Oil, Dollars, Debt, and Crises: The Global Curse of Black Gold

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Overview

Oil, Dollars, Debt, and Crises studies the causes of the current oil and global financial crisis and shows how America's and the world's growing dependence on oil has created a repeating pattern of banking, currency, and energy-price crises. Unlike other books on the current financial crisis, which have focused on U.S. indebtedness and American trade and economic policy, Oil, Dollars, Debt, and Crises shows the reader a more complex picture in which transfers of wealth to and from the Middle East result in a perfect storm of global asset and financial market bubbles, increased unrest, terrorism and geopolitical conflicts, and eventually rising costs for energy.

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Editorial Reviews

From the Publisher
From the Foreword by James A. Baker III, Former U.S. Secretary of State

"Oil, Dollars, Debt, and Crises is impressively prescient in highlighting the risks associated with major imbalances in the global financial system. The book moves well beyond economic analysis to assess other factors that shape production decisions by major energy exporters. Above all, the authors continually - and rightly - stress the global nature of the challenges confronting us. The authors give Oil, Dollars, Debt, and Crises a richness of analytic texture rare in books of its kind."

Praise for Oil, Dollars, Debt, and Crises

"A boldly original and provocative display of the mutual amplifications since the 1970s of a global energy price cycle, a global finance cycle, and geopolitical turmoil in the Middle East into a super cycle that is 'endogenous and self-perpetuating.'" ― Clement M. Henry, University of Texas at Austin

"In today's geo-strategic environment, few threats are more perilous than the potential cutoff of energy supplies. Unfortunately, recent experience provides us little reason to be confident that market rationality will always win the day where petro-politics is concerned. El-Gamal and Jaffe offer a timely analysis of the potentially perilous interaction of oil insecurity, mounting U.S. debt, and Middle East geopolitical conflicts. They argue that the future stability of the dollar and financial markets remains very much tied to the fate of oil, a sobering reflection on a key challenge to U.S. foreign policy and international financial diplomacy. Scholars and statesmen alike should take note of the provocative analysis in Oil, Dollars, Debt, and Crises." ― Senator Richard Lugar, Ranking Minority Member, U.S. Senate Foreign Relations Committee

"Oil, Dollars, Debt, and Crises is compelling reading, not simply because it clearly explains the global curse of 'black gold.' It also weaves together the interdependent relationships binding the inherently cyclical foundations of the petroleum sector with global currency dislocations, wealth transfer adjustments impacting emerging markets, radical income disruptions in countries that produce oil (and other commodities), and the domestic and international repercussions for geopolitics and global violence. No other study articulates so pointedly the core global issues that impact today's global political economy. It takes the combined talents and analyses of two leading scholars from the overlapping professions of economics, Middle East studies, and energy studies to be able to provide the general public, scholarly professionals and policymakers alike with this seminal, pioneering study of the issues at the heart of today's globalized world." ― Edward L. Morse, Managing Director at Louis Capital Markets, former Chief Energy Economist at Lehman Brothers and publisher of Petroleum Intelligence Weekly

"El-Gamal and Jaffe have written a timely, provocative book that students and scholars in several fields will find useful.... Recommended." ― Choice

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Product Details

  • ISBN-13: 9780521720700
  • Publisher: Cambridge University Press
  • Publication date: 12/31/2009
  • Edition description: New Edition
  • Pages: 232
  • Product dimensions: 6.00 (w) x 8.90 (h) x 0.70 (d)

Meet the Author

Mahmoud A. El-Gamal, Ph.D., is Chair of the Department of Economics and Professor of Economics and Statistics at Rice University in Houston, Texas, where he also holds the endowed Chair in Islamic Economics, Finance, and Management. Before joining Rice in 1998, he was an Associate Professor of Economics at the University of Wisconsin in Madison. He has also worked as an Assistant Professor of Economics at the University of Rochester and the California Institute of Technology. During 1995-6, he worked as an economist in the Middle East Department of the International Monetary Fund. During the second half of 2004, he served as scholar in residence on Islamic finance at the U.S. Department of Treasury. He has published extensively in the areas of econometrics, economic dynamics, financial economics, economics of the Middle East, and the economic analysis of Islamic law. His most recent book was Islamic Finance: Law, Economics, and Practice (Cambridge University Press, 2006).

