Thanks to Fracking, No Panic in the US After The Attacks on Saudi Oil

by Paolo von Schirach –

WASHINGTON – The most astonishing consequence of the unprecedented, devastating attack on Saudi Arabia which crippled the Kingdom’s oil production and refining facilities is what did not happen, especially in the USA.

There was no panic in the US or worldwide; no skyrocketing, out of control oil prices. Yes, crude prices went up, significantly; but not in a dramatic way, if you consider that the supplies of Saudi Arabia, the leading world exporter, (along with Russia), have just been cut down by 50%! That 50% represents 5% of total world supply. In an environment where strong demand matched tight supply, this sudden shortfall would be a disaster, especially for the US, along with China the leading oil consumer. But right now world oil supplies are not stretched, notwithstanding steady demand, thanks to the US fracking revolution which added millions of barrels of oil a day to global energy markets. More on this in a moment.

Surprise but no shock

Obviously, world markets took this unexpected and sadly successful attack against well defended (we all thought) and vitally important Saudi oil facilities quite seriously. But again, there was no panic; no stock market crazy gyrations. In contrast, you can rest assured that if the very same attack on Saudi Arabia had taken place 10 or 15 years ago, the reaction would have been chaos and mayhem –especially in Washington, DC and on Wall Street. Similar shortfalls caused the oil crises of 1973-74 and 1979.

What happened in the last 15 years?

So, what is the difference between now and then? The difference is the US fracking revolution. The almost unthinkable surge in US oil and gas production made possible by the adoption of fracking technologies by many US energy companies , (a successful combination of hydraulic fracturing and horizontal drilling), which began 10 to 15 years ago has given the United States millions of additional barrels of oil a day; and, as a consequence, also a much higher degree of energy self-sufficiency. Not total self-sufficiency, mind you, but close. Heavy reliance on distant (and it turns out not so reliable) oil suppliers was drastically diminished along with massive increases in domestic oil production. 

The broader impact of the US fracking

This gigantic increase in domestic oil and gas production made possible by extracting oil and gas from shale formations, coupled with increased oil imports from Canada, a friendly neighbor, have created a new scenario of quasi “Hemispheric Energy Independence”. In simple terms, North America, (Canada, USA and Mexico combined), can soon become energy self-sufficient.

Let’s be clear, we are not there yet. But we are almost there. The US still imports some OPEC oil, as well as crude from other regions of the world, but most of the oil we consume now in America is either domestically produced or imported from reliable neighbors.

Relaxed atmosphere

Hence the relatively relaxed atmosphere both in Washington and on Wall Street, in the aftermath of the attack on Saudi oil facilities, when it comes to confidence in our ability to ensure continuity of energy supplies to industry and consumers.

Notwithstanding the shockingly bad news of the brazen attacks that knocked down half of Saudi Arabia’s oil production and refining facilities, with the ensuing cuts in global supplies, there is no panic in America.

This is an incredibly important achievement. And we owe this to a multitude of small, medium and some large fracking companies that are behind this American energy revolution.

Global benefits

And the fracking revolution obviously benefits the rest of the world as well. Since America’s imports have been cut down by millions of barrels a day, there is more oil in the global market place available to all other importers. Abundant supply means lower energy prices for all, ample reserves, and (almost) guaranteed deliveries to all importers.

So, here is the story. Thanks to fracking and massively increased US oil production, even an unprecedented, catastrophic event like the attack on Saudi oil facilities can be handled without resorting to extraordinary measures such as price controls, rationing, etc.

A private sector effort

Where am I going with all this? Very simple. Fracking was not a US government program. Fracking is all about old fashioned Yankee ingenuity. The US private sector, often small energy entrepreneurs, largely unhindered by suffocating state or federal rules and restrictions, had the freedom to invest in drilling in shale –an endeavor what at the beginning seemed to most experts a perfectly crazy idea, destined to failure.

Well, the seasoned experts were wrong. After a few years of trial and error, the daring energy entrepreneurs were proven right, and America now –thanks to fracking—is in the midst of this incredible “Energy Renaissance”. This huge additional domestic production, in this moment of international bewilderment caused by the brazen attacks on Saudi oil facilities, provides precious support and reassurance to both the US economy and US national security.

Broader lesson: encourage free enterprise

So, here is the broader lesson. As a Nation, let us do all we can to encourage more innovation and entrepreneurship –in all sectors. Do not place roadblocks on the path of those who seek to create new products, new systems and new solutions. And I am not just talking about energy here. I am talking about all economic sectors.

