2006 was the year that oil prices came close to breaching eighty dollars per barrel. This was despite the fact that there were no significant supply interruptions and oil demand actually fell in industrialized countries. That raises the question of what caused the spike.
It turns out there is good reason to believe that record oil prices may be due to our own strategic oil reserve, which the Bush administration may have been manipulating to drive up prices for the benefit of its clients. This is something Congress must investigate, and here is some preliminary evidence.
Any finding of manipulation would go far beyond corruption and be close to economic treason. That is because when oil prices increase America must pay more for its imported oil. That increases the trade deficit and our foreign debt. Alternatively, one can think of price manipulation as the equivalent of a tax increase on American families that is paid to foreign governments, including Iran.
While some small energy scandals are under investigation by Congress, the big enchilada is the strategic oil reserve, which may have been “strategically†manipulated to drive up oil prices. The key to understanding this manipulation is demand and supply and oil storage capacity.
The last three years have seen rapidly rising oil prices, and a tight oil market has meant that even small increases in demand have had large price impacts. During this period the Bush administration purposely expanded inventories of the strategic oil reserve, which rose from 600 million barrels in May 2003 to 700 million barrels in August 2005. The administration therefore increased demand by 125,000 barrels per day, and oil prices rose from $30 dollars per barrel to $70 dollars.
As oil prices rose, Wall Street became increasingly engaged in commodity speculation (the destructive effects of which is a story for another day), and this is where storage matters. As speculators entered the market the spot price of crude oil rose above the futures price. However, buying spot oil means taking delivery, which requires storage capacity. By adding to the strategic reserve, the administration not only increased oil demand but also increased storage capacity because the oil it bought was stored in the strategic reserve’s caverns. That helped speculators by adding storage capacity vital for cornering the market.
That brings us to today. Over the last month spot oil prices have been tumbling. The reason is that the market has finally run out of storage capacity, which means that all oil produced must now be immediately sold – and that has driven oil prices down. This suggests there has never been a supply shortage warranting seventy-five dollar oil, and absent the administration’s dealings oil prices might not have risen as they did.
The story does not end here. With private sector oil storage capacity exhausted, the administration has now announced its intention to double the size of the strategic oil reserve from 700 million barrels to 1.5 billion barrels, and it plans to start purchasing 100,000 barrels of oil per day.
The result has been predictable, with the price of oil jumping from $50 to $55 per barrel over the last week (01/19/07 – 01/24/07). Not only will these purchases increase oil demand, they will also provide new storage capacity needed to re-corner the market.
One last piece of evidence concerns Hurricane Katrina and the oil loan program. Following Katrina, gulf oil production was interrupted causing shortages of crude for refineries. The administration’s response was to loan crude to refiners who were to pay it back in-kind. That was a huge gift to refiners who got the oil they wanted and then made a killing on the processed gasoline that was in short supply after Katrina. The proper way to handle the situation would have been to auction the oil, in which case taxpayers would have got the windfall disaster rent (excess profit) resulting from Katrina. This is because refiners would have been willing to pay a high price knowing that gas prices were high.
But there’s yet more damage. If government had auctioned the oil, it could have chosen when to buy it back. Instead, companies paid it back in-kind in late 2005 and early 2006, and these repayments tightened market demand and also freed up private storage capacity facilitating further market cornering.
The oil market is full of smoke that provides perfect cover for corruption. Every price blip calls forth explanations in terms of Chinese demand, more violence in Nigeria’s delta region, cold weather, threats from Venezuela’s Hugo Chavez, or heightened tensions over Iran’s nuclear program. The strategic reserve is the perfect vehicle for corruption since transactions can be cloaked in the veil of national defense. But the facts are clear. A motive exists, the bad character of the administration is known, and the circumstantial evidence is strong.
Congress must investigate the strategic oil reserve, how it has been managed and what its purpose is. The recently announced expansion serves no real national security function (though that will be the justification) and will only drive up oil prices and add to the budget deficit and national debt.
One last factoid. A recent IMF study documented that oil prices in the U.S. appear to be politically manipulated, falling prior to elections – as they did in 2002, 2004, and 2006. If you are an economist you ask how that is done. The answer is the strategic oil reserve.
