The CFTC’s move against oil speculators who criminally profited from driving up prices in 2008 has put into sharp relief the current state of the oil markets, and the role of speculation. But according to some Wikileaked documents, Saudi Arabia told the US as far back as 2007 that speculation was artificially spiking prices, which should have triggered CFTC enforcement at the time.

When oil prices hit a record $147 a barrel in July 2008, the Bush administration leaned on Saudi Arabia to pump more crude in hopes that a flood of new crude would drive the price down. The Saudis complied, but not before warning that oil already was plentiful and that Wall Street speculation, not a shortage of oil, was driving up prices.

Saudi Oil Minister Ali al Naimi even told U.S. Ambassador Ford Fraker that the kingdom would have difficulty finding customers for the additional crude, according to an account laid out in a confidential State Department cable dated Sept. 28, 2008,

“Saudi Arabia can’t just put crude out on the market,” the cable quotes Naimi as saying. Instead, Naimi suggested, “speculators bore significant responsibility for the sharp increase in oil prices in the last few years,” according to the cable.

George W. Bush himself was told about this bank and hedge fund speculation. But his Administration promptly ignored the Saudi entreaties. Their regulators were too busy ignoring the risk of mortgage-backed securities and credit default swaps CDOs.

It took the Obama Administration years to build a case against a few financial firms for their role in the 2008 oil spike, but at least they’ve gotten around to it. The people most equipped to know the existence of the problem were screaming to the government at the time that speculation, not supply and demand, was driving prices.

The CFTC under Obama could go further. They need to set position limits to restrict the number of oil futures contracts one company can hold; they had a deadline of January 2011 to create them. Hilariously, this is what the Saudis recommended in the Wikileaks cables. The CFTC also needs to increase margin requirements for oil futures. They have the tools under Dodd-Frank to get the over-speculation out of the system. The FTC could join in by levying civil fines against oil speculators for market manipulation, up to $1 million a day under current law. Here’s Sen. Maria Cantwell (D-WA) in a floor speech from yesterday:

It should be no surprise of what they actually see in this case [$50 million oil manipulation case], because it’s the same shenanigans that happened in electricity, the same shenanigans in natural gas. Yes, the same shenanigans are happening in the oil market. That is that the commodity agency says in this case there was a close relationship between the physical oil price and the price of the financial futures which moved in peril. So basically what happened is that in the oil futures market, these individual companies took large positions. In fact, their positions were so big – and that’s why Senator Wyden just described if this agency would come in and set position limits, people wouldn’t be able to come in and move the market in such a significant way.

Our economy is too important to have this kind of activity continue to play the kind of havoc that it is on our system. And when you think about it, it’s not as if we don’t know what the scheme is. We have seen it time and time again with these other energy markets. So the question is whether we’re going to be aggressive and make sure that the CFTC has the tools it needs — that is not to cut funding like the Ryan budget or H.R. 1 wants to do – and that it actually takes this role and responsibility and starts setting position limits, starts the day-to-day activity.

But that market which was created after the dust bowl devastated so many farmers to give them a chance to legitimately hedge, now all of a sudden is captured by these large financial institution players. …Seventy percent of the market are these large players … who are people who are out there basically using their financial weight to move the market in a direction that then they can sell on the futures market to benefit from. It’s outrageous. It is outrageous that our economy has to put up with this – that individuals have to put up with this.

The Saudis actually predicted the oil price shock, led by speculation, back in 2009. This is Enron, take two. Federal regulators have the ability to stop it right now, with no additional authority.