|Asunto:||[CeHuNews] 32/06 - What Do Falling Oil Prices Tell Us about War with Iran,the Elections, and Peak-Oil Theory ? by Michael T Klare.|
|Fecha:||Martes, 3 de Octubre, 2006 17:08:52 (+0000)|
|Autor:||Alexander von Humboldt <cehumboldt @.........ar>
CeHu News 32/06
What Do Falling Oil Prices Tell Us about War with Iran,
the Elections, and Peak-Oil Theory
by Michael T Klare
TomDispatch (September 27 2006)
What the hell is going on here? Just six weeks ago, gasoline prices at the pump
were hovering at the $3 per gallon mark; today, they're inching down toward $2 -
and some analysts predict even lower numbers before the November elections.
The sharp drop in gas prices has been good news for consumers, who now have
more money in their pockets to spend on food and other necessities - and for
President Bush, who has witnessed a sudden lift in his approval ratings.
Is this the result of some hidden conspiracy between the White House and Big Oil
to help the Republican cause in the elections, as some are already suggesting?
How does a possible war with Iran fit into the gas-price equation? And what do
falling gasoline prices tell us about "peak-oil" theory, which predicts that we
have reached our energy limits on the planet?
Since gasoline prices began their sharp decline in mid-August, many pundits have
attempted to account for the drop, but none have offered a completely convincing
explanation, lending some plausibility to claims that the Bush administration
and its long-term allies in the oil industry are manipulating prices behind the
scenes. In my view, however, the most significant factor in the downturn in
prices has simply been a sharp easing of the "fear factor" - the worry that
crude oil prices would rise to $100 or more a barrel due to spreading war in the
Middle East, a Bush administration strike at Iranian nuclear facilities, and
possible Katrina-scale hurricanes blowing through the Gulf of Mexico, severely
damaging offshore oil rigs.
As the summer commenced and oil prices began a steep upward climb, many industry
analysts were predicting a late summer or early fall clash between the United
States and Iran (roughly coinciding with a predicted intense hurricane season).
This led oil merchants and refiners to fill their storage facilities to capacity
with $70-80 per barrel oil. They expected to have a considerable backlog to sell
at a substantial profit if supplies from the Middle East were cut off and/or
storms wracked the Gulf of Mexico.
Then came the war in Lebanon. At first, the fighting seemed to confirm such
predictions, only increasing fears of a region-wide conflict, possibly involving
Iran. The price of crude oil approached record heights. In the early days of the
war, the Bush administration tacitly seconded Israeli actions in Lebanon, which,
it was widely assumed, would lay the groundwork for a similar campaign against
military targets in Iran. But Hezbollah's success in holding off the Israeli
military combined with horrific television images of civilian casualties forced
leaders in the United States and Europe to intercede and bring the fighting to a
We may never know exactly what led the White House to shift course on Lebanon,
but high oil prices - and expectations of worse to come - were surely a factor
in administration calculations. When it became clear that the Israelis were
facing far stiffer resistance than expected, and that the Iranians were capable
of fomenting all manner of mischief (including, potentially, total havoc in the
global oil market), wiser heads in the corporate wing of the Republican Party
undoubtedly concluded that any further escalation or regionalization of the war
would immediately push crude prices over $100 per barrel. Prices at the gas pump
would then have been driven into the $4-5 per gallon range, virtually ensuring a
Republican defeat in the mid-term elections. This was still early in the summer,
of course, well before peak hurricane season; mix just one Katrina-strength
storm in the Gulf of Mexico into this already unfolding nightmare scenario and
the fate of the Republicans would have been sealed.
In any case, President Bush did allow Secretary of State Condoleezza Rice to
work with the Europeans to stop the Lebanon fighting and has since refrained
from any overt talk about a possible assault on Iran. Careful never explicitly
to rule out the military option when it comes to Iran's nuclear enrichment
facilities, since June he has nonetheless steadfastly insisted that diplomacy
must be given a chance to work. Meanwhile, we have made it most of the way
through this year's hurricane season without a single catastrophic storm hitting
For all these reasons, immediate fears about a clash with Iran, a possible
spreading of war to other oil regions in the Middle East, and Gulf of Mexico
hurricanes have dissipated, and the price of crude has plummeted. On top of
there appears to be a perceptible slowing of the world economy - precipitated,
in part, by the rising prices of raw materials - leading to a drop in oil
The result? Retailers have abundant supplies of gasoline on hand and the laws of
supply and demand dictate a decline in prices.
Finding Energy in Difficult Places
How long will this combination of factors prevail?
Best guess: The slowdown in global economic growth will continue for a time,
further lowering prices at the pump. This is likely to help retailers in time
for the Christmas shopping season, projected to be marginally better this year
than last precisely because of those lower gas prices.
Once the election season is past, however, President Bush will have less
incentive to muzzle his rhetoric on Iran and we may experience a sharp increase
in Ahmadinejad-bashing. If no progress has been made by year's end on the
diplomatic front, expect an acceleration of the preparations for war already
underway in the Persian Gulf area (similar to the military buildup witnessed in
late 2002 and early 2003 prior to the US invasion of Iraq). This will naturally
lead to an intensification of fears and a reversal of the downward spiral of gas
prices, though from a level that, by then, may be well below $2 per gallon.
Now that we've come this far, does the recent drop in gasoline prices and the
seemingly sudden abundance of petroleum reveal a flaw in the argument for this
as a peak-oil moment? Peak-oil theory, which had been getting ever more
attention until the price at the pump began to fall, contends that the amount of
oil in the world is finite; that once we've used up about half of the original
global supply, production will attain a maximum or "peak" level, after which
daily output will fall, no matter how much more is spent on exploration and
enhanced extraction technology.