I think you might have let the anti-Bush everything in you out for a stroll on this one. Where’s the objectivity, where are the facts?
Did the Chinese announce they have started a strategic petroleum reserve?
Did China and India increase their overall consumption by greater then 10%?
Did OPEC take production off the market in 2006 to support the price?
No Bush screwed the American people with high oil prices. Yawn.
Glad you got on this” obvious to some and not to many” insight.
I believe you could have brought to light also that it is so very curious that just Prior to the the November election gas prices at the pump were in a free fall. Then the day of the election the prices started right back up like clock work.
Then prior to the SOTU speech the Congress yanked away the tax benefits the oil companies were getting because of Bush policy. So at the SOTU address Bush gives it back to them around the backside by announcing his plan to double the strategic Oil reserves. The weird thing is the Democrates applauded it. Were they just not reading between the lines or was it a fear induced response to Bush’s war escalation?
This Bush Cartel is bloody evil!
The U.S. “strategic” oil reserve is itself a dubious proposition. 600 million barrels amounts to only 30 days consumption, right? Then why wouldn’t the reserve have been increased when oil prices were low, (which would have offered the possibility of appreciating a public asset, as well as, moderating price shocks)? But does 100 million barrels over 2 years really exert such a large marginal effect as to account for such a large speculative price inflation? (That there’s market speculation going on, due both to increasing global commodity demand/excess liquidity and to perceived geo-political risk isn’t in doubt by me). Further, increased fuel prices have more to do with oligopolistic constraints on refining capacity, given high up-front, short-run capital costs to increase capacity rather than crude oil prices per se, (otherwise increasing crude oil prices would decrease rather than increase oil company profit margins). I’ve no doubt that the Bushevik executive, given its ideological proclivities, would be lax in driving a reasonable bargain with oil interests under any given market conditions. But the rhetoric of “treason” and “Iran” scarcely serves to make an appropriate public case, since, though it’s a global market, almost no U.S. oil imports come from the Mid-East, let alone Iran, and since the basic issue is neither energy imports, nor their “security”, but rather the long-run resource and environmental constraints that energy use is under. In that respect, the politically unpalatable, though reasonable policy would be a tax on all consumption of barrels of oil, whether domestic or foreign, which would raise domestic fuel prices less than it would tax foreign oil rents. The redirection of the revenues toward environmentally sound import-replacement energy sources would, indeed, be in the national economic interest.
Perhaps there are evil motives behind pumping into the strategic reserve, however, the end result is a huge force for good in terms of environment and encouraging technological innovation in alternative energy.
I agree about use of the US oil reserve to raise oil prices. Below the prep for the presentation I made at the URPE summer meeting in Pine Bush, NY, which argues that the US aggressions in the Gulf are wars not for cheap oil, but for expensive oil, with their terrible implications for lowering wages, limiting (over)production and for the environment.
Please excuse the length of this, but the question is not a minor one. This presentation was published in slightly shortened from in Political Affairs (politicalaffairs.net), and translated and published elsewhere.
Wadi’h Halabi, August 11, 2006
For Presentation at summer meeting of Union of Radical Political Economists, Pine Bush, NY, August 12, 2006
WAR FOR EXPENSIVE OIL
WHAT’S ITCHING THE BULLY IN THE CHINA SHOP?
This presentation covers a lot of ground, asserts and assumes a lot; in fact, it “assumes†both the discussion and the follow-up workshop tomorrow morning to round it out.
It’s such an ominous, threatening time, internationally and domestically. What kind of historical period are we living in? China is growing rapidly. Superficially, US GDP has never been more stable. But all ten of the ten biggest crises since the Great Depression have occurred since 1990, in places like Mexico, Brazil and Indonesia. Over 40 wars and major armed conflicts plague the world today; Wall Street/Washington is also waging quite an offensive, in another form, on workers and unions here, at GM and Delphi, Bethlehem Steel and LTV, United Airlines and US Air — 40% and 50% cuts in wages, pensions and benefits! – and likewise quite an offensive on our youth, with predatory debt, no jobs or insecure jobs that pay too little, housing that is unaffordable. What’s going on?
