Shady Business Partners

America depends on valuable resources from dubious sources.
From the February 2007 Trumpet Print Edition

There is a reason so many American tourists traveling abroad stitch Canadian flags to their backpacks and travel luggage. The world can be an unfriendly place for Americans. For a variety of reasons, anti-Americanism is spreading like an aggressive virus in nations worldwide.

The nasty implications for Americans go far beyond receiving the occasional cold shoulder from a hotel clerk overseas. The fact is, the U.S. imports a lot of its essential resources from nations that are increasingly choked with hatred for America. Moreover, some of those suppliers are already actively seeking to reduce their dependence upon trade with the U.S.

Is this a crisis in the making?

Energy Vulnerability

Oil imports provide a perfect example. America is by far the world’s largest oil consumer, importing almost two thirds of its daily oil needs. In 2004, America imported as much oil as Japan, Germany, China and India combined. Until the recent spike in oil prices, few realized the extent of America’s reliance on foreign oil. President Bush, in his 2006 State of the Union speech, highlighted the dilemma: “[W]e have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world.”

That America’s imported oil often comes from unstable parts of the world may be an understatement. Consider a partial list of America’s major crude oil and oil products suppliers: Saudi Arabia, Ecuador, Algeria, Russia, Angola, Nigeria, Venezuela and Iraq. Each of these countries provides more than 100,000 barrels of oil per day (bpd) to the U.S., with Venezuela and Saudi Arabia providing more than 500,000 bpd. Yet the governments of these nations could be described as either volatile, totalitarian, less-than-democratic, far-left-wing, or radically oriented with a distinctly anti-Western political posture. A study by the Wall Street Journal and the Heritage Foundation ranked these countries, in terms of economic freedom, 62nd, 107th, 119th, 122nd, 139th, 146th, and 152nd out of 157 respectively (Iraq was not rated, but would probably be somewhere near the bottom).

One of those nations in particular has made clear its dislike for the U.S.—Venezuela, America’s fourth-largest supplier of crude oil. Venezuelan President Hugo Chavez has publicly stated he wants his nation to become less reliant on the U.S. to purchase its oil. At the same time, he says he wants Venezuela’s oil sales to China to grow three-fold over the next three years. Since Venezuela currently sends 68 percent of its crude oil exports to the U.S., it is obvious that Chavez intends to curb the amount of oil sold to the U.S. in order to meet his projected Chinese sales. For America, this could be a big problem, since Venezuela provides 12 percent of its total crude imports.

Saudi Arabia is another country seeking to reduce its oil trade with the U.S. in favor of China, as well as India. According to geostrategic analyst Joseph Stroupe, “Almost none of the world’s oil and gas producers want to be inordinately dependent on the U.S. market any longer” (Asia Times, Aug. 25, 2006). He says other key Middle Eastern regimes are following suit, as are nations in Latin America, Africa and Central Asia.

It is becoming “difficult to name more than a handful of resource-rich states that are liberal democracies and that are still significantly aligned with the West,” noted Stroupe.

Of America’s major oil suppliers, only Canada, Mexico and the UK can be considered fairly secure. Yet even Canada and the UK may not provide the U.S. with as much oil in the future as expected. Canada is continually increasing its strategic energy deals with China and other Eastern nations. It is constructing pipelines to pump oil from Canada’s tar sands to the West Coast for shipment to China. United Kingdom oil supplies are also not certain. The North Sea oil fields are old and are suffering from production declines typically associated with aging.

Resource Nationalization

Resource nationalization is another growing global trend that threatens America. Several foreign governments have started kicking out American and other international corporations and confiscating (or what amounts to confiscating) their properties and operations.

For example, in 2005, Russia forced the privately held oil company Yukos into bankruptcy so its state-owned oil companies Rosneft and Gazprom could pick up the pieces on the cheap—at the expense of American and other international shareholders, as well as Russian shareholders. These moves, among others, left the Kremlin with almost complete control over the Russian oil and gas industry—and complete control over which nations would receive Russian energy resources.