Sure, all
economic activities have to be conducted within the boundaries of the law,
while they have to comply with all necessary safety and public health
standards. These are the common sense rules of a modern, civilized society.
But, once reassured that there is genuine compliance with the basic norms of
our nation, let people be free to do what they want to do.

In the case of fracking we see the enormous economic and now national security benefits brought about by daring spirits, ingenuity and enterprise. About other economic sectors, God only knows what new benefits commercially viable innovation may bring to us. 

Regulations Kill Enterprise

WASHINGTON – Jim Tankersley reports in The Washington Post, (May 23, 2016), that “The recovery from the Great Recession has seen a nationwide slowdown in the creation of new businesses, or start-ups. What growth has occurred has been largely confined to a handful of large and innovative areas, including Silicon Valley in California, New York City and parts of Texas, according to a new analysis of Census Bureau data by the Economic Innovation Group, a bipartisan research and advocacy organization.” 

Death of the U.S. small company

Holman W. Jenkins writes in The Wall Street Journal (Trump for Blow-Upper in Chief?, May 21-22, 2016) that the Kauffman Foundation noted that there is a marked “decline in small business entrepreneurship” in America. Jenkins also cites a Brookings Institution report pointing out that business closures now exceed business starts in the U.S.

Well, what could be the reasons behind this rather ominous trend in what used to be the land of private enterprise? May be the cause of all this is in another fact cited by Jenkins in his WSJ piece. According to the Competitive Enterprise Institute, last year Congress passed 114 laws. But it issued 3,410 new regulations. These amounted to 80,260 pages in the Federal Registry, close to a historic record.

Regulations suffocate small enterprises

So, here is my simple theory. Whatever its intentions, the Obama administration in its effort to regulate and restrict almost every economic or commercial activity is slowly strangling U.S. enterprises, especially small and medium-sized companies that simply lack the resources to ensure compliance with this myriad of confusing federal rules. Please, do keep in mind that these companies are the true engines of the U.S. economy. These are the innovators and the jobs creators.

Killing capitalism 

So, here is the thing. You do not need a proletarian or a social-democratic (Bernie Sanders-style) revolution to kill capitalism. A death by a thousands cuts inflicted by federal regulators will do just fine. It seems that government bureaucrats are quite capable of destroying capitalism on their own.

And so the most successful economic system ever devised in human history will wither and die not because of a popular uprising staged by the angry masses, but because of the suffocation caused by an avalanche of regulations that make it almost impossible for small businesses to stay viable and grow.


America Losing Its Small Companies

WASHINGTON – Dozens of analysts tell TV viewers that, whatever may be happening in China, things look good in America. Employment is up. Second quarter GDP growth has been revised up to 3.7%. Consumer spending is steady. So, if you are watching CNBC, Fox Business or Bloomberg TV, you are told not to worry. The stock market may suffer a bit because of inordinate volatility. But the US economy, while not roaring, is on solid ground.

The importance of small businesses

Well, not so. And we hear this from a former Bill Clinton senior adviser. Thomas McLarty, former White House Chief of Staff, just wrote in the WSJ, (Small Business and the Secret of Big Growth, September 3, 2015), that Americans are no longer creating new small businesses at the rate they used to. And this is really alarming.

Indeed, contrary to what some may believe, most Americans do not work for Coca-Cola, Procter & Gamble, Monsanto, Google, General Electric, Boeing, United Technologies, Ford or Microsoft. Most Americans are employed by small or medium-sized firms whose names you never heard.

Jobs creators 

Put it differently, small firms are the true grass-roots innovators and jobs creators. They are the backbone of the US economy. Indeed, the secret of America’s (past) economic success is (was?) the willingness of average people to take a chance and start their own business. Granted, because of poor planning, lack of capital and other reasons, many new ventures failed. But many more succeeded, this way creating new companies that employed people who then became consumers, this way expanding the economy.

Small companies are choked to death

Well, this worked reasonably well –until not too long ago. But now it is a different story. First of all, notwithstanding the unprecedented zero interest rate policy decreed by the US Fed in the aftermath of the 2008 recession, it is much harder for small businesses to obtain loans. No credit often means death by suffocation.

And then we have high and difficult to understand taxes, and excessive regulations that require spending an inordinate amount of time on compliance related matters.

Finally, there is a clear disconnect between the existing education system (especially at the Community College level) and the skills required by many businesses. This means that small companies that would like to expand operations cannot find the skilled workers they need.

Lower taxes, deregulation 

A recent survey (quoted by McLarty in his piece) conducted by the National Small Business Association indicates that small businesses want a simplification of the tax code and lower taxes, a reduction of the national deficit, and an end to the partisan gridlock in Washington.

