“We can drift along as though there were still a cold war, wasting hundreds of billions of dollars on weapons that will never be used, ignoring the problems of people in this country and around the world, being one of the worst environmental violators on earth, standing against any sort of viable programs to protect the world’s forests or to cut down on acid rain or the global warming or ozone depletion. We can ignore human rights violations in other countries, or we can take these things on as true leaders ought to and accept the inspiring challenge of America for the future.”
THE PRICE IS NOT RIGHT
The price of standard crude oil on NYMEX was under $25/barrel in September 2003. By 11August 2005, it had risen to over $60/barrel. Through most of 2006, the price showed a bumpy plateau, with a summer peak, falling for the early part of 2007 to between $50 and $60/barrel, before rising again. By October 2007, prices had reached $92/barrel and reached a high of $99.29/barrel for December futures in New York on 21 November 2007.
These values are rapidly approaching the inflation adjusted maximum of 1980, which was equivalent to a price of circa $95–$100/barrel in mid-2007 dollars, contributing to fears of a similar economic recession to that of the early 1980s. Commentators have attributed the increase in prices to a variety of factors, including North Korea’s missile launches, the Israel and Lebanon situation, US brinkmanship concerning Iranian nuclear energy, and to reports from the US Department of Energy and others showing a decline in petroleum reserves.
There are many reasons for the slow-down in oil supply growth, which is the most permanent factor leading to increased prices. Turbulence in the Middle East, the world’s largest oil-producing region, has led to decreased exports and continuing political instability in Saudi Arabia. Outside the Middle East, other oil producing nations have experienced problems, such as the strikes and political unrest in Venezuela, and disruption and dispute in West Africa.
In view of tighter supplies worldwide, (so-called) terrorist and insurgent groups have increasingly targeted oil and gas installations to maximise both mayhem and political gains. Sometimes, such attacks are perpetrated by militias in regions where oil wealth has produced little tangible benefits for the local citizenry, as is the case in the Niger delta. The terror factor adds an additional premium, including insurance costs, to the price of oil.
When the modern oil industry was born 145 years ago in Titusville, Pennsylvania, few worried about just how long petroleum would keep flowing out of the ground. However, since production peaked in the United States in 1970, a growing number of geologists, economists and industry analysts have been pondering the question of just how long worldwide supplies will keep up with growing demand, with some predicting a global production peak as soon as next year. The outlook is muddied by the data, for estimating oil reserves (or how much is left in the ground) is a precarious business at best. This task is further complicated by the secrecy of OPEC producers, who are reluctant to disclose just how much oil they’ve found.
In 2007, global demand for oil, currently at more than 80 million barrels per day and climbing, has come closer than ever to exceeding the world’s known production capacity. Disruptions in oil supply due to wars or market forces like OPEC embargoes are nothing new, but with producers pumping as fast as they can, there is little cushion for temporary supply interruptions or heightened demand from industrialising countries such as China and India.
The United States has the largest demand for oil by far, using around 25% of the world’s total oil production and 40% of the world’s gasoline production with only about 5% of the total world population and 28% of global GDP. Due to falling domestic production (current production is about half as much as at its peak in 1970) and expanding demand each year, approximately two thirds of the oil consumed by the US is imported from foreign countries. This dependency leaves the US highly vulnerable to any supply disruption.
This, of course, brings us back to the criminal occupation of Iraq. To many it is now considered a fiasco or political quagmire, but from the Bush-Cheney perspective, it is neither of those things. Indeed, the US is precisely where it wants to be, which is probably why there is no exit strategy.
After all, Iraq has 115 billion barrels of known oil reserves, which is more than five times the total in the US. What’s more, because of its long geo-political isolation, it is the least explored of the world’s oil-rich nations, with only two thousand wells having been drilled across the entire country, as opposed to the state of Texas that has over a million. It has been estimated by the Council on Foreign Relations that Iraq may have a further 220–300 billion barrels of undiscovered oil. If these estimates are anywhere close to the mark, US forces are now sitting on one quarter of the world’s oil resources. The value of Iraqi oil, largely light crude with low production costs, would be of the order of $30 trillion at today’s prices. For purposes of comparison, the projected total cost of the US invasion/occupation is around $1 trillion.
Therefore it comes as no surprise that in early 2007, Iraq’s massive oil reserves were thrown open for large-scale exploitation by Western oil companies under a controversial law approved by the Iraqi parliament. The US government was, of course, involved in drawing up the law, which gives big oil companies such as BP, Shell and Exxon 30-year contracts to extract Iraqi crude and allows the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.
In 1999, the US Vice-President Dick Cheney, but who was at that time chief executive of the oil services company Halliburton, suggested that the world would need an additional 50 million barrels of oil a day by 2010. When asked where these increased supplies would come from, he replied: “The Middle East, with two-thirds of the world’s oil and the lowest cost, is still where the prize ultimately lies”.
Obviously a man of vision.