Since then, startling numbers of other resource-rich regimes around the world have started replicating or threatening to replicate the Russian model. First was Venezuela, then Bolivia and Ecuador. In each instance, international oil companies operating within these nations, often including American-based corporations, saw their assets threatened. The local governments commonly levied massive tax and royalty hikes. In Bolivia and Ecuador, the governments sent in the army to forcibly seize control of operations.

In August 2006, the African nation of Chad ordered U.S. oil company Chevron to leave the country for allegedly refusing to pay taxes. The demand came the day after Chad’s president instructed his government to play a bigger role in oil production in order to secure greater profits. As it turned out, the dispute with Chevron was resolved and the company did not have to leave the country. But Chad got what it wanted for the time being: Chevron agreed to pay additional taxes for 2005 and 2006.

These incidents clearly illustrate the power oil-producing nations have over U.S. interests.

American mining companies are also becoming targets of foreign government resource nationalization. In Indonesia, certain politicians are after American miner Freeport McMoRan’s world-class copper and gold mine. Government officials are demanding the company be charged higher royalties and forced to turn some of its operations over to Indonesian companies.

The problem isn’t that the Indonesian government is requiring companies like Freeport to support local economies. It is that these companies were offered one set of contracts to entice them to risk money exploring for and then constructing sometimes remote mining operations, but then once operations are built and technology is transferred to the local communities, the government forcibly revises the contracts. The foreign companies have to either accept the revised terms or be kicked out. “It’s every foreign investor’s nightmare that you invest billions of dollars and all of a sudden you find that your investment has been nationalized,” notes U.S. mining company Newmont’s President Pierre Lassonde (Mineweb.com, May 8, 2006).

Mineral nationalization also recently occurred in Uzbekistan, where several foreign companies were expelled from the country for alleged violations. In actuality, the Uzbek government created violations for an excuse to forcibly seize foreign investors’ assets, commonly obliging them to sell at below-market values.

Investors are also worried about Mongolia and Peru jumping on the resource nationalization bandwagon, not necessarily because of their value as mineral exporters, but because of the momentum such moves would generate for still other nations to follow suit.

The inability to protect American companies illustrates how much international influence the U.S. has lost. As Stroupe said, it no longer has “the global leverage to shape [these] unfolding developments in its favor” (op. cit.).

As a result, America’s multinational oil and other resource companies are being sidelined. Each time an American resource company gets kicked out of a country, not only does it mean that company was robbed of its investment, but more importantly it could mean America is forced to look for another supplier of that resource. This can be much easier said than done.

America’s Weak Spot

World demand for oil and other resource commodities is rapidly increasing. China and India especially seem to snatch up each new resource supply that enters the market. Strong demand in Europe also puts pressure on resource stocks. Oil, gold, silver, copper, zinc, nickel and many other commodities have all recently set multi-year or -decade price records; some, like oil, have set all-time price records.

America faces a massive problem: It relies on the kindness of foreigners to provide the things Americans need most—manufactured goods, energy, raw commodities, strategic minerals—even the money to finance its massive fiscal deficits.

Evidence is mounting that foreign nations are starting to take notice of America’s weakness.

Many of America’s enemies already realize their power over the U.S. In the case of energy dependence, many Middle Eastern leaders clearly understand this is a weak spot. In 1990, the late Yasser Arafat said, “When the North Sea oil dries up … the United States will want to buy Arab petroleum. And when the American oil fields themselves run dry and oil consumption in the United States increases, the American need for the Arabs will grow greater and greater.”

Russia too understands the weakness in relying on foreign nations to supply essential needs. In January 2006, Russia turned off the gas tap to Ukraine (and consequently much of Europe) in what was seen as a political as well as an economic dispute.

But does America see its own weakness?

If America’s leadership truly understood the implications of being resource dependent upon unfriendly foreign nations, especially at a time of intensifying anti-Americanism, global instability and resource competition, it would act quickly to preserve and develop America’s strategic domestic resource supplies.

The Bible speaks of a time when America will be besieged by its enemies (Deuteronomy 28:52). America’s over-reliance on foreigners for essential needs is a sign that time is drawing near.

For further reading, request our free book The United States and Britain in Prophecy.