I believe the current period can be compared to 1907 through 1923. How? There was a crisis in 1907. Millions of people lost their jobs around the world, unions came under attack. An unprepared Second International collapsed in 1914 in the face of the pressures. The capitalists rejoiced, declared the end of Marxism and socialism, even as they prepared the bloodiest war the world had ever experienced. But – thanks to the preparation, organization, class consciousness of the Bolshevik party, the crisis and war opened the door for the Russian Revolution, the greatest step forward in human history. In 1919, there was a second socialist revolution in the world, short-lived, in Hungary, the Communist International was formed, and revolution broke out in Germany! Now THAT really horrified the capitalists, not the war, but that socialism wasn’t dead! That period closed when the German revolution was defeated, in 1923.
1929 through 1949 is another of those periods — Depression, war, the victory of the Chinese and other revolutions. Today, as then, the new, liberating social system will arise only with sufficient worker organization, education, preparation. We have to be prepared.
——————————-
My mother claims I can’t bring up personal problems at meetings like this, but all I’m asking is that you consider them… Besides, this is the URPE summer meeting, an opportunity to get weight off our shoulders. Those of you who heard my presentation in 2002 may remember that a major factor that drove me to the Communist Party, and to the URPE meeting, is – I am trying to get out of working! My job and I have personal problems, I must have missed school when the “work ethic†was taught…
This problem led to the calculation that capitalism is wasting 95% of humanity’s time, which I interpret that I could be working half as much for ten times the pay.
My problems escalated recently. I was looking at specs in an ad for a personal computer. This $500 computer was really more powerful than a machine that cost $500,000 in 1976! My first thought was – How come I’m not making 1,000 times more? Why are real wages lower today? I can’t tell you how horrible I was feeling until…
Until this voice INSIDE me says — Hey buddy! To them, you’re just a lousy computer with arms and legs! You should feel happy your wages haven’t dropped a thousand-fold! I felt so much better, except I don’t feel better. Can you please help me, Should I be feeling better or not?
————————————
Am I digressing? What’s the topic today? Imperialist war and expensive oil? Oh yes, that’s what really brought me to this meeting, my gas pains! Could this be indigestion? Or does something really stink?
————————————-
Let me open by thanking Jenny Brown, Leanne Ussher, Germai Medhani, and everyone at URPE for re-inviting me and for all of the tremendous work behind this meeting.
I’d like to dedicate this talk to Harry Magdoff, who died in the past year, for his outstanding 1966 work, “The Age of Imperialism,†which grounds imperialism in war, debt and natural resources. “Age of Imperialism†should be reprinted together with Conrad’s novella, “Heart of Darkness,†which portrays the craziness and brutality behind the silver spoon, even the tin spoon in the store window, seemingly untouched by human hands. Today, we need to add the torture at Abu Ghreib underlying the gasoline flowing out of the nozzle at $3.13.9 a gallon.
THE WORLD ECONOMY
Let me summarize briefly the starting point in all my work — a single world economy. Since 1917, and to this day, the world economy has consisted of two social systems, one distinctly cyclical, the other not. Capitalism and the system formed by socialist revolutions are clearly regulated internally by different laws.
But the two systems are not worlds unto themselves, they interact, compete and conflict within the confines of a single world economy. The two systems are organized in fundamentally different ways, serving fundamentally-opposed interests; one class or the other must rule the whole – the class struggle is truly global. I do not think we can understand either the Soviet collapse or the relative US GDP stability without this understanding.
CAPITALISM’S CENTRAL CONTRADICTION, OR
WHAT’S ITCHING THE BULLY IN THE CHINA SHOP
Marx identified capitalism’s central contradiction as that between the growth in the productive forces, in science, technology and productivity, on the one hand, and capitalism’s forms, which are too narrow for the growing forces. Capitalism is squeezed at both ends – the forces of production are growing, however slowly and unevenly, while capitalist forms keep narrowing. Private ownership of production, the best-known of those forms, has never been more concentrated! Top-down-only rule without bottom-up control, is another capitalist form, and so is the division of the world into countries, whose numbers are growing and whose borders act as barriers impeding the functioning of a single world economy.
