Does Kuwait owe cheap oil for U.S.?

By David DeRosa

NEW CANAAN, Connecticut (Bloomberg): U.S. Energy Secretary Bill Richardson has been badgering oil exporting nations, in particular Kuwait and Saudi Arabia, to increase crude oil production.

At issue is the fact that the price of crude has more than doubled in 12 months. Is it fair to bring up that the United States and its allies saved Kuwait, and maybe Saudi Arabia, from Saddam Hussein's brutal military aggression nine years ago?

That's what Senator Bill Bradley proposed last Wednesday's Democratic Party primary debate with Vice President Al Gore in Los Angeles. "We need to go to Kuwait and Saudi Arabia, countries we defended in the Gulf War, and tell them to increase their oil production," Bradley said.

I didn't know the United States acquired any colonies at the end of the Gulf War. If Bradley's right then every time the price of oil rises we should call the Emir of Kuwait and the King of Saudi Arabia and tell them to cut prices and raise production.

Bradley's remarks are naive and simplistic. By this reasoning we should also be entitled to call the president of France when champagne prices pop to remind him of the Marshall Plan. Maybe we also have vested price protection on Korean steel because of the Korean War.

This reminds me of the Aesop fable about Androcles and the lion. You might remember Androcles, a runaway slave, was kind enough to remove a thorn from a lion's paw. After he and the lion are captured, he is sentenced to die in the arena. With the emperor and his court watching, a ferocious lion is set loose to devour poor Androcles. As it turns out, it's the same lion and it refused to kill Androcles. The emperor upon learning the whole story grants both Androcles and the lion their freedom.

Yeah right! Who believes that is how they did things in imperial Rome? Regarding Kuwait, yes, we removed the metaphorical thorn from the country's paw and much more -- we gave Kuwaitis their country back. But you know, old Androcles never asked or expected the lion would be his indentured servant for life.

It seems what Kuwait and Saudi Arabia owe the United States and the allied rescuers is help in a national emergency, just as any good ally would proffer. They don't owe us a lifetime price guarantee on their primary export commodity. Let's say there is a war or a huge natural disaster.

It would befit the Kuwaitis and Saudis to offer us some cheap or even free oil. Short of that, they owe us thanks, which they have given profusely, and the normal loyalty of a good ally. And remember, they paid for the pecuniary cost of the war.

One other thing came up in the California debate. Bradley hinted that as president he would release some oil from the U.S. strategic petroleum reserves. That's another bad idea. If the government believes individuals are suffering egregiously because of the high price of oil then it should cut some checks for direct economic relief. This would help people without greatly affecting the price of energy.

We will get more oil coming to market at a high price than a low price -- that is the iron-clad law of supply. Now this won't work overnight. But eventually new wells will be drilled and supply will increase.

If the strategic petroleum reserves have any useful purpose, it is to allow the country to survive a real emergency. The strategic reserves do not exist so the government can conduct open-market oil operations to lower the price of crude.

Let's not put that bug in Washington's bonnet, lest the government start to accumulate a strategic price stabilization reserve for every commodity.

The writer is president of DeRosa Research and Trading and manages an investment fund. He is also an Adjunct Finance Professor at Yale School of Management. His opinions don't represent the judgment of Bloomberg News.