Federal initiatives touted by the administration to encourage conservation and to deploy efficient technologies were having an impact, but were proving far more costly than the fossil fuels they replaced. So the recession had deepened, employment remained sluggish, and the President’s approval ratings had plummeted. Hoffman’s announcement meant beleaguered Americans were in for yet another shock. There in the Cabinet Room, careerists whose livelihoods and fortunes rose or fell by the spoils of an incumbent president silently considered Hoffman’s words in the context of Howard Denis’s re-election odds.
Secretary of State Walter Laynas responded to the president’s gloomy assessment. “The Israeli Knesset periodically issues statements to the effect that OPEC’s objective is to weaken our support, while the Arab states prepare another Yom Kippur-type assault.”
“And yet there’s the usual cheating going on with individual production quotas, particularly among this new Saudi bunch,” said Energy Secretary Hoffman, appearing to have regained his composure.
“I meant to ask you,” said the President. “To whom have the Saudis abdicated their leadership role?”
Hoffman was going to be careful. “It’s difficult to say who’s really calling the shots inside OPEC. Director Burns might have a better handle on that than I would.”
“Oh, take a flyer, Adam. You just spent several days wining and dining them. Surely you had to have some sort of negotiating strategy. That normally requires some idea of who’s calling the shots.”
“We think it’s Iran.”
“That’s our assessment,” Director Burns agreed. It was another reminder of the Islamic Republic’s burgeoning regional hegemony.
The Secretary of State had himself just returned from Paris, having attended a meeting of Organization for Economic Cooperation and Development representatives to examine the precipitous rise in Middle East tension. Laynas seemed eager to share what his diplomatic corps was reporting from Vienna. “Mr. President, the Iranian oil ministry spokesman has pronounced that so long as the peace process fails to yield full repatriation of Palestinian refugees, the embargo will continue.”
“Same old broken record. That’s official, then?”
“Seems to be the case.”
“But they lack discipline,” Hoffman asserted, determined to salvage a more positive tone. “New supply is coming on-line all the time, albeit costly, and individual cartel members are forever tempted to violate their production quotas by selling into exorbitant prices.”
Five years running indicated pretty good discipline, thought McBurney as he glanced around the table. With eyes trained on McBurney’s short stack of briefs, Herman waggled two fingers for him to pass them out.
McBurney slid a copy to the President and one each to the other men seated around the conference table. “Several years ago, China’s State Planning Council issued statements to the effect they were placing a ban on new refinery construction, citing that capacity exceeded demand by 20 percent.” McBurney paused. “In what appeared to us as a series of classic contradictions by centralized planners, construction continued apace. The number of refineries operated by Sinopec, China National Petroleum, and the People’s Liberation Army that stood at 116 has grown to 193—an enormous increase in refining capacity. They announced projects to further the development of Daqing, their oldest oilfield northeast of Beijing, as well as Liaohe, Shegli, Xinjiang Karamay, Changqing, and new fields in the Tarim Basin. Texaco and other foreign firms were awarded exploration rights for whole regions of the Chinese interior. They also find the need to clash every now and then with Vietnam and the Philippines over the Spratly reserves being developed in the South China Sea.
“Even without taking stockpiling into account, best estimates put their oil consumption at more than twice that of only a decade ago. It should come as no surprise to anyone that Middle East exporters are clamoring to exploit the emerging Asian market—especially if it can be done to the detriment of the United States and Israel, as appears to be their strategy.”
President Denis asked, “You’re saying this isn’t costing OPEC what it did during the old 1970’s embargo. Because their Asian customers take up the slack?”
So much for the straightforward part of my story, McBurney thought. “And we think China’s refining and storage capacity actually does exceed their needs.”
“What the hell are they doing with it?”
McBurney described how heavily laden supertankers are parked off China’s coast for weeks at a time. “Eventually the oil is offloaded to expanded storage facilities like the ones in Pudong and Quanzhou. Crude is certainly not being processed at a rate that would suggest they’re eager to get it to market. By our estimate, a lot of petroleum is simply being hoarded.”
The energy secretary became angry. “Why wasn’t I told?” He examined the faces around the table and returned his attention to McBurney. “Don’t you think I could’ve used this information?”
Director Burns tried assuring Hoffman that investigating things like storage farms and supertankers moored off China’s ports were best achieved through the employment of spies. “Unfortunately, the lack of political appetite for clandestiny—”
“Do we know why they’re hoarding so much oil?” asked the President.
“We’re not certain,” McBurney admitted. “Some sort of strategic reserve, apparently.”
“Have we asked whoever owns these supertankers? Supertankers sitting in transit must cost somebody a lot of money.”
McBurney thought that an oddly narrow facet of detail for the President to concern himself with. “Many belong to a Hong Kong partnership formed with China Ocean Shipping. Others are Greek, Liberian, some independents under Cypriot registry—not exactly strongholds of American goodwill these days.”
“I don’t think a smart aleck answer is what the President was looking for,” Tom Herman said.
