Monday, February 21, 2011
Richard Fernandez considers the oil markets, American foreign policy, and the turmoil in the Arab Middle East and proceeds to scare the heck of me. And, by the way, he notes the fraud in Barack Obama's putative lifting of the ban on offshore drilling.
Meanwhile, oil prices hit a 2 1/2 year high this morning.
If only we had that high speed rail.
Finally! Someone looked into their crystal ball and saw something other than rose petals and sunshine resulting from all the chaos lately in the Middle East. I think he's too alarmist, even for me (and relies heavily on statements from someone with everything invested into the way things are now), but refreshing anyway.
Too alarmist? How so. Our alliances are in tatters, the western oil supply is threatened, currencies are being debased, our wars have been inconclusive and our president is far more concerned about state worker collective bargaining rights than he is our national budget. Is it possible to be too alarmist?
Because an unspoken premise of that analysis was that Middle Eastern oil production would seriously decline or cease because of turmoil there, with specific reference to OPEC and its statements. None of that is a given.
The economic welfare of virtually the entire region is hitched to energy exports. If energy exports fail, those societies dependent upon them fail. It's almost certainly in the interest of any power center that takes over to maintain oil production and export. I say 'almost' to allow for countries where energy is not that important, like Egypt; however, since they aren't major producers, their instability shouldn't affect the energy supplies much anyway (with the glaring example of the Suez Canal, but I have little doubt that other powers would intervene to keep it open if necessary).
Also, concerning the substance of the post, it cites an 'oildrum' blog post criticizing BP's published Middle Eastern oil estimates. Specifically, it says that they categorize too much 'probable' oil reserves as 'proven' (aside, such estimates will always be somewhat incorrect and based on guesswork, because the countries involved consider their reserves to be state secrets and misrepresent them often). It's a giant leap from that to 'oh no, OPEC is running out of oil.' For one thing, expansive areas of the Middle East likely to have significant deposits have either not be surveyed, or have only been surveyed secretly. Also, it's common for people like the Saudis to cap and close down wells not because they are empty, but because production costs rose above the optimal level. That is, they pump a well until it costs X per barrel to operate; then they cap it and move to the next one. They can go back to the first one whenever they need to. Current known and estimated reserves are not set in stone.
Third, Libya, the primary subject of the post, isn't a major producer and isn't even considered in the 'oildrum' post. Iran, Kuwait, Qatar, Saudi, Iraq, and the UAE are. While I'm sure the Europeans will miss the cheap pipelining of Libyan energy across the Mediterranean if it temporarily ceases, it's not that big a deal to the market at large.
Fourth, it ignores non-OPEC countries that are significant or rising energy exporters, like Norway, Mexico, Canada, Russia, and Brazil.
Supporting testimony is also flawed. For instance, "When the next oil crisis hits, the West will no longer be able to count on the co-operation of Middle East nations to limit anarchy in oil markets and economic convulsions at home." Why the hell not? If production suddenly falls thanks to a war or something, it is in those nations' immediate financial interest to pick up most of the slack. Not only are prices higher, but their slice of the production pie is larger; bonanza.
Reading a blog post about the uprisings in the Middle East that isn't 'oh yay democracy!' but 'uh oh, this could be very bad' is refreshing, like I said. But it's kind of a shallow analysis insofar as energy is concerned, with too much doomsaying ('rise in energy = rise in food prices = global anarchy' is the kind of exaggerated invalid syllogism I'd normally expect to hear from greens).
Meh. Arabs can't feed themselves. Absent revenue from oil production tens of millions of Arabs will starve to death within six months to a year. They have no other marketable skills to sell in the global economy.
For the Arabs the choice is simple: pump oil or starve. I suspect they will keep pumping.