No action 

These are clear, (albeit not simple), common sense demands. And yet there is no bipartisan effort, let alone action, on any of these fronts in Washington.

In this at times bizarre political campaign, as we debate “anchor babies”, and the daily allegations of police brutality, the American economic engine is stalled.

And nobody cares.


Former Wells Fargo CEO, Warns That America Is losing Small Business


WASHINGTON – Much is said about the magic powers of well crafted federal public policy to “create jobs”. Yet, the record is not so good. Plenty of honest attempts; modest results. But how about the opposite? How about a mix of bad policies that tend to depress job creation?

Job killers, according to Richard Kovacevich

Well, you should listen to Richard Kovacevich, former Wells Fargo CEO. In a recent interview on Bloomberg TV Kovacevich pointed out that small businesses, traditionally the true engine of jobs creation in America, are no longer performing their historic role. And why not? According to what business owners tell Wells Fargo, (their banker), for three reasons.

Number 1: Too much regulation makes it difficult and far too onerous to understand and comply with the new rules.

Number 2: Obamacare compliance looks too expensive for small businesses. So, they prefer not to hire and stay small, in order to avoid the legal mandates that will soon hit larger firms on providing insurance to employees.

Number 3: Taxes are too high. And this is not about corporate taxes that may even be cut. The fact is that most small business owners pay taxes as individuals. As individual tax rates go up, small business owners feel the pinch.

Anybody listening?

The Obama administration should listen to people like Richard Kovacevich, people with considerable experience in lending to small enterprises. Contrary to popular belief, America’s economic might is not about General Motors, IBM, or General Electric. It is about small enterprises that energize the whole country. If they cease to be the jobs creators because they see too many public policy obstacles on their way, then you can expect this unprecedented period of American stagnation to last even longer.

Policy Changes That Would Spur Small Business Creation

WASHINGTON – Not every economic policy change has got to cost money. Entrepreneur Henry Nothhaft in an op-ed piece in The Wall Street Journal, (A Labor Day Message for President Obama, September 3-4, 20110), provided a short but compelling agenda that President Obama could focus on. Acting upon it would have beneficial impact on start-ups, and business in general.

No money 

And this would cost any money. Nothhaft premise is that the real lever to get growth and employment creation moving again in America is to favor start-ups. This is where the real action is, in the US as in most of the world. Dynamic entrepreneurs and risk takers are also job creators. They give life to new businesses that require people in order to grow.

Reduce Sarbanes-Oxley burdens for small business

Well, for starters Sarbanes-Oxley legislation makes it far too onerous and expensive for small businesses to comply with all that is needed in order to keep their books in accordance to the law and particularly expensive to go public. And yet it is proven that start-ups get going and become truly profitable only after a successful IPO. It would be enough –Nothhaft suggests– to exempt firms that have less than $ 500 million in revenue from Sarbanes-Oxley mandates. This would allow many more small firms to go public, thus creating the preconditions for more rapid growth that would bring along more jobs.

Eliminate US patent office backlog

Furthermore, the US needs to overhaul its patent system. Right now America, supposedly the land of that encourages innovators more than any other, has an under resourced US patent office. Amazingly, currently there is a backlog of 1.2 million patent applications. It is obvious that patent protection in many instances is a critical precondition for launching a business based on one or more patents.

Allowing speedy processing and granting of patents would expedite the launching of hundreds, possibly thousands new businesses capable of creating, according to patent office estimates, ”millions of jobs”. Well, may be this an inflated estimate. But it looks intuitive that patent protection may be absolutely crucial to start a variety of new companies. Giving more resources to the US patent office cannot be that complicated. So, why not do it now?

Tax incentives for foreign manufacturers

The final recommendation is about offering tax and other incentives to manufactures willing to establish themselves in the USA. All countries offer incentives to lure new industries. And manufacturing is a force multiplier. For every new job in industry about 15 additional jobs are created up and down the supply chain and with other businesses that benefit from the creation of industrial activities.

Not a Grand Plan, just sound policy

This does not sound like a “Grand Plan”, a silver bullet for Obama bound to create millions of jobs between now and November 2012. So, politically these ideas may not be that hot. But these are sensible policy changes that would simplify and expedite the trajectory to success for enterprises, while encouraging many more would be entrepreneurs to start a new business.

Just think of it: Fast patent processing, diminished administrative burdens for small companies, easier transition to public company at a lower cost, incentives if you come from abroad. All this makes good sense. It would not cost anything and it would improve an investment climate no longer perceived by investors as truly favorable to business.