Amy Myers Jaffe is the Wallace S. Wilson Fellow for Energy Studies at the James A. Baker III Institute for Public Policy and Associate Director of the Rice University Energy Program. Her research focuses on oil geopolitics, strategic energy policy, and energy economics. She is coeditor of Natural Gas and Geopolitics: From 1970 to 2040 (Cambridge University Press, 2005, with David G. Victor and Mark W. Hayes) and Energy in the Caspian Region: Present and Future (2002). She has published widely in academic journals and edited collections, including the keynote article 'Energy Security: Meeting the Growing Challenge of National Oil Companies' in the Whitehead Journal of Diplomacy and International Relations (Summer 2007) and 'The Persian Gulf and the Geopolitics of Oil' in Survival (Spring 2006). Ms Jaffe served as project director of the Council on Foreign Relations task force on strategic energy policy. She currently serves as a strategic advisor to the American Automobile Association on developing an AAA members' voice on U.S. energy policy debates.

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Table of Contents

List of Illustrations

List of Tables

1 The Challenges of Resource Curses and Globalization 1

Volatilities: Financial, Economic, and Geopolitical 10

Petro-States, Hydrocarbon Dependence, and Resource Curses 14

Geopolitical Conflicts and the Politics of Discontent 16

Mounting Debt and Fragility of the Global Financial System 18

Constants and Variables in the Cycle: 1970s to the Present 19

2 New Middle East: Childhood 1973-84 and Adolescence 1985-95 25

OPEC's Market Power: Economics, Politics, and Volatility 26

Middle-East Flows of Labor, Capital, and Cultural Norms 31

Oil Price Collapse and the Politics of Discontent 33

The Rise of National Oil Companies 40

Militarism, Debts, and Global Finance 44

3 Road to the Status Quo: 1996-2008 51

Changing OPEC Politics and Renewed Oil Revenues 52

The Other Black Gold: Natural Gas 60

The Economics and Geopolitics of Middle-East Discontent 65

Deja Vu: Overgrown Children of the 1970s? 71

4 Globalization of Middle-East Dynamics 75

Hedge Funds and Sovereign Wealth Funds 76

Increased Financial Integration and Contagion 80

Liquefied Natural Gas and Globalized Energy Markets 85

Conflicts, Economic Sanctions, and the "War on Terror" 90

5 Dollars and Debt: The End of the Dollar Era? 97

The Dollar as Reserve Currency 97

Bretton Woods and Beyond: The Primacy of U.S. Debt 99

Global Economic Growth, Interest Rates, and Debt 101

Uneasy Symbiosis: U.S. Consumers and Asian Savers 103

Contagion: Sequential Bubbles and Crashes 107

The Dollar and Bets on Chinese Growth and Oil 110

6 Motivations to Attack or Abandon the Dollar 117

Americas "Exorbitant Privilege" andGeopolitics 119

Petrodollar Recycling and the Dollar-Pricing of Oil 121

Saddam Hussein, Ahmadinejad, and Dreams of Petroeuros 122

The Paradox of Pegged Currencies 125

Pegged Currencies and "The Balance of Financial Terror" 130

The Threat of Renewed Protectionism and Mercantilism 134

Globalization with Multiple Currencies: Bretton-Woods III? 139

7 Resource Curses, Global Volatility, and Crises 143

Continued Regional and Global Resource Curses 144

The Global Resource Curse 147

Continued Global Dependence on Oil 150

Global Conflicts, Radicalisms, and Terrorism 159

Serial Amnesia, Greed, and Financial Crises 164

Peaks and Troughs: The Need to Ameliorate the Cycle 167

8 Ameliorating the Cycle 171

Technical Solutions and International Cooperation 175

Attenuating the Energy-Markets Cycle 177

Energy Market Regulation and Multilateral Intervention 181

Petrodollar Recycling and International Lender of Last Resort 184

Managing Geopolitical Conflicts 188

Conclusion 191

Notes 193

Bibliography 210

Index 216

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