Most industry analysts now agree that global oil output will eventually reach a
peak level, but there is considerable debate as to exactly when that moment will
arise. Recently, a growing number of specialists - many joined under the banner
of the Association for the Study of Peak Oil - are claiming that we have already
consumed approximately half the world's original inheritance of two trillion
barrels of conventional (that is, liquid) petroleum, and so are at, or very
the peak-oil moment and can expect an imminent contraction in supplies.
In the fall of 2005, as if in confirmation of this assessment, the CEO of
Chevron, David O'Reilly, blanketed US newspapers and magazines with an
advertisement stating, "One thing is clear: the era of easy oil is over ...
Demand is soaring like never before ... At the same time, many of the world's
oil and gas fields are maturing. And new energy discoveries are mainly occurring
in places where resources are difficult to extract, physically, economically,
and even politically. When growing demand meets tighter supplies, the result
is more competition for the same resources."
But this is not, of course, what we are now seeing. Petroleum supplies are more
abundant than they were six months ago. There have even been some promising
discoveries of new oil and gas fields in the Gulf of Mexico, while - modestly
adding to global stockpiles - several foreign fields and pipelines have come on
line in the last few months, including the $4 billion Baku-Tbilisi-Ceyhan (BTC)
pipeline from the Caspian Sea to Turkey's Mediterranean coast, which will bring
new supplies to world markets. Does this indicate that peak-oil theory is headed
for the dustbin of history or, at least, that the peak moment is still safely in
As it happens, nothing in the current situation should lead us to conclude that
peak-oil theory is wrong. Far from it. As suggested by Chevron's O'Reilly,
remaining energy supplies on the planet are mainly to be found "in places where
resources are difficult to extract, physically, economically, and even
politically". This is exactly what we are seeing today.
For example, the much-heralded new discovery in the Gulf of Mexico, Chevron's
Jack No 2 Well, lies beneath five miles of water and rock some 175 miles south
of New Orleans in an area where, in recent years, hurricanes Ivan, Katrina, and
Rita have attained their maximum strength and inflicted their greatest damage on
offshore oil facilities. It is naive to assume that, however promising Jack No 2
may seem in oil-industry publicity releases, it will not be exposed to Category
5 hurricanes in the years ahead, especially as global warming heats the Gulf and
generates ever more potent storms. Obviously, Chevron would not be investing
billions of dollars in costly technology to develop such a precarious energy
resource if there were better opportunities on land or closer to shore - but so
many of those easy-to-get-at places have now been exhausted, leaving the company
little choice in the matter.
Or take the equally ballyhooed BTC pipeline, which shipped its first oil in
with top US officials in attendance. This conduit stretches 1,040 miles from
Baku in Azerbaijan to the Turkish Mediterranean port of Ceyhan, passing no less
than six active or potential war zones along the way: the Armenian enclave of
Nagorno-Karabakh in Azerbaijan; Chechnya and Dagestan in Russia; the Muslim
separatist enclaves of South Ossetia and Abkhazia in Georgia; and the Kurdish
regions of Turkey. Is this where anyone in their right mind would build a
pipeline? Not unless you were desperate for oil, and safer locations had already
been used up.
In fact, virtually all of the other new fields being developed or considered by
US and foreign energy firms - ANWR in Alaska, the jungles of Colombia, northern
Siberia, Uganda, Chad, Sakhalin Island in Russia's Far East - are located in
areas that are hard to reach, environmentally sensitive, or just plain
Most of these fields will be developed, and they will yield additional supplies
of oil, but the fact that we are being forced to rely on them suggests that the
peak-oil moment has indeed arrived and that the general direction of the price
of oil, despite period drops, will tend to be upwards as the cost of production
in these out-of-the-way and dangerous places continues to climb.
Living on the Peak-Oil Plateau
Some peak-oil theorists have, however, done us all a disservice by suggesting,
for rhetorical purposes, that the peak-oil moment is ... well, a sharp peak.
They paint a picture of a simple, steep, upward production slope leading to a
pinnacle, followed by a similarly neat and steep decline. Perhaps looking back
from 500 years hence, this moment will have that appearance on global oil
production charts. But for those of us living now, the "peak" is more likely to
feel like a plateau - lasting for perhaps a decade or more - in which global oil
production will experience occasional ups and downs without rising substantially
(as predicted by those who dismiss peak-oil theory), nor falling precipitously
(as predicted by its most ardent proponents).
During this interim period, particular events - a hurricane, an outbreak of
conflict in an oil region - will temporarily tighten supplies, raising gasoline
prices, while the opening of a new field or pipeline, or simply (as now) the
alleviation of immediate fears and a temporary boost in supplies will lower
prices. Eventually, of course, we will reach the plateau's end and the decline
predicted by the theory will commence in earnest.
In the meantime, for better or worse, we live on that plateau today. If this
year's hurricane season ends with no major storms, and we get through the next
few months without a major blowup in the Middle East, we are likely to start
2007 with lower gasoline prices than we've seen in a while. This is not,
evidence of a major trend. Because global oil supplies are never likely to be
truly abundant again, it would only take one major storm or one major crisis in
the Middle East to push crude prices back up near or over $80 a barrel. This is
the world we now inhabit, and it will never get truly better until we develop an
entirely new energy system based on petroleum alternatives and renewable fuels.
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Bill Totten http://billtotten.blogspot.com/
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