Oil price spike: who suffers?

    [T]he US appears to have fought a war for oil in the Middle East, and lost it. The consequences of that defeat are now plain for all to see.

Yes, indeed. I was totally gobsmacked when I filled up my mid-sized car yesterday and had to fork over more than $29 for the privilege. The prices seem to be climbing almost by the hour here in central Virginia.
That quote above, btw, above comes from a really excellent letter submitted to the Financial Times by Dr. Ian Rutledge, who describes himself as the author of a recently published book called Addicted to oil. (Memo to self: look for it. And hat-tip to Matt of Today in Iraq for the lead to Rutledge’s letter.)
In the letter, Rutledge argued that one of the Bush administration’s main motives in launching the invasion of Iraq had been to secure control of the Iraqi oil-fields and thus be able to start pumping an extra 2 million barrels of oil a day out of them to feed the world market (as well as, no doubt, the coffers of the US oil companies who’d be doing the pumping.)
But then,

    in the words of another US oil company executive, “it all turned out a lot more complicated than anyone had expected”. Instead of the anticipated post-invasion rapid expansion of Iraqi production… the continuing violence of the insurgency has prevented Iraqi exports from even recovering to pre-invasion levels.

So now, the price-hike.
I’ve been thinking through who suffers most from this. One group that evidently doesn’t suffer are those who, like so many of George W. Bush’s friends, have major investments in the US oil industry. All kinds of previously “marginal” drilling operations are now become daily ever more and more viable. Profits will do very well, thank you.
Ironic, isn’t it, that the “big oil” folks stood to do very well indeed whether Bush’s big gamble in Iraq turned out well, or not? Nah, maybe not “ironic”, at all. More like, the way near-monopoly capitalism always works.
Inside the US, who suffers most, I think, are the rural poor— people who have zero access to public transportation and are absolutely forced to use their cars to pursue even the most basic activities of daily life. Lots of folks, including poor folks, inside US cities don’t have access to public transport either, because of the country’s extremely strong tilt toward automobilocracy.
Globally, though, the effects are far, far worse. Especially for the hundreds of millions of residents of the very poor parts of the world. How on earth can their trucking companies survive? How can their farmers get their goods to market? How can their infant industries survive, with gas prices expected to remain at or above their present levels?
If the people in power in the world truly thought of all of humankind as a single “human family”, then surely this is an issue we’d expect the whole “family” to come together to deal with right now.
Starting by dealing with the miscreant family member who thought he’d go out and smash up an oil-producing country in the Middle East from a mixture of personal motives, from recklessness, and almost as a “lark”.
This same family member, moreover, is one that has been hogging and wilfully wasting this vital global resource for many decades now.
… Well, I’m not going to sit around waiting for the “community of nations” to start calling Uncle Sam to account any day soon. But what everyone really does need to focus on is how to prevent the economic disaster now hitting the “very-low-income world” as a result of spiraling oil prices from causing even more privation, starvation, and human misery in those countries than their people are already suffering.
Ideas, anyone?

11 thoughts on “Oil price spike: who suffers?”

  1. While I completely agree that the war in Iraq was a mistake, a criminal mistake, I don’t think the war can be blamed for increasing oil prices. Everything I’ve read has indicated oil production worldwide is running pretty much at capacity; I don’t think another 1 to 2 million gallons a day that Iraq might produce is going to noticibly add to that total. The oil in Iraq ought to be cheap to produce, which means record profits for somebody, but I don’t think there’s that much of it compared to some other places.
    The problem isn’t that supplies are low so much as that consumption is high. And it’s not just the US with its Hummer drivers, but countries such as China that are coming into their own as industrial countries. As you point out, the price of gas affects prices of other goods. We are so dependent on oil, it practically runs in our blood. We can get rid of SUV’s, but we can’t stop eating food delivered by refrigerated trucks. Plus all the plastic and other petroleum byproducts we depend on. We can go back to making things out of wood but we can’t afford to pay for them. Meanwhile China and other countries want to turn into countries like us. The question is can a country become a country like us without the oil dependency? Does Europe do it?
    What I blame the Bush administration for is that we are heading for a cliff, the same cliff we went over in the 70’s and the government is doing nothing to avoid it. It’s a huge complex problem and these guys are too ignorant to be able to figure out a solution, or they just don’t care. I can’t decide which.
    We have no energy policy. I’d say we have bread and circuses, but we don’t actually seem to have any bread. We have the adventure in Iraq, a stupid waste of human life for little reward. Thank you George.

  2. World demand for oil is projected to surge from around 82.4 million barrels a day in 2004 to 138.5 million by 2030, according to the IMF.
    Breaking NEws!!!
    Emerson Oil and Gas Identifies Lease opportunity in South Texas Providing opportunity for 22-Well Re-entry in Field with Strong Producing History and Large
    Recoverable Reserves.
    One fact about oil in Iraq the production cost per barrel is $2.0, in US it is $11.0!!!
    Beer in mind for last 13 years Iraq not allowed In the initial stages of the programme, Iraq was permitted to sell $2 billion worth of oil every six months
    http://www.un.org/Depts/oip/background/index.html
    This is not that much of oil Iraq was exporting at all period, so the oil market lived for 13 years like that and the world enjoying $10.0 – $15.0 per Barrel, what changed after the invasion, ask the who selling and controlling the oil sell in world market.
    For me

