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     Jun 25, 2008
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Are they really oil wars?
By Ismael Hossein-zadeh

Speaking Freely is an Asia Times Online feature that allows guest writers to have their say. Please click here if you are interested in contributing.

A most widely cited factor behind the recent US wars of choice is said to be oil. "No Blood for Oil" has been a rallying cry for most of the war's opponents. While some of these opponents argue that the war is driven by the US desire for cheap oil, others claim it is prompted by Big Oil's wish for high oil prices and profits. Interestingly, most antiwar forces use both claims interchangeably without paying attention to the fact that they are diametrically-opposed assertions.

Not only do the two arguments contradict each other, but each argument is also wanting and unconvincing on its own grounds; not because the US does not wish for cheap oil, or because Big Oil does not desire higher oil prices, but because war is no longer

 

the way to control or gain access to energy resources. Colonial-type occupation or direct control of energy resources is no longer efficient or economical and has, therefore, been abandoned for more than four decades.

The view that recent US military adventures in the Middle East and the broader Central Asia are driven by energy considerations is further reinforced by the dubious theory of Peak Oil, which maintains that, having peaked, world oil resources are now dwindling and that, therefore, war power and military strength are key to access or control of the shrinking energy resources.

Not only is Peak Oil theory unscientific, unrealistic, and perhaps even fraudulent; war and military force are no longer the necessary or appropriate means to gain access to sources of energy - resorting to military measures can, indeed, lead to costly, not cheap, oil. In fact, despite the lucrative spoils of war resulting from high oil prices and profits, Big Oil prefers peace and stability, not war and geopolitical turbulence, in global energy markets.

Behind the drive to war and military adventures in the Middle East lie powerful special interests (vested in war, militarism, and geopolitical concerns of Israel) that use oil as an issue of "national interest" - as a facade or pretext - in order to justify military adventures to derive high dividends, both economic and geopolitical, from war.

Has oil peaked?
The Peak Oil thesis maintains that world oil reserves, having reached their maximum capacity, are now dwindling, with grave consequences of oil shortage and high energy prices. While this has led many to call for more vigorous conservation, it has led others to argue in favor of unrestrained exploration and extraction of oil reserves, especially those located in the Alaskan Wildlife regions.

Significant policy and/or political implications follow from the view that oil is running out. For one thing, this view provides fodder for the cannons of war-profiteering militarists who are constantly on the look-out to invent new enemies and find new pretexts for continued war and escalation of military spending. For another, it tends to disarm many anti-war forces that accept this thesis and, therefore, "internalize responsibility for US foreign policy every time they fill their gas tank. Thus they own the wars." [1]

The Peak Oil thesis serves as a powerful trap and a clever manipulation in that it lets the real forces of war and militarism (the military-industrial complex and the pro-Israel lobby) "off the hook; it is a fabulous redirection. All evils are blamed on a commodity upon which we are all utterly dependent". [2]

There is no hard evidence, however, that oil has peaked, or that global oil reserves are shrinking, or that the current skyrocketing price of oil is due to a supply shortage. (As shown below, there is actually an oil surplus, no shortage.)

Peak Oil theory was originally floated around in the 1940s, arguing that world oil reserves would be exhausted within the next two decades or so. It resurfaced in the 1970s and early 1980s in reaction to the oil price hikes of those years, which were, incidentally, precipitated not by oil shortages but by international political convulsions, revolutions and wars. It died down once the price of oil fell back to pre-crises levels.

