-rich patrons in the Gulf. America is in a war against Islamic fascism, yet treads carefully around Saudi Arabia, despite the kingdom’s subsidies to America-hating madrassas. When poor oil-importing countries in Africa and Latin America make sacrifices to enact tough market reforms, their hard work only helps to enrich failed states like Iran, Libya, and Venezuela lucky enough to have an accidental resource beneath their feet that was found, exploited, and mostly purchased by the Westerners they demonize.

Next time we whine that we cannot drill in the Arctic or off our coasts, that nuclear power is too dangerous, that government-encouraged conservation violates free enterprise, or that gasification from coal and shale is too costly, we should remember: there are insidious — and dangerous — costs in today’s oil trade too.

©2006 Victor Davis Hanson

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