In this part of our interview with Lisa Margonelli, author of Oil on the Brain: Adventures from the Pump to the Pipeline, we examine two sources for our oil: Venezuela and Iran.
Bradley Berman: Venezuela is an enigma to me. It seems like the oil revenues are financing certain social programs. In your book, you quote someone who says that it’s “financing the revolution.” And yet the money is not getting to the poorest people.
Lisa Margonelli: Well, the money is getting to the poorest people now. But an oil economy doesn’t have that much money to distribute when you distribute it over 27 million people. An oil economy doesn’t provide that many benefits. It provides a big pile of money, but when you divide it by 27 million people in Venezuela, you don’t actually end up with that much for each person.
BB: Is it divided in a way that’s equitable?
LM: The problem is not how it’s divided. The problem is what it rewards. The problem is when you have a big pile of oil money coming into a country, it’s much easier for the bureaucrats of that country to focus on getting more oil money and not to focus on creating more jobs within the country so they can tax [income]. So what you end up with is, as I wrote about, a one-armed body builder. You end up with a country that has one arm that’s facing other countries that are buying the oil, and it becomes better and better at extracting money. And it’s not doing what we do in the U.S. to encourage job building, encourage industry, and create lots and lots of tax payers. Instead, what you are creating is lots and lots of dependents in a state like Venezuela.
You could send everybody a check for a couple hundred bucks, but it’s not as valuable to people and the economy as having a system that naturally creates jobs. In fact, the oil system tends to destroy jobs. There’s a statistic in the book that, in the 1950s, Venezuela starting importing eggs from the United States. That’s the dumbest thing in the world. Venezuela is a very agrarian economy. Presumably, you could be covering the whole place in chickens and be exporting eggs, and yet they killed off their own chicken and egg industry.
BB: Does Venezuela have taxes?
LM: Venezuela has taxes, but it’s a very weak taxation system.
BB: In other words, when you have enough oil money coming in, there’s enough to support the government so you don’t need to tax as much, or at all.
LM: Right. And people basically wait to get money from the government. People have been talking about the government as a cow since the 1920s. The idea is that it’s a cow that provides milk to anyone in a place to catch it. That’s the basis for corruption. You find a way to get yourself a little money. That becomes the industry of the country rather than trying to create jobs and wealth.
Small Actions, Huge Repercussions
BB: You visited Iran, which has many more resources than Venezuela. Yet we’re in a sustained conflict with them. You wrote about Operation Praying Mantis, the one-day oil war in 1988 that has slipped down the memory hole. What happened and why should we care about it?
LM: In Operation Praying Mantis, in retribution for some mine laying that had been done, the U.S. bombed two oil platforms that belonged to Iran. That destroyed Iran’s ability to export oil from those two platforms, which was how they were obtaining more weapons [for their war against Iraq].
The bombing of the oil platforms sent a powerful message to Iran that the U.S. intended to side with Iraq. At the same time, Iraq committed a chemical warfare offensive on the peninsula. Iran got the double-whammy that day of the U.S. blowing things up in a precursor of shock and awe—huge overkill on these two platforms—and at the same time, you had the chemical warfare going on. It was very clear to the Iranian leadership that they could no longer fight Iraq without also fighting the U.S. So they settled.
Iraq was emboldened. It was definitely a contributing factor to Iraq invading Kuwait, and the U.S. comes in to smack back Iraq, which then doesn’t settle the issue. There’s 11 years of sanctions because the U.S. didn’t remove Saddam Hussein. They just wanted a placeholder. That sets the scene many years later for the U.S. to invade Iraq. Now, we have editorials in the Wall Street Journal saying the U.S. must attack Iran, which I find staggering.
Suddenly, we have a huge involvement in the Gulf that came from almost nothing. One military historian compares it to the music Bolero. It starts off very quiet, and it just gets louder, and louder, and louder. That’s what we’ve seen since 1988.
BB: What’s the significance of the Strait of Hormuz?
LM: A huge amount of the world’s oil comes through the Strait of Hormuz. It’s a very narrow shipping channel. All the oil that passes out of the Persian Gulf virtually comes out from the Strait of Hormuz. If you can control the Strait of Hormuz, which are geostrategically controlled by Iran, then you can shut down all of that oil.
In war games, it appears that the U.S. could probably not hold the Strait against Iran, because Iran has the advantage of having so much territory, having very small ships and weapons that could inflict a lot of damage on America’s expensive ships and weapons.
Even if you shut it down for a day or two, it would have huge repercussions.