Under capitalism, advances in technology and productivity have the effect of accelerating and magnifying, not overcoming, imbalances bet. production and demand. Consider (Table 1):
% OF US INDUSTRIAL CAPACITY UNUSED
4Q00 4Q01 4Q02 4Q03 4Q04
29% 36% 37% 36% 30%
(Source: Commerce’s Survey of Plant Capacity)
Here we begin to see “what’s itching the bully in the China shop,†this inability to find paying demand to meet productive capacity, and the losses and lack of control when 29% and 36% and 37% of your investments are sitting idle! This imbalance appears to the capitalists as “overproduction†or “overcapacity†– more has been produced than can be sold profitably! And because they cannot create demand, they must idle or destroy capacity.
About 22% of world productive capacity was idled or destroyed between 1990 and 2002, when I stopped keeping track. Huge losses result when so much investment is sitting idle. Another way of saying that capitalism is wasting 95% of humanity’s time is that paying demand, effective demand, is 5% of productive potential worldwide.
THE MOST EXTRAORDINARY STATISTIC, OR HOW PLUS ONE
BECOMES MINUS ONE UNDER CAPITALISM
There is an extraordinary statistic consistent with Marx’s diagnosis of capitalism’s fundamental contradiction. It was arrived at by a capitalist economist, the economic historian Angus Maddison.
Maddison reported in the Wall Street Journal of Jan.11, 1999 that average income per person in 144 (capitalist) countries declined 0.80% per year between 1973 and 1995! A review of Maddison’s methods indicate median income per person probably fell around 1% per year in those 144 countries over the 23 year period of his study—he uses average rather than median income, relies on GDP, etc.
This is “capitalist arithmetic,†income per person fell 1% BECAUSE– not despite – the increases in productivity. The growth of the productive forces clashes with the capitalist forms.
MONOPOLIZATION
One crucial capitalist form that is narrowing is – ownership of production, of capital, reflected in the monstrous growth of monopolies. In “Imperialism, the highest stage of capitalism,†Lenin correctly identified two families as dominant in the US economy by the early 19-teens: The Rockefellers and the Morgans. Morgan made the big mistake of having just one kid, JP Junior, and Junior had no children that I know of. By contrast, the Rockefellers had children and married carefully into banking and other key industries, a la European royalty?
In “Empire of High Finance†(1957 – another work that should be reprinted), Victor Perlo courageously and methodically documented the Rockefeller family’s growing dominance, including over the Morgans.
Two recently-published collections of Perlo’s columns from the Peoples Weekly World, People vs. Profits Vols.1 & 2, available at a table in back, allow us to extrapolate from Empire of High Finance – and point to the extraordinary monopolization of ownership of capital, dominated by the Rockefellers, whose key holdings are in banking and oil/energy. These include ExxonMobil (SONJ & NY), Chevron (SOCal), and now BP (SOIndiana), and in banking, above all Citigroup and JPM Chase. JPM Chase, which is really Chase Manhattan after 550 acquisitions, represents the final victory of the Rockefeller group over the Morgans.
Perlo’s analytical work on ownership is confirmed by – the quantitative research of the Federal Reserve through its triennial Survey of Consumer Finances. The Survey points to a Gini index of inequality in ownership of CAPITAL – after excluding home and auto ownership – close to 98, as close to perfect inequality as I have ever seen. That is almost as important a figure as plus 1%=minus 1%.
Why is monopolization important for this discussion of war and expensive oil? Because the laws of capitalism are somewhat modified under monopoly compared to competitive capitalism. Under monopoly, in times of crises, prices of monopolized commodities rise, instead of falling, as they under competitive capitalism. So much for the “law†of supply and demand!!
Does anyone here remember the work of John Blair in the 1950s? Blair compared 16 pairs of commodities, one from a largely monopolized industry and the other from a more competitive industry. In two recessions, the wholesale price fell for all 16 products in the competitive industries; but they ROSE for 13 of the 16 products in the more monopolized industries.
