(Editor's note: Saudi Deputy Minister of Commerce Abdulrahman Al-Zamil last week claimed that any oil windfall has been wiped out by the cost of providing oil to the military armada in Saudi Arabia and aid to countries beleaguered by higher oil prices.)
The energy cost to households across America has increased by 40 percent since the start of the Persian Gulf crisis, enough to strongly influence the Consumer Price Index, push an already weak economy into recession and cause havoc across the nation.
Schools, colleges, towns, city governments and states as well are quickly finding shortfalls in their budgets. And winter has not even begun.
In the spring we will get the bills for heating and snow plowing to help us more fully appreciate the true cost of the Persian Gulf crisis for towns and cities across America.
But the question which begs answers is, why have the oil prices risen? What factors contribute to the prices that we pay at the pump?
The major source of cost obviously is the price of crude oil which is refined for sale at the gas pump. And since the price of crude oil has increased, the nation's oil companies have passed on the increased price to the consumer. But the increased price certainly has nothing to do with the cost of oil production.
The per-barrel production cost for Saudi Arabia, where America gets most of its oil, remains unchanged. The Persian Gulf crisis in no way has affected oil production cost. The Saudis continue to extract oil in the same old way, using the same old technology.
And, it should be noted, there was no shortage of oil prior to Iraq's invasion of Kuwait. As a matter of fact, the spot market oil price ranged between $15 and $17 per barrel, below the OPEC posted price of $18. Economists have estimated that there was a glut of between 1.2 and 1.8 million barrels per day before the hostilities began. Since then, the Saudis have announced a major oil find to dwarf their current reserves with little prospect of crude oil shortage in the world market soon.
If the cost of production has not increased, who is benefiting from the higher price of oil?
You guessed it: the House of Fahd, the rulers of Saudi Arabia. At today's production of over 8 million barrels per day at over $30 per barrel, the kingdom of the Al-Saud family will collect as much as $96 billion in oil revenue next year. This will be more than double its 1990 revenues, or an additional profit of $96 million per day that the average American household is being forced to pay.
It seems that the principles taught in Marketing 101 apply only to American entrepreneurs. American farmers, who grow wheat and sell it to Saudi Arabia for making its pita bread, are paid a price that reflects cost of production. The price of computers used for equipment control in Saudi oil fields is based on production costs. The medicines, used by Saudis to save lives, are priced according to production cost to pharmaceutical companies.
Since suppliers of such essential goods and services to Saudi Arabia and other oil-rich sheikdoms in the Middle East have not doubled their prices due to the gulf crisis, why is the average American household being gouged by oil-producing nations?
It is not enough that we are paying over $2.8 billion extra each month for the same old crude oil; to protect these oil merchants, we have sent almost 200,000 of our best and brightest to a hostile land at a cost to the United States of an estimated $2 billion in the first two weeks of Iraq's invasion of Kuwait.
With a proposed U.S. troop strength of 400,000, the additional annual spending will probably be more than $40 billion. And this does not include the cost of lost productivity due to the call-up of reservists; pain and suffering from a missing father or mother; empty chairs at holiday celebrations where children were serving in the Persian Gulf. If fighting begins, at least 20,000 to 30,000 American lives are estimated to be lost.
Surely one would expect that the 4,000-member Al-Saud family, which virtually owns the country, would be grateful for all that we are doing to protect them.
But all they have done so far is to offer a measly $10 billion to defray the costs of maintaining foreign troops on their soil when they expect to rake in a windfall profit of more than $14 billion in 1990 and $38 billion in 1991.
Who will pay the difference? Mostly the American taxpayer.
With a budget that is already projected to have a deficit of over $240 billion in 1990 and $300 in 1991, the cost of Operation Desert Shield will be an additional blow to a faltering U.S. economy.
At a time when we cannot meet our nation's own social needs and with a national debt of over $3 trillion, should we be borrowing money to support feudalism so that we can be gouged at the gas pump?
I suspect that if you talk with the mayor of a city faced with reducing funding for social programs or a governor who talks of layoffs to balance the budget or a Medicare recipient faced with the unpleasant task of reducing food expenses to assure purchase of medical necessities, the answer would be a resounding no.
We are already spending way beyond our means, but if we can afford to spend, we should first spend on our present national obligations.
America is historically a benevolent nation, bearing great burdens to defeat Germany and Japan in 1945 and creating the Marshall Plan to help rebuild Europe after World War II. But these measures were taken in a fight for democracy.
In Saudi Arabia, we must realize all important decisions are made by the self-appointed King Fahd, whose family members occupy all key posts in the country and who never faces the test of elections. So-called cabinet meetings are held only to approve royal decrees, not to debate their merits.
The watchdogs of that nation own front companies that influence the economy; there is no free press. For days after the Iraqi invasion of Kuwait, for example, no news of it appeared in the Saudi press. And recently Saudi women were arrested for driving.
While our brave young men and women are being asked to sacrifice their lives for Saudis, America Marines have been told to hide their religious medals and crosses under their T-shirts to appease Islamic fundamentalists who have used their exorbitant oil profits to support the PLO, who have consistently fought against Israel, the only democracy in the Middle East, unleashing terror in the world. To counter this terror, we are forced to use our scarce tax dollars to protect lives around the world.
Perhaps the question in the minds of many American households is, why we are financing the defense of oil-rich nations in the Persian Gulf? Why can't Saudi Arabia and its neighboring nations protect themselves?
If freedom is so precious to them, perhaps they will stop relying on foreigners to protect their interests and have their own people perform this vital task.
One would think that given the pickle the Saudis find themselves in, they would be willing to sell the U.S. crude oil at production cost. How can they laugh all the way to the bank while in the United States, grandparents are being forced to forego basic necessities of life?
Is there no justice in the world?
ARUN K. JAIN is a professor of marketing at the University at Buffalo.