economic analysis - it makes you look smart
As I reviewed comments posted to this discussion, it seemed to me than many are unaware of or misinformed about the economic factors relating to conflict of energy sources like oil. As I believe that they will have an important impact on the future conflicts over oil and such, I will try to bring them in my discussion of Klare's book.
The first major misperception and probably most important is the idea that US imports will be unaffected by disruptions to oil exportation in countries that do not export to the US. This misses the point that oil and natural gas are commodities on a world market, and thought geographical proximities and other institutional arraignments will bring Canadian, Venezuelan, or Saudi oil to the US for now, a disruption somewhere in the oil market will change this situation. For instance, a large portion of energy produced in the Caspian states is bought by Europe, while China and Japan consume large amounts of Iranian oil. If for any reason, like regional conflict, Europe or East Asia were unable to receive its energy from its current sources, it would go looking elsewhere. This would place additional demand on other sources, including those the US relies on, and would lead to a rise in oil prices that would pressure the US to consume less. Ultimately this means that perceived "safe" sources of oil are not any guarantee that oil will be available at current levels while oil is sold as a commodity on an open market.
The second misperception that I have seen in the discussions is related to domestic oil resources. Similar to points made above, it seems to be believed that producing additional oil domestically is agood way to deal with rising demand on oil produced in regions of conflict. Yet again, this misses the point that oil is a commodity.
Short of the institution of price controls by the government, oil produced locally will be sold at the prevailing price of the world market. This is why US oil companies are making record profits, usually at the expense of US consumers. The only way domestic oil production could be a solution to US energy problems is if it could be expanded to keep pace with rising demand. But as is pointed at in Klare's book, this is impossible considering the small amount of reserves contained in the US.
Besides the points made above, one thing not considered in the discussion is the effective subsidization of oil consumption by US intervention in the Middle East. Though it is not reflected at the gas pump, the costs of keeping regimes in power and keeping energy sources available are paid by using military threats and force, bribes, and keeping questionable alliances in the region. Besides the costs paid in taxes and loss of life in conflicts there, the subsidization of oil consumption has produced a US economy and infrastructure that is not founded on true market costs. As it becomes necessary to either go to war over more energy or change energy sources, there will be even higher costs to pay.
Finally, short of occupation and nationalization of foreign oil fields with the military will to defend against competitors, there is no way "secure" foreign oil as long as it is treated as a commodity on the world market. It is a dwindling resource which faces ever-rising demand. The only solution outside of major conflict is that oil prices will compel industry and innovation to a new energy source before
there is a major crisis.
The first major misperception and probably most important is the idea that US imports will be unaffected by disruptions to oil exportation in countries that do not export to the US. This misses the point that oil and natural gas are commodities on a world market, and thought geographical proximities and other institutional arraignments will bring Canadian, Venezuelan, or Saudi oil to the US for now, a disruption somewhere in the oil market will change this situation. For instance, a large portion of energy produced in the Caspian states is bought by Europe, while China and Japan consume large amounts of Iranian oil. If for any reason, like regional conflict, Europe or East Asia were unable to receive its energy from its current sources, it would go looking elsewhere. This would place additional demand on other sources, including those the US relies on, and would lead to a rise in oil prices that would pressure the US to consume less. Ultimately this means that perceived "safe" sources of oil are not any guarantee that oil will be available at current levels while oil is sold as a commodity on an open market.
The second misperception that I have seen in the discussions is related to domestic oil resources. Similar to points made above, it seems to be believed that producing additional oil domestically is agood way to deal with rising demand on oil produced in regions of conflict. Yet again, this misses the point that oil is a commodity.
Short of the institution of price controls by the government, oil produced locally will be sold at the prevailing price of the world market. This is why US oil companies are making record profits, usually at the expense of US consumers. The only way domestic oil production could be a solution to US energy problems is if it could be expanded to keep pace with rising demand. But as is pointed at in Klare's book, this is impossible considering the small amount of reserves contained in the US.
Besides the points made above, one thing not considered in the discussion is the effective subsidization of oil consumption by US intervention in the Middle East. Though it is not reflected at the gas pump, the costs of keeping regimes in power and keeping energy sources available are paid by using military threats and force, bribes, and keeping questionable alliances in the region. Besides the costs paid in taxes and loss of life in conflicts there, the subsidization of oil consumption has produced a US economy and infrastructure that is not founded on true market costs. As it becomes necessary to either go to war over more energy or change energy sources, there will be even higher costs to pay.
Finally, short of occupation and nationalization of foreign oil fields with the military will to defend against competitors, there is no way "secure" foreign oil as long as it is treated as a commodity on the world market. It is a dwindling resource which faces ever-rising demand. The only solution outside of major conflict is that oil prices will compel industry and innovation to a new energy source before
there is a major crisis.
posted by felix at 1:05 PM