There was a time when the oil monopolies preferred to directly own oil fields – whether idle or active — “security lies in diversity,†as they used to say. Their emphasis now is more on controlling all aspects of the technology – in exploration, production, refining, storage, transport, distribution – along with the financial system and the US Navy! Has anyone here heard of Schlumberger? It used to be a French-owned oil surveying and exploration firm, about as good as they get. Well, the Rockefellers took a liking to them, their headquarters moved from Paris to NY, their main bank became Citibank, the business press and even the New Yorker began publishing admiring articles about Schlumberger and – if you have followed Vic Perlo’s work — you see all the personal, legal and financial ties develop between Schlumberger and the Rockefellers, as well as with the state apparatus of the US. This goes on and on…
The best Marxist theoretical work that I know of on the economics of capitalism under monopoly is Preobrazhensky’s “Decline of Capitalism†(1931). It is really thanks to this work that I focused on the significance of expensive oil.
A second consistent finding of studies of monopoly behavior is that they delay and block innovation as best they can. Around 1972, I worked with an IBM engineer — lousier computers cost $5 million then. He was conservative, probably voted for Nixon. But he had a pet peeve – that, for reasons he could not fathom, funding, both private and government, was just not made available to develop workable alternative and renewable energy sources. In 1973, world capitalism’s contradictions took a marked turn for the worse; the price of oil jumped four-fold, from about $3 a barrel to $13. We began hearing how hydrogen was going to save us from the Arabs… Government-funded research was directed into hydrogen cars, fuel cells, etc. And yet, I remember physicists at the time demonstrating, theoretically and practically, that hydrogen was not a viable alternative, certainly not for transportation. What was going on? The monopolies and their government channeled hopes and research into hydrogen, knowing it would not work. 33 years later, humanity remains dependent on burning hydrocarbons. I believe a similar dynamic is behind the current promotion of ethanol – Bush is going to drive me to alcohol. Ethanol from corn and sugar and even cellulose – is not the solution it is touted to be.
AGAINST MALTHUSIANISM IN ENERGY
But isn’t the world about to run out of oil?
First let’s be clear, another of capitalism’s long list of crimes against humanity and the environment is the continuing producing and burning hydrocarbons –wood, coal ,oil and gas – as a primary source of energ. At best, hydrocarbons may be useful as raw materials for a variety of synthetics, but that would cut the need by over 90%. We should term what they’re doing “global messingâ€, “global warming†sounds cozy. Enormous environmental damage is inflicted in producing hydrocarbons, not only burning them. A century ago New Orleans was above sea level. Hydrocarbon production is a major reason it sank below sea level. But most serious are the truly toxic wastes from production.
It costs the oil monopolies an average of around $2 per barrel of oil produced – I do not quote that figure lightly. That includes both expensive oil from Alaska and North Sea, and oil from the Middle East, which can cost well under $1 a barrel to produce, excluding war and “security†costs. But the oil monopolies charge $75 a barrel? Include the real cost of global messing, and oil probably SHOULD be priced at $75. But the cost to the oil monopolies is around $2, the capitalists pocket the rest one way or another, and pass off the environmental costs to humanity.
IS THE WORLD about to run out of oil? Isn’t that a major reason why oil is at $75 a barrel, and a gallon of gasoline costs $3 here, and $7 in Britain or Japan?
Yes, production from some major fields, using conventional recovery methods, is declining. BP reports that world oil reserves are about 1.2 trillion barrels, enough to last about 40 years at current usage. But have you followed the research in microbiology? Why should you? Applying methods from microbiology to separate oil from rock would increase known US reserves by 380 billion barrels so that world reserves would suddenly grow by 33%. And that’s just in the US… Did you know an area the size of California in the Arabian peninsula has never been explored for oil?? That Chevron is only now “testing†steam recovery methods there that it has used to extend the life of field in the US for decades?? That you can add 1.6 trillion barrels to Canada’s oil reserves by including oil sands – talk about toxic wastes? That known shale oil reserves in the US would add another 2 trillion barrels? Suddenly we have 200 years of reserves, not 40, to really mess up the environment… I had a brother-in-law who worked for a geological survey company in the Saudi state. Their job was to find – groundwater! But every time they drilled, they got oil! I think they got fired. But you get the idea, the peak-oil theory is mainly a good justification to hike prices. Similar theories abounded 100 years ago. I can personally assure, guarantee any one worried about it that the world is not about to run out of oil. It could run out of air, but not oil.
