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OPINION

Saudi is Eating Its Own

The opinions expressed by columnists are their own and do not necessarily represent the views of Townhall.com.
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Headlines this week: “Venezuela Goes From Bad to Worse As Oil Prices Plummet”. Actually Bloomberg had it: “…as Oil Prices Plummets”, but that’s OK. So much for eastern liberal educational superiority.

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Grammatically correct or not, Saudi is eating its own. Venezuela has a 1-bullet economy: Oil. To prove a point, and to bolster only its own interests exclusively, Saudi has said “OPEC be damned.” Two Harvard economists are warning Venezuela may default on its foreign bonds. (Hope you aren’t holding any in case their forecast winds up being more accurate than Bloomberg’s grammar)

This reminds me of something I saw first-hand back in the 80’s, after I moved to Dallas. Still riding high in popularity from Leonard Katzman’s hit TV series, Dallas seemed to be on top of the world. Oil dominated the Texas economy. Banking was tied to it. Real estate supported it. Retail benefitted from it. Life in Texas was as big as JR’s ego back then. If you look at a long-term chart of oil prices, crude spiked from $50 a barrel to about $100, thanks to Jimmy Carter’s hyper-inflation of the late 1970’s. Drilling rigs were everywhere as the new oil boom was prolific. Then came Ronald Reagan. And then came 1983. Oil cratered to around $30 a barrel as Reagan convinced the Saudis to go in with him to economically cripple Mikhail Gorbachev’s Evil Soviet Empire and “bring down that wall”. That did it.

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It took Dallas, and much of Texas with it. Banks closed. Property values went through the floor. Shops, restaurants and businesses shut down. The new D-word in Big-D was “Default.” Oil didn’t see $50 again until 2005. Dallas, the TV show, went off the air in 1991, and the real Dallas had to re-tool. Fortunately at the time, the City had excellent economic leadership, who went to straight work on diversification. Dallas built up its banking and financial core. Interest rates softened, and real estate became uber-attractive again. Developers were now in the catbird seat. Texas’ young governor, Rick Perry, became an ambassador for no-state-income-tax, and drew business in like bugs to flypaper. Twenty years later, Dallasites could barely care what the price of a barrel of oil was. Mission accomplished. Economic D-iversity.

When you look around at the 12 OPEC countries, Saudi included, there is little or no chance of diversification. Its not like Angola is going to become the next banking capital or Ecuador will lead the world in automobile exports. All these nations have based their budgets on higher oil prices. So has Vladimir Putin. And all are now firmly under water. Only the Saudi’s have a bankroll to survive this, and it’s a big one. About ¾ of a T-trillion (mostly of OUR dollars).

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Any way you slice it, the axis is shifting. Saudi Arabi’s self-centered move to shock the oil markets could have a boomerang affect 6 months from now. I’d be interested to read Bloomberg’s headline then: “Saudi’s Regrets Actions Took in October as Word’s Banks Collapses.” Remember the D-word…..and use good grammar. Please.

Powering America Radio is heard daily on the Wall Street Business Network at 4:00 Eastern and is co-sponsored by Crude Energy, LLC and Breitling Energy Corporation.

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