Why Oil Is Not A Strategic Good

Paul_A paul_a at igc.org
Sat Mar 29 19:51:31 PST 2003



>JBrown72073 at cs.com wrote:
>
>>I mean, I'd like to not think that this war is all about keeping profit rates
>>from falling by restricting the production of a needed resource (by contrast,
>>attacking a country to take its resources seems almost charming) but I still
>>haven't heard a convincing argument otherwise.

Doug Henwood wrote:
>Are you assuming that if Bush is successful with his war, it will result
>in a lower oil price than otherwise would have prevailed? I don't buy that
>at all. Low prices would be hell on Texas, and would render drilling in
>Alaska (a project dear to W's heart) economically risky. If the idea is to
>keep OPEC from driving prices too high, you don't need a war to do that -
>recession will do the trick, and quickly. There are a lot of political and
>economic forces that tend to stabilize oil soemwhere in the mid-$20s. The
>"almost charming" explanation seems more compelling than the low price
>explanation.
>
>Doug

I basically agree with your line of thinking Doug, but doesn't it become complicated? If things go their way, those Texas companies will soon own a lot more oil in Kirkuk and Ramaillah than in Midland and Odessa. The Iraqi fields produce very low cost crude and may only be paying taxes to the Military govt and its successor. Won't this change these companies mind a bit - move them towards lower prices/higher quantity? I suppose it also depends on lots of complicated things like exactly which companies get the Iraqi fields, how the low Iraqi production costs compare to the production costs of their other holdings, the time frame in their calculations, and the technical difficulties in freezing their high cost Texas fields during a long run of low prices.

Whatever the implications for prices, it is clear that OPEC starts to look less like petroleum exporting countries and more like an organization of governments that host private oil companies. The companies will have a lot more say. One can surely also expect the government/private split to be renegotiated in many cases. National budgets will be hit hard and this should have some big repercussions.

And of course there is the politics. The Saudi's and the like will no longer be needed for tactical interventions. The U.S. will have its own 'swing' producer and that will put a lot of pressure on the Venezula's, Iran's, and Russia's. Furthermore, at key moments of weakness, governments may be broken by plummeting (or even soaring) prices. As much as the companies will love to control the Iraqi fields, I am sure the "strategic planner" types love the idea of being able to control the price, high or low.

Has anyone familiar with petroleum economics and politics done any back of the envelope work on these issues?

Paul A.



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