  3. The letter by Dr. Rutledge draws heavily on an April 2001 report prepared by the Baker Institute and the Council on Foreign Relations. I have a copy of this pdf document and would be happy to send it to anyone reading here who may be interested.
    This report was commissioned by the Bush Administration and it included input from many experts and oil company executives. It was a key document in the preparation of the Bush/Cheney National Energy Policy, released on May 17, 2001.
    I’ve alway felt that insufficient attention has been given to the Baker Institute study. For example, it says very plainly “Like it or not, Iraqi reserves represent a major asset that can quickly add capacity to world oil markets and inject a more competitive tenor to oil trade. However, such a policy will be quite costly as this trade-off will encourage Saddam Hussein to boast of his ‘victory’ against the United States, fuel his ambitions, and potentially strengthen his regime.”
    The authors recommended that the US “Review Iraq policies to lower anti-Americanism in the Middle East and elsewhere [!!!]; set the groundwork to eventually ease Iraqi oil field investment restrictions.” For the Bush administration setting the ‘groundwork’ meant regime change and war.
    In these matter, the guiding principle for the Bush administration from the outset has been to see world oil production increase, particularly in Iraq. To Bush and Cheney that also entailed regime change. Accordingly, Bush’s first economic adviser, Laurence Lindsey, told the Washington Times “The key issue is oil, and a regime change in Iraq would facilitate an increase in world oil (that would reduce prices).” As it turns out, on this point they were quite wrong.

  4. To what extent are the higher oil prices the result of the devalued American dollar, which is the currency of exchange?

  6. A lot of the higher prices are probably due to uncertainty whether Saudi Arabia has reached it

  7. One thing I forgot to mentioned, in US, UK, AUS, and most the western countries, you pay per one litter of petrol between 40%-60% Tax, in fact the western governments make money per litter more than the producer!!….

  8. While I share Ms. Cobban’s distaste for the Bush Admistration’s foreign policy and her sympathy for the suffering’s of the poor of the Third World under the current oil price spike, I wonder if she understands that this price spike is a small foretaste of things to come in the not too distant future, indendpendent of any action that the Bush admistration does or does not take? Even if George Bush is struck by lightning tonight and turns into Saint Francis of Assisi, the global economy will will be rocked by cronic oil shortages in the not too distant future. Several recent books by experienced, well informed oil geologists predict that the world’s yearly production rate of oil will peak before the end of this decade and then begin to decline (See

  9. I’m picking up unrest on this subject from a very different quarter – from professional, independent oil analysts. To whit, I’m reading that many key analysts are convinced that at least $20 of the current price per barrel of oil (In US dollars) is attributable to one thing – the US invasion and occupation of Iraq. How’s this? Well, first, we have half (e.g., $10) attributed “simply” (and not unreasonably) as a war premium – ergo, one “naturally” brought on by high tension arising from ongoing unrest, recurrent bombings of oil assets, etc. in a key oil exporter – and causing nerves in key oil producing neighbors. The other $10 comes from the dramatic nosedive in the value of the dollar. And what’s a key factor causing this dollar collapse? The ever swelling massive US budget deficit – and the ongoing money hole of US expenditures relating to Iraq is a massive factor in the ballooning deficit.
    It seems then that the Bush Administration, yet again, is getting a “free ride” from the major media – and from the non-independent financial media. (CNBC especially – where you only hear from their all too predictable guests about the rising global demand factor, and assorted refinery issues as the only significant causes of high oil. Even worse, for about six months, Larry Kudlow & his ilk on CNBC keep pushing the line that higher oil prices really won’t hurt the US economy – and they keep citing incredibly misleading stats with oil now versus in 1981 – e.g., adjusted for inflation. Tell that to GM and Ford; both companies have been in free-fall in the past week on Wall Street. GM today is now aiming to slash health benefits for retirees and widows thereof…. By the way, Kudlow & co were LOUDLY calling for the US to force down oil prices back in 2001/2002, if Saudi Arabia wasn’t sufficiently compliant to US wishes. Now he’s changed his tune.)
    BTW, the independent analysts I mention above apparently have been polling each other and reports of their views on the Iraq factor are out there, even on NPR, but apparently, their views are still widely unknown. These are non radical folks by nature, most based in Houston or contracting with “big oil” globally…. and yet quite cynical about the current price of crude oil. (which by the way, has come down about 14% in the past week or so)
    Counter-thoughts? Am I on to something? Or delusional?
    One other minor thought: apparently, Europe hasn’t been feeling quite the pinch of higher oil prices, precisely because the Euro hasn’t been, relatively, quite strong compared to the US dollar. I’ll bet OPEC members are wishing they’d listened to the Iranians when 15 years ago they campaigned to peg oil prices to a basket of global currencies – and not just the dollar. (Imagine that, the Iranian economists had an idea we could have benefitted from…..)

  10. I think that both Roger Brown and Scott Harrop have it right. Roger Brown has it right on the long term and Scott Harrop has it right in the short term.
    The long term forecasts of the demand of oil explain why US invaded Iraq and why she wants to have permanent bases in ME (geostrategical reasons in order to control scarce ressources). The war benefits of the oil/military industries and services companies explain why the right wing R supported the war.

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