terrorism rests on a foundation of financial support in the form of
revenues derived from the sale of oil by the members of the OPEC cartel.
Sometimes, as in the case of Iraq and Libya, the connection is simple and
direct—oil revenues go straight to terrorist governments, either because
the terrorist government itself owns the oil deposits or because it
collects taxes based on oil revenues. Such revenues are then used to
finance terrorist operations.
cases, such as Saudi Arabia and the United Arab Emirates, the connection
is indirect and somewhat less simple. Here, as a minimum, the enrichment
of the region, based on the fact that it possesses oil which it sells in
the world market, makes possible a demand for goods and services in the
region that would otherwise not exist. For example, the fortune inherited
by Osama Bin Laden was in the construction industry. The Bin Laden
construction firm is reportedly the largest construction firm in Saudi
Arabia. Saudi Arabia’s ability to support a construction industry, and
to make a construction firm rich, rests on the revenue it derives from
oil, which is then used in part to finance construction projects. The
portion of this wealth inherited by Osama Bin Laden finances terrorism.
Laden’s activities are by no means limited to his own personal funds. He
regularly receives funds, reportedly in the guise of charitable
contributions, from large numbers of Arabs whose wealth and income rests
on a direct or indirect connection to oil, and who would lack the ability
to make those contributions, or at least contributions as large as they
now do, if their wealth and income were smaller.
the ways just described, the oil revenues received by OPEC are the direct
or indirect financial foundation of Middle-East terrorism. To the extent
that those revenues could be reduced, given the region’s prevailing
cultural backwardness and lack of ability to generate significant wealth
through industrialization, all wealth and income in the region would be
reduced and thus, so too, would be its ability to support terrorism.
follows that the key to choking off the funds that finance terrorism is to
reduce as far as possible the funds now flowing to OPEC. Based on an
annual production by OPEC of about eleven billion barrels of oil, every
dollar by which the average annual price of a barrel of oil can be made to
fall means approximately eleven billion dollars a year less going to OPEC
and thus correspondingly less money directly or indirectly available with
which to finance terrorism.
The means are readily available to bring about at least a ten
dollar per barrel reduction in the price of oil and probably a twenty
dollar or more reduction. What makes possible the potential for such large
declines in a relatively short period of time is the very same
characteristic of the demand for oil that leads to spikes in its price
when its production is cut by just a few percent, namely, the so-called
inelasticity of the demand for oil. This is the fact that to reduce the
quantity of oil demanded by a relatively small amount, or to increase it
by a relatively small amount, substantially larger changes in price are
required. Thus, in the 1970s, for example, to reduce the quantity of oil
demanded by a few percent, a more than doubling of the price of oil was
required. In the 1980s, the price of oil fell by about two thirds in
response to relatively modest increases in the supply of oil. Such a large
decrease in price was required in order for the market to be able to
absorb the additional supply of oil that then became available.
Today, it is possible once again to bring about a dramatic fall in
the price of oil, indeed, one even larger than occurred in the 1980s. And it could begin right away. All that is necessary is to abolish
the U.S. government’s restrictions on domestic energy production
inspired by the environmentalist movement.
Consider the potential for increasing the supply of oil by opening
up to the drilling for oil both the whole of the continental shelf of the
United States and all of the vast so-called wildlife preserves and
wilderness areas in Alaska and in all of the rest of the country.
Certainly, these sources could soon very easily increase the world’s
supply of oil by the few percent needed to make the price of oil plunge.
And to the extent that OPEC sought to prevent a fall in price by
equivalently curtailing its own production, it would be deprived of the
full amount of the revenues it had earned on that production. In addition,
any maintenance of the high
price by OPEC would serve only to put revenues and profits that it had
been earning into the pockets of its American competitors, who would
thereby have the financial means as well as the incentive for further
expansion at OPEC’s expense.
Abolishing our restrictions on coal and natural gas production and
on atomic power would further compound OPEC’s problems. This is because
any expansion in the supply of these competing sources of energy and fall
in their price serves to reduce the quantity of oil demanded at any given
price of oil. The result is that in the face of a fall in the demand for
oil, any given production of oil can be sold only at a lower price than
would otherwise be possible. In other words, the price of oil would fall
not only because of an increase in its supply but also because of the
decrease in the demand for oil resulting from the increase in the supply
of coal, natural gas, and atomic power. There would be a larger supply of
energy in general and a fall in the price of energy in general.
In an environment of economic freedom for energy production in the
United States, OPEC would lose all incentive to maintain the price of oil
at anywhere near its present level by reducing the quantity of oil it
produced. This is because it would then have to reduce its production by
an amount equal not only to the expansion of oil production in the United
States but also to the reduction in the quantity of oil demanded because
of the increase in the supply
and fall in price of competing sources of energy. The magnitude of
reduction in its production of oil that would be required to offset all of
this expansion would be too great to make the reduction worthwhile to
is implicit that had the United States pursued a policy of economic
freedom with respect to energy production over the last thirty years, the
conditions for OPEC’s success as a cartel would never have been present
in the first place, and the accumulation of vast funds capable of
supporting terrorism would never have been able to occur. Every barrel of
oil that the environmentalists have succeeded in getting the U.S.
government not to allow to be produced, every ton of coal that they have
prevented from being mined, every atomic power plant whose construction
they have stopped, has served to make oil scarcer and more expensive and
correspondingly to enrich OPEC and increase the funds available for the
support of terrorism.
Today, after thousands of needless deaths and major destruction of
property of symbolic as well as economic value, it is not only the
so-called moderate Arab governments who have a choice to make. The
supporters of environmentalism here in the United States must also choose.
Which do they value more: indulging their exaggerated fear of oil spills
on beaches and their boundless desire for nature untouched by man, or the
lives and property of innocent victims of terrorism and, as now seems
likely, the lives of hundreds and possibly thousands of young servicemen
and women and the potentially enormous economic costs of a war?
True enough, decades of policies serving to enrich the supporters
of terrorism have made it impossible for a policy of freedom for energy
production in the United States all by itself to now strip the terrorists
of financial support. But it would certainly very substantially help in
reducing such support. And it would show up in lives and property saved.
The environmentalists must choose.
Afterword: Normally, economic freedom should not be thought of as a
means of impoverishing anyone or as any kind of weapon. Its normal
character is one of universal enrichment. It becomes a means of
impoverishment and a weapon in the present case only because of the
presence of the combination of two special circumstances. First, the prior
existence of extensive monopoly privilege, which we have created for OPEC
to the extent that our laws and regulations prohibit the competition of
American energy producers. Second, the fact that the extremely backward
culture of the Arab world—its religious fanaticism and accompanying
disdain for individual rights and freedom—serves to prevent successful
adaptation to changed conditions and the earning of substantial wealth not
based on monopoly privilege.
contrast, when advances take place within the Western world, such as the
automobile displacing the horse and buggy, the effect is to benefit even
those who initially are displaced. Those displaced find new jobs and once
they have acquired levels of skill and ability in their new occupations
comparable to those they had in the jobs they lost, benefit in their
capacity as consumers from the advance that initially caused their loss.
In the Western world, even those who fall from the highest economic
positions can ultimately come out ahead in the position merely of an
average worker, thanks to continued economic progress. But not so in a
culture in which if one does not have the benefit of monopoly privilege
applied to the accident of sitting atop a large quantity of an important
natural resource, one is rendered incapable of having much of anything.
© 2001 by George Reisman. All rights reserved.
Reisman, Ph.D., is professor of Economics at Pepperdine University’s
Graziadio School of Business and Management and is the author of
Capitalism: A Treatise
(Ottawa, Illinois: Jameson Books,
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