As recent geopolitical convulsions in the Middle East (especially the US war on Iraq, and the resultant booming speculation in oil markets) have triggered a new round of oil price hikes, Peak Oil theory has once again become fashionable. The theory is being promoted not only by war profiteers and proponents of an unbridled domestic oil exploration and extraction, especially in Alaska, but also by some apparently antiwar liberals such as Michael T Klare and James H Kunstler. [3]

Peak Oil theory is based on a number of assumptions and omissions that make it less than reliable. To begin with, it discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) the efficiency of oil consumption. Evidence shows that, for example, "over a period of five years (1994-99), US GDP expanded over 20% while oil usage rose by only 9%. Before the 1973 oil shock, the ratio was about one to one." [4]

Second, Peak Oil theory pays scant attention to the drastically enabling new technologies that have made (and will continue to make) possible discovery and extraction of oil reserves that were inaccessible only a short time ago. One of the results of the more efficient means of research and development has been a far higher success rate in finding new oil fields. The success rate has risen in 20 years from less than 70% to over 80%. Computers have helped to reduce the number of dry holes. Horizontal drilling has boosted extraction. Another important development has been deep-water offshore drilling, which the new technologies now permit. Good examples are the North Sea, the Gulf of Mexico, and more recently, the promising offshore oil fields of West Africa. [5]

Third, Peak Oil theory also pays short shrift to what is sometimes called non-conventional oil. These include Canada's giant reserves of extra-heavy bitumen that can be processed to produce conventional oil. Although this was originally considered cost inefficient, experts working in this area now claim that they have brought down the cost from over US$20 a barrel to $8 per barrel. Similar developments are taking place in Venezuela. It is thanks to developments like these that since 1970, world oil reserves have more than doubled, despite the extraction of hundreds of millions of barrels. [6]

Fourth, Peak Oil thesis pays insufficient attention to energy sources other than oil. These include solar, wind, non-food bio-fuel, and nuclear energies. They also include natural gas. Gas is now about 25% of energy demand worldwide. It is estimated that by 2050 it will be the main source of energy in the world. A number of American, European, and Japanese firms are investing heavily in developing fuel cells for cars and other vehicles that would significantly reduce gasoline consumption. [7]

Fifth, proponents of Peak Oil tend to exaggerate the impact of the increased oil demand coming from China and India on both the amount and the price of oil in global markets. The alleged disparity between supply and demand is said to be due to the rapidly growing demand coming from China and India. But that rapid growth in demand is largely offset by a number of counterbalancing factors. These include slower growth in US demand due to its slower economic growth, efficient energy utilization in industrially advanced countries, and increases in oil production by members of the Organization of Petroleum Exporting Countries, Russia, and others.

Finally, and perhaps more importantly, claims of "peaked and dwindling" oil are refuted by the available facts and figures on global oil supply. Statistical evidence shows that there is absolutely no supply-demand imbalance in global oil markets. Contrary to the claims of the proponents of Peak Oil and champions of war and militarism, the current oil price shocks are a direct consequence of the destabilizing wars and geopolitical insecurity in the Middle East, not oil shortages. These include not only the wars in Iraq and Afghanistan, but also the threat of a looming war against Iran. The record of soaring oil prices shows that anytime there is a renewed US military threat against Iran, fuel prices move up several notches.

The war also contributes to the escalation of fuel prices in indirect ways, for example, by plunging the US ever deeper into debt and depreciating the dollar, or by creating favorable grounds for speculation. As oil is priced largely in US dollars, oil exporting countries ask for more dollars per barrel of oil as the dollar loses value. Perhaps more importantly, an atmosphere of war and geopolitical instability in global oil markets serves as an auspicious ground for hoarding and speculation in commodity markets, especially oil, which is heavily contributing to the recently soaring oil prices.

As much as 60% of today's crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the tail that wags the dog. [8]

Wall Street financial giants that created the Third World debt crisis in the late 1970s and early 1980s, the tech bubble in the 1990s and the housing bubble in the 2000s are now hard at work creating the oil bubble. By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $115 per barrel, if the futures price is even higher. [9]

This has led to a steady rise in crude oil inventories over the past two years, "resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high

Continued 1 2 3 4 


No blood for ... er ... um ... (Jun 24, '08)


1. Worst of times for Iran

2. The pope, the president and politics of faith

3. Vietnam's hard lesson for China

4. The myth of 'weapons-grade' enrichment

5. Too much for a fiat currency

6. Middle East serves US some humble pie

7. No blood for ... er ... um ...

8. The murder of US manufacturing

(24 hours to 11:59 pm ET, June 23, 2008)

 
 


 

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