McBurney stared at Herman for several seconds. “I meant no, we haven’t asked the tanker owners.”
“Thank you. You’re saying that China is conducting sort of an entrenched hoarding of oil, with all these storage tanks and supertankers and things, taking on oil whether they need it or not?”
McBurney nodded.
Herman leaned to whisper something into the President’s ear. Denis responded by closing his eyes, shaking his head, and rubbing the bridge of his nose. The President finally held up his hand and harshly retorted to Herman, “I know that!”
Clenching his fists, President Denis said to McBurney, “OPEC’s position is one of shipping us oil contingent upon our ally surrendering territorial sovereignty, which Israel will never do. Or, our outright abandonment of that ally, which we will never do.” For at least the second time in forty years, OPEC was conducting geopolitical blackmail, albeit now on a larger scale with the aid of China’s hungry market. “Is there any evidence of a link between governments of the oil exporting nations and this bunch who call themselves Free Palestine? I’ve asked that question before.”
“Tehran did issue a statement warning that Washington accept responsibility for any violent reprisals against us, so long as we continue funding the Israeli military.” The DCI shook his head. “But we lack sufficient information to link Free Palestine to anyone.”
As a representative of the JCTF, McBurney waited for the accusatory glance his direction. The focus remained on the President.
The President grumbled. “Fellas—dammit, I need that Task Force to start giving me answers. We’ve got to get our hands around the neck of this terrorist duck. If we don’t, it’s gonna be my neck.”
Hoffman broke the momentary silence. “Mr. President.”
Denis lowered his gaze from the ceiling to his energy secretary.
“Given our current situation...it’s not too late to reconsider expanding domestic drilling operations. That might alleviate the downward drag on the economy, as well as the upper hand that OPEC appears to enjoy.”
Denis appeared to ponder the idea.
<
br /> Herman asked, “You mean, like the six months worth of reserve they think is still up in ANWR? It’s not enough oil to justify the investment.”
“I don’t mean to single out ANWR, but the private sector certainly seems willing enough to make the investment.”
“The private sector brought us the Edsel.” Herman jabbed his finger in the air. “Let Russia and Mexico and all the others fuck up their environments drilling for oil! And doesn’t anyone here care about climate change any more?”
Denis heaved a sigh. “Let’s examine the energy secretary’s proposal for a moment. Anybody know the latest unemployment figures?”
There was an uncomfortable silence—surely the president knew the unemployment figures, didn’t he? Walter Laynas cleared his throat. “I believe Commerce last week announced nine-point-six per cent.”
“Ten per cent of the workforce,” the President concurred. He passed his gaze over the men at the table, all withholding opinion on the powder keg issue that domestic energy policy had become. “Call it twenty million people. Folks with an awful lot of time on their hands. How long does anyone think it would take before, oh, four of five per cent of them—several hundred thousand, maybe a million? How long for that number of disgruntled, disenfranchised, demoralized Americans to be whipped up into carrying placards and march hither and yon, probably in front of the White House and all over the Mall, chanting that I am destroying the planet, poisoning the air, killing our children? Shit, that’s what I’d have them do if the other party was sitting in here. Well, how long?” Denis smiled. “Adam?”
The energy secretary warily regarded the President.
“No? I’ll tell you how long. Long before any more drill bits tear open the bowels of the Alaskan tundra. And they’d camp out there right up to Election Day. You know what the funniest thing of it is? There wouldn’t be a single drop of oil from any of those wells until after my second term—which I seriously doubt I would have—and not until well after the next president’s sworn into office. But gentlemen, far be it from me to repress creative ideas.” Denis fixed his eyes on Hoffman. “Only, let’s limit ourselves to ideas that benefit the current administration—not the next one. That okay with you, Adam?”
Hoffman’s eyes were glassy and blank. He nodded.
President Denis turned toward McBurney. “How is it that these Asian economies, especially China’s, are able to afford this pricey market for oil?”
McBurney thought for a moment. “It can be difficult to know what some of these countries actually pay for imported oil.”
“Really? Why is that?”
“Well, take an importer like, say, Malaysia. We usually examine their balance of payments, currency reserves and exchange rates, that sort of thing, and then estimate what portion of their GNP is devoted to energy. You can roughly calculate the import costs of their oil, as we’ve done. Problem is, the calculated number for Malaysia happens to be somewhat lower than the market price set by the commodities indices.”
“What, they’re buying oil on the black market?”
“Sort of. Many governments subsidize energy costs for their citizenry. We confirm that just by scouting the open sources. Take it a step further. Maybe the subsidies themselves are funded through rebates against the market price they’re paying for crude oil.”
“Rebates?” The President turned to share a look with Herman.
“It’s only a theory, sir.” McBurney had earned himself a cautionary look from Director Burns.
“How does it work?”
“Theoretically.”
“If you insist.”
