Kicking the Oil Habit

"Each time you and I drive our cars, we subsidize a Middle Eastern despot. It’s time to stop."

By SHLOMO MAITAL
Oil (Do not publish again) (photo credit: Avi Katz)
Oil (Do not publish again)
(photo credit: Avi Katz)
TUNISIA WAS FIRST. WHEN 26-year-old Mohamed Bouazizi, a college graduate without a steady job trying to support his family, set himself on fire, the riots that followed caused longtime despot president Zine El Abidine Ben Ali to flee.
Then came Egypt and the resignation of president Hosni Mubarak. Then, autocratic regimes in Libya, Algeria, Jordan, Morocco, Bahrain and Sudan all experienced popular uprisings, ranging from weak demonstrations to unstoppable demand for regime change.
Israel’s leadership is deeply worried. When the dust settles, no one knows how the Mideast will be configured.
There is a widely believed myth that Arab uprisings are unpredictable, random and take us by surprise. This is untrue.
Reuters journalist Chrystia Freeland recently did what she calls a “back of the envelope” calculation, together with her colleague Peter Rudegeair. They compiled a list of countries with “high latent potential for uprisings,” based on only four variables: lack of political freedom, corruption, vulnerability to food price shocks and Internet penetration. All the countries mentioned above ranked in Freeland’s top 10, except for Tunisia, which ranked 15th, and Bahrain, which was too small to be included.
Oil is the world’s and Israel’s immediate concern. In 2010, total world demand for oil was 87.8 million barrels a day, up by 2.8 million barrels a day from 2009. Before the uprisings began, with strong demand from Asia, oil demand was predicted to reach close to 90 million barrels a day in 2011.
The unrest in Arab nations caused oil prices to spike to $112, before declining. If crude oil jumps to $150 a barrel, as it well may, experts think we will see a global recession, as occurred in 1973-4 and 1978-9. If this happens, Israel’s export-driven economy will dive. After the 2007-9 global crisis, this is the last thing the world needs.
The reason we should all be concerned is that on Freeland’s “uprising” hit parade, there are other leading oil-producing nations that so far have been stable – Nigeria, Venezuela, Russia and Saudi Arabia. Those four countries export nearly a quarter’s of the world’s daily oil “fix.” Libya exports about 1.5 billion barrels of oil daily, but Libya’s uprising alone is enough to destabilize oil prices, whose demand is highly price-insensitive in the short run. It takes a violent uprising in only one more major oil producing nation to create serious global disruption. The only nation with the ability to pump substantially more oil is Saudi Arabia – and that country itself is a candidate for uprisings.
Israel imports up to 300,000 barrels of oil daily and uses half of it for transportation, mainly cars. Its fuel imports, including natural gas from Egypt and coal from South Africa and Australia, rose by 29 per cent last year, to over NIS10 billion (about $3 billion) owing to higher prices. High gasoline prices have already led to demonstrations. Gasoline now costs $7.57 a gallon in Israel. In the US, it is less than half that.
Israelis, Americans and Europeans have long been addicted to oil to fuel their automobiles. The result? Despots like Muammar Gaddafi remained in power long after they should have been swept into the dustbin.
High demand for oil and resulting high prices poured $61 billion into Gaddafi’s pockets yearly (at today’s prices), and about $100 billion into another despotic regime, Ahmadinejad’s Iran. For Libya’s 6.4 million people, that comes to about $10,000 each.
Without high-priced oil, there is no economy in Libya, nor in Iran, Russia, Saudi Arabia, Venezuela or Nigeria. No oil money, no despots. As “New York Times” columnist Tom Friedman notes, “for the last 50 years America and Europe and Asia have treated the Middle East as if it were just a collection of big gas stations.” It’s time to stop! ISRAEL AND AMERICA HAVE SUCcessfully joined forces to create the Arrow 2, an anti-missile missile able to intercept ballistic rockets. Let Israel and America join forces again to break the West’s addiction to oil and, in doing so, break the power of Arab autocrats. How? With natural gas. New technology to “frack” or extract gas from shale rock has been discovered and America has huge shale gas reserves, while Israel has discovered major new natural gas deposits offshore.
Let us expand Israel’s Better Place experiment with electric cars to America, while shifting electricity production for all those clean cars away from oil and coal toward natural gas.
Next, launch a crash program to convert natural gas to liquid fuels. The technology already exists, developed by the South African firm Sasol, and it makes diesel fuel cheaper than that from crude oil. Third, subsidize conversion of private cars to run on compressed natural gas. Honda’s GX runs on natural gas, is sold in the US, and costs just $5,500 more than a gasoline-powered Honda. In Europe, the gas-powered VW Passat Eco-fuel costs $3,700 more. Why not give buyers of such cars a tax credit equal to the difference? And why not convert all car fleets and taxis at once to natural gas? Finally, Israel should electrify its trains at once. Most of these measures can be implemented right away.
Each time you and I drive our cars, we subsidize a Middle Eastern despot. It’s time to stop. Let’s take the train or bus. Let Israel become the poster country for kicking the oil habit.
The writer is senior research associate, S. Neaman Institute, Technion.