Capitalism loves Malthusianism – you know, food production cannot keep up with population, energy production cannot keep up, etc. Capitalism is an inherently pessimistic system, and with justification –it is historically doomed by its own contradictions. Marxism, like science, is optimistic, not blindly so, scientifically so. The sun alone rains down 10,000 times more energy every day than the earth uses. With conservation, good mass transit, and urban planning, that could be 20,000 times! And then there’s the massive amount of energy already stored on earth. Turning the stored energy or the sun’s daily gift into usable, clean energy forms is not a trivial problem. But it is not insurmountable, either. It’s more difficult to develop some of those hellish instruments of war the Pentagon – and Exxon’s owners – favor, most of which are real fuel and environment as well as human burners.
The restriction of energy supply, refining capacity, transmission capacity, etc., the blocking of research and development of clean, inexpensive alternative fuels, the neglect or destruction of mass transit, are all consistent with monopolization of the industry. It then appears that there is little economic alternative to expensive oil and other hydrocarbons. Their monopolized media and learned hired guns take care of the rest – With this Henny Penny, the world is about to run out of oil!
Consider this, from Business Week last September – “While much has been made about the prospect of the Saudis running out of oil, the nightmarish scenario for the oil industry is that the Saudis will turn out to have plenty of crude, eventually driving prices downâ€!! In fact, Business Week had reported a few months earlier, that “The Saudis could double production, to 20 million barrels a day, by drilling more wells in new and existing fields… New fields in Nigeria, Iran, Iraq and elsewhere could add 16mb/d to global capacity by 2010. New software running on supercomputers could vastly boost recovery from known fields…†Experts believe that an investment of $25 billion in Iraq – what US imperialism spends in a few weeks destroying that country – would add 3 million barrels a day to its exports, oil that could cost 50 cents a barrel to produce… A nightmare for Exxon, indeed.
WALL STREET’S INTERESTS IN EXPENSIVE OIL
Let me now summarize what I see as Wall Street’s interests in expensive oil. Under conditions of deepening capitalist contradictions and monopolization of capital dominated by the owners of the banking and oil industry::
1. High oil prices help repay debts owed Wall Street banks. In 1990, with some oil selling for under $10 a barrel, the Wall Street Journal pointed out that “low†oil prices have “rocked the oil industry and played havoc with… the banks that underwrote billions of dollars of oil-collateralized debt.” The first Gulf war followed, and oil prices soared. In 1998, Global Witness reported in “A Rough Trade” how imperialist banks seize Angola’s revenues from oil sales to repay war loans. High oil prices speed Wall Street collection of debts from oil producers worldwide, including the oil-exporting states of Texas, Louisiana, Oklahoma and Canada. Thanks to high oil prices, Business Week reported “Russia may well be able to restore its investment-grade credit.” The few big oil exporters with extra cash are now even the largest purchasers of stocks, bonds and US Treasuries. What else will they do with the cash?
2. High oil prices help Wall Street plunder weaker capitalist worldwide, through the mechanism of unequal exchange. The monopolies’ average cost worldwide of producing a barrel of oil (42 gallons) is $2.00, including costly production from Alaskan fields as well as cheap Gulf oil. Coincidentally, the average cost of producing coffee is also around $2.00 a kilogram. But Wall Street-monopolized oil is selling for $75 a barrel, while tens of thousands of small and mid-sized producers of coffee are getting as little as $1.00 a kilo, or even less – below the actual cost of production! Over 100 million people depend on coffee production, the second-largest commodity traded internationally after oil. Coffee growers need oil for fuel or to make fertilizer – fertilizer prices are up 90% — and the “exchange†is devastating. Non-monopoly producers of manufactured and agricultural commodities also face unequal exchange with the monopolies, and armed force is ultimately required to enforce it. So expensive oil helps strengthen monopolies at the expense of smaller producers, even driving some of those out of business.