“Okay. Oil brokers would be paid at market price through the usual funds transfer to an agreed-upon bank. Then at some later date the exporting country, say a member of OPEC, directs a rebate back through the financial system. Net the rebate, the importing country gets a discount, perhaps pre-embargo level prices. With the market mechanisms all cut out, such a transaction would be difficult to trace. OPEC would thus limit the scope of their oil war, transferring any profit windfall through rebates to selected countries in order to prevent decimation of those economies.”
“What about China? How can they afford to accumulate these vast amounts of oil?”
McBurney noted Lester Burns watching him closely. “Actually, we don’t see how, not at current market prices. And we don’t think a rebate mechanism fully explains the discrepancy.”
Herman asked, “Why not?”
“The rebate to China would have to be huge. We’ve gone over their budgets and balance of payments, and they could only afford to be paying what amounts to maybe seven or eight dollars a barrel. That doesn’t make a lot of sense. But that’s what we came up with.”
President Denis studied his face. “Are you sure?”
“No, Mr. President,” Lester Burns cut in. “I want to stress that while I agree with Sam’s study, it is the result of very recent analysis.”
McBurney reflected on Carolyn Ross’s conjecture during their struggle last night to make sense of the macroeconomic mystery. “If these numbers eventually do stand up, numbers generally don’t lie. As it stands, no more than eight dollars per barrel, not without sacrificing China’s monetary stability, by either ballooning an enormous debt that already vastly exceeds their GDP, or inflating the yuan. There’s no evidence in the currency markets to suggest either.”
Herman said, “Then they must be cutting back elsewhere.”
“They’re certainly not cutting back on defense outlays,” Director Burns said. “They continue to build up their navy, and pursue other major military modernization, like DF-41 missile and their new Sukhoi fighter production. Sam, how about domestic spending programs? Maybe government reform, speeding up privatization efforts, that sort of thing, to free up some cash?”
McBurney shook his head doubtfully. “For my other briefing, I’d had Miss Ross construct a plot of major expenditures, adjusted for the past fifteen years. You can almost lay a straight edge on it. Chinese are nothing if not good planners. Whatever their petroleum industry spending, we’ve not seen anything that suggests a major fiscal dislocation.” He added that fiscal analyses had been conducted for the oil exporters, most of whom did their business in dollars. The results were inconclusive.
McBurney thought Tom Herman looked strangely on edge. He also noted something odd in the way President Denis was responding to his points, frowning in contemplative interest while distantly focusing his eyes, as if he was troubled by the bearing on some other issue.
The President cleared his throat. “I don’t suppose any of this sheds light on the missile defense issue, does it?”
What the...? McBurney shared a confused look with the DCI—So how do I handle this? Especially since he had no idea where the President was coming from, McBurney hated venturing unscripted into this particular topic. The confusing amalgam of issues made complicated anything involving missile defense, not least among them the eleventh hour hue and cry of voices calling to kill it off. The bribery and senatorial blackmail alleged in the controversial Washington Post coverage was only the latest fly in the ointment.
Burns reluctantly asked the President, “Which issue is that?”
“China’s always threatened to MIRV all of their warheads,” Herman replied, citing the country’s desire to upgrade from single to ‘multiple independent re-entry vehicle’ warheads atop each of their ballistic missiles. “And build more missiles, and deploy more submarines, if we decide to deploy a national missile defense shield. Can they still afford to do all that?”
McBurney wasn’t sure where Herman was leading them. Against his better judgment he said, “Despite the rhetoric, whether they can afford to or not, they do not appear to be MIRV-ing their warheads. Even after congressional legislation approving it, there has not been a shred of evidence that our plan to deploy missile defense has provoked a strategic shift in their military doctrine.” Except maybe for one, he came precariously close to adding. Nobody seemed ready to shar
e his suspicion of what China’s vanishing satellite might actually represent.
“Mr. President,” Director Burns interceded, “I suggest we reschedule the comprehensive briefing on missile defense, if that’s what you’d like. We came prepared this morning to discuss China’s petroleum estimate.”
“Oh, that’s okay, Lester,” Denis said with a reassuring wave. “Sam? I sensed you had something to add.”
With five sets of eyes trained on him the Cabinet Room became uncomfortably warm. McBurney swallowed and said: “We still have reason to suspect that China’s stealth satellite may be part of a system, a weapon system, intended to neutralize our missile defense shield.”
President Denis’s smile faded. Herman arched his eyebrows.
McBurney waded deeper. “Consider the facts presented today. China’s suspected duplicity with Iran to conduct espionage, and their collaboration with OPEC, as apparently seems—”
President Denis gritted his teeth. “I ask a question about oil consumption, and I get mystery! Fantasy! Vanishing fucking...whatever! Just tell me how China’s able to purchase that much FUCKIN’ OIL!”
McBurney felt himself turning red—the White House was no place for anyone but the President to be losing his temper. He let out a breath. “China may be buying oil with an offsetting rebate, but I don’t think so. There’s every possibility that they’re not buying it at all, not in the conventional sense.”
Razing Beijing: A Thriller Page 31