Global Agenda: Oil's well

We are left with consistent, prosaic and boring reasons for why, over recent years, oil prices have continued to rise.

global agenda 88 (photo credit: )
global agenda 88
(photo credit: )
Four years ago, a barrel of oil sold for $25. Not coincidentally, at that time the recent American invasion of Iraq had removed nasty Saddam and created the expectation - not a vague hope but a very real expectation - that Iraq's oil production would soon double, in line with its existing capacity, and would eventually rise much further, in line with the country's enormous reserves and potential production. Yet June 2003 proved to be the low point for oil prices, and for the next three-plus years rose almost non-stop, topping out (so far…) last August at around $77 dollars a barrel, against a background of war in Lebanon and tension in the Gulf. Thereafter, a reaction set in and a sharp drop early this year saw prices briefly fall below $50/bbl. That, too, has faded like a desert mirage and prices have recently been hovering in the upper $60s - but this time not because of any major hostilities or even any untoward tension. Nobody currently thinks Bush can or will attack Iran, even if he might like to do so. Instead, we are left with the consistent, prosaic and boring of the many reasons that have been put forward over recent years to explain the ongoing strength in the oil price. Demand is growing fast, supply is tight and new sources are expensive to develop and take a long time to "come on stream." There are nasties in Nigeria who attack oil installations and kidnap foreign oil workers; the experts are still trying to work out whether the perpetrators are in it for the money or are pursuing an intra-Nigerian political agenda - but it probably doesn't make much difference in practice. Then there are the "nutters." One set operates in South America, led by the presidente of Venezuela, Hugo Chavez. He has thrown out the gringo oil companies, nationalized their operations and thereby brought peace, prosperity and plenty to the Venezuelan proletariat - if not this year, then soon. Another set of nutties, probably more dangerous to the rest of the world, operates in the USA. Their response to the oil price problem is a) not to allow the building of new oil refineries, thereby ensuring a shortage of gasoline and other oil-derivative products b) to promote the use of ethanol as a source of alternative fuel for cars, thereby creating a shortage of corn (the source of ethanol), causing the price of this staple to double to $4 a bushel, pushing farmers to switch from wheat or soybeans to corn (thereby causing wheat and soybean prices to soar, too), generating price rises all along the food chain - and all this for a gasoline substitute that is as energy-intensive and polluting to produce as gasoline itself. Not everyone is nuts, however. Vladimir Putin is both sane and smart. He has ridden the oil and commodity price boom for all it's worth, enabling him to transform Russia from the corrupt, bankrupt and badly managed mess he inherited from the late Boris Yeltsin into a tightly run authoritarian regime, still corrupt but now so rich that it is considered rude abroad and dangerous at home to talk about corruption, let alone Putin's dream of restoring Russia to Great Power status. The Arabs are also not nuts. The Saudis, for instance, have managed to get their domestic terrorism under control while continuing to actively export Wahhabi Muslim fanaticism to every corner of the globe, converting, training and financing new and ever-larger cadres of jihadists. The Saudis' neighbors along the West Bank of the Persian Gulf are much more focused on Mammon than on God, with Abu Dhabi using its oil wealth to buy corporations and real estate around the globe and Dubai remaking itself into a vast leisure and business oasis. There are nutters in our region, too (would you believe?). They are the Iranians - but not because they say they want to get the bomb, conquer the world and kill all the Jews. That makes some kind of sense, at least to them. But how do they explain their failure to invest in their own oil industry for the last 20 years? Why do they, who have the world's fourth-largest reserves, have such little refinery capacity that they have to import most of their gasoline? And why do they sell gasoline at 42 cents a gallon, so that they now have to ration its use, giving car owners 100 liters a month?! And why are they surprised when the response to the rationing decree, announced this week and to take effect July 23, is rioting and the burning of gas stations?