3. Expensive oil also helps place Wall Street/US imperialism in a stronger position to wage a possible prolonged war, in part by weakening potential competitors, in part by temporarily shoring up key industries here.
4. High oil prices help trim capitalist “overproduction.” “Higher energy prices could limit potentially unprofitable output,” the Wall Street Journal has reported. The World Bank or the IMF recently estimated that expensive oil has retarded world GDP growth by 1.5%… That’s significant. BASF?
5. Above all, high oil prices facilitate Wall Street’s drive to cheapen and weaken labor. Rising fuel costs effectively cut wages by raising the cost of necessaries of life for workers, from the cost of cooking and heating fuel to the cost of transport. Furthermore, the “benefits” from workers’ lower wages accrue to Wall Street, bypassing the capitalists directly employing the labor. As capital is redirected to pay for costlier energy, rising unemployment weakens workers. The cuts in wages and pensions suffered by airline workers have gone to – paying monopoly prices for fuel!
6. China is a major, unspoken target of the US war. “A US-led war with Iraq would make China highly vulnerable to a disruption in the supply of crude and higher oil prices,” CNN pointed out in September 2002. “To contain China,” the Singapore Straits Times commented in February 2003, “the US needs to take sole control of the strategic Gulf area.” Soaring oil prices plunder China and play havoc with its economic plans. The war reflects Wall Street’s class antagonism to the Chinese state, which is a product of a socialist revolution.
Again, the “drive†for expensive oil is impelled by the deepening contradictions of a monopolized capitalist system. Let me close by encouraging you to dedicate your skills and energy the critical work of international working class organization, preparation and education – that means Party above all — so that the crisis of the old system can in fact open the path for the worldwide victory of the new system, and bring an end to monopoly rule, an end to human suffering and war, to the destruction of the environment, and the waste of humanity’s time. Workers of the World Unite.
It would be very helpful if people like you would stop helping Cheney’s propaganda vis a vis Iran by refusing to continue its demonization. If we were to compare Saudi with Iran, we would find Iran to offer much more freedom and tolerance for its citizens–Saudis are subjects!–and greater economic liberalization.
As a working professional in the physical petroleum trading industry. I applaud your well researched article. The axiom – The Rich get Richer , and the Poor get Poorer – is proven correct. My Beef is the Rich and politically powerful have stolen the counter part, excess profits breed ruinous competition. Barriers to entry for small business are opening the gates of a Corporate/Political State. Our next challenge will be a change in the clearing currency to Euros — wonder why we are in Iraq – keep your eye on the money
I have read all the above comments on your article in the chronicle. The Strategic petroleum reserve was left EMPTY by the previous administration as one of about a dozen econimic landmines. If you want to write an article critical of an administration, you should check your facts.
– The strategic Petroleum Reserve was not established to be an economic tool. It was established to provide emergency energy in the event of a supply shortfall.
– 100 million barrels is a large sounding amount but not large enough to affect the price of oil over the period you describe.
– As an ecomomist I would expect you to show historical cycles in pricing of crude oils to support your conspiracy theory. As long as I can remember, crude pricing rose at the beginning of the summer and fell at the onset of winter. Look it up. Then stop pretending to be an authority on the oil industry.
I think you are overreaching, I doubt 125,000 barrels a day to fill the SPR has more than a small affect. For example 125,000 barrels a day is also the amount of production lost of 8 months following the Jan 4, 2005 fire at Suncor’s Fort McMurrary heavy oil upgrader – why not say that this incident was the cause of oil prices rising? The real reason for the rise in prices was increased global demand, the risk premium associated with terrorism and speculation that oil prices would continue to rise.
Dr. Palley,
Another insightful analysis- I’ve enjoyed reading your blog for about a year now and always come away more economically enlightened. What do you think of the following theory-
Bush just announced his troop surge for Iraq in spite of great opposition from Democrats, some Republicans and the majority of Americans. As we know, Iran is just to the east of Iraq. This troop surge supposedly for Iraq could be a smokescreen that could lead to an invasion of Iran. Invading Iran would drive oil prices sky high and along with increasing the oil reserve there would be new records set and along with it, record profits for Big Oil.