There is a hidden link between Libya, oil price fungibility, globalization and the Saudis’ role in regulating oil production.

And although the United States only receives approximately 2% of its oil from Libya, the United States’ allies in Europe get a much larger percentage. So if Italy, France, Germany and Spain need to find other sources for oil, the price of oil — and thus of gasoline — goes up in the United States.

And this price increase, by taking dollars out of U.S. consumers’ pockets, directly counteracts the quantitative easing policy of the U.S. Federal Reserve.

But the fungibility of oil pricing creates a national problem for the United States far greater than a potential slowing of its economy: It is a matter of sovereignty. In essence, America has surrendered part of its sovereignty to the oil markets — and especially to Saudi Arabia.

In a manner similar to the Fed’s ability to regulate the economy by increasing or decreasing the money supply, the Saudis increase and decrease oil production in order to control global oil pricing. Production is increased when the price appears to be moving too high, too soon, on account of a geopolitical crisis or emergencies — and production decreases if the market becomes too soft.

Essentially, through the Saudis’ ability to regulate the oil spigot, they have the ability to add or take away dollars from the pockets of American consumers.

It is obviously in Saudi Arabia’s interest to keep oil prices relatively high, but not too high. That is, oil prices need to be high enough to try to hopefully pacify their citizens, but low enough to make sure that alternative energy is not truly affordable without government subsidies.

They need to be high enough to feed the exorbitant lifestyles of Saudi royals, but low enough not to force too much economic hardship on their customers, which would then weaken demand.

America has surrendered part of its sovereignty to the oil markets — and especially to Saudi Arabia.

When Saudi Arabia announced recently that it would increase its oil production to nine million barrels a day, an increase of about 400,000 barrels per day, to compensate for the loss of production from Libya, the New York Stock Exchange immediately reacted positively, for it was a sure sign that energy prices would not go higher and force the United States into a double-dip recession.

Although it might be fine for Blanche Dubois in A Streetcar Named Desire to rely on the courtesy of strangers, it is both foolish and dangerous for any major nation to do so. This is especially true when the main stranger we are relying on is being led by a sickly king, with a possibly messy succession fight in the offing.

The Saudi kingdom is desperately trying to ward off the Arab revolt by gifting to its subjects $129 billion — which is equal to half of the kingdom’s oil revenues last year. This gift requires the kingdom to charge a minimum of approximately $80 a barrel in order to keep its budget balanced this year. Consider that only ten years ago, they were able to keep their books balanced with oil prices at about $10 per barrel.

A question of sovereignty

Sovereignty is a complicated issue to explain politically in that it often needs to be seen to be understood. For example, few people in Arizona would disagree that border protection is a matter of national sovereignty.

Just as the Fed regulates the economy by increasing or decreasing the money supply, the Saudis increase and decrease oil production to control global oil pricing.

However, it is much more difficult politically to explain the unseen link — and the hidden danger — between Libya, oil price fungibility, globalization and the Saudis’ role in regulating oil production. But that unseen link is today the premier challenge to America’s sovereignty.

Yet if one is reading or listening to the debates in the U.S. Congress and to the various speeches and commentaries by the presumptive Republican presidential candidates, you would never know that the United States’ economy — and its economic future — is partly in the hands of a sickly old man in a politically difficult neighborhood.