The New Energy ‘Crisis’ and Iraq

Tim Gillin of the Personal Independence Day blog has emailed us comments on “Guns, Oil, and Neocolonialism“:

My guess is that Hazlitt would recognize a group of inter-related economic myths that are shared by both neocons and greens, both of which are groups that have derived their ideology from social democratic liberalism, a doctrine Hazlitt regularly panned. It is a myth that there is a fixed quantity of petroleum in the earth (at best a half truth) and that current “reserve” and “forecast” figures give a meaningful measure of how much gas is left in the planet’s tank. A subsidiary myth is that Middle East, a large chunk of those reserve figures, is thus an irreplaceable and thus “strategic” resource.

Reserves are a commercial inventory assessment not a geological reality. It is a bit like confusing the McDonald’s worldwide burger sales figures with the biomass of all mammals on the planet. It costs money to find and define reserves and money, as anyone who has ever paid interest knows, has alternate uses. So it is unprofitable for oil exploration companies to seek out and define reserves beyond a few decades worth beyond that committed to in contracts in hand.

Past experience has shown that petroleum supply follows price movements just as economics textbooks would suggest. This means that the ‘importance’ of Middle East reserves is exaggerated. For decades the US government has in fact been in effect subsidizing the supply of Middle East crude by providing military security to supplier countries and companies courtesy of the US taxpayer. This de facto subsidy has in effect lowered the relative cost of Middle East crude versus suppliers elsewhere. It has discouraged exploration and development of non-Mid East sources. So the ‘strategic significance’ of Mid East crude is both an illusion and a “self fulfilling prophecy.” It is also possible that removing the subsidies will lead to lower petroleum costs, at least if you factor in the hidden cost of military protection. Unlike the greens, who reject any kind of serious economic thought, the neocons claim to be faithful to free market principles. But their ‘faith’ seems like it is reserved for Church on Sunday and ignored during the rest of the week.

I agree.

Economic fallacies are hard to kill. From the non-occurrence of Thomas Malthus’s predicted mass starvation in Europe to Paul Ehrlich’s lost bet, linear projection of resource depletion has been discredited. Now “peak oil theorists,” using the same junk science and bunk economics, are declaring a new energy crisis – and some are using this theory to explain why the US is occupying Iraq. There’s a tendency to believe that either (1) Oil is running out and that control of oil is the reason for the occupation, or (2) There is no fuel crisis and control of oil is not the reason for the occupation. I choose option (3): There is no fuel crisis and control of oil is one of the reasons for the occupation. R. V. Scheide’s article on peak oil theory (“Oil Gone.” Thanks to David Sprowls of Cupertino for bringing this to my attention) failed to convince me of the theory’s validity, but it did include this:

“The situation is desperate,” Bush energy advisor Matthew Simmons said in an interview with online magazine From the Wilderness in August 2003. “This is the world’s biggest serious question.” Asked if it was time to include peak oil in public policy debates, Simmons said, “It is past time. As I have said, the experts and politicians have no Plan B to fall back on.” Is there any solution to the crisis? “I don’t think there is one,” Simmons said. “The solution is to pray.”

In 1999, before he was elected vice president and was still CEO of Halliburton, one of the world’s largest providers of products and services to the oil industry, Dick Cheney slipped a little peak oil theory into his own economic projections at a petroleum conference in London.

“By some estimates, there will be an average of 2 percent annual growth in global oil demand over the years ahead, along with, conservatively, a 3 percent natural decline in production from existing reserves,” Cheney said. “That means by 2010 we will need on the order of an additional 50 million barrels a day.” …

They haven’t announced it publicly, but with a little creative connecting of the dots, it’s not too hard to decipher how the Bush administration plans to deal with the crisis. One of the first things Cheney did after taking office, besides meeting in secret with energy industry leaders, was to make “energy security” a national priority. Even before 9-11, Cheney strongly advocated invading Iraq, ostensibly to rid the world of an evil tyrant, but no doubt with an eye on the Iraqi oil fields, the second largest reserves in the world after Saudi Arabia’s. Indeed, detailed maps of the Iraqi oil fields are among the few items that have been publicly released from his secret energy meetings. …

Another dot to connect: Cheney is now being investigated for allegedly participating in secret dealings that granted his former company, Halliburton, the contract to rebuild Iraq’s oil industry. Suppose the goal all along was to seize control of Iraq’s oil reserves?

“The reason we don’t have an exit strategy is that we don’t plan to leave,” says Savinar. There’s an estimated 20- to 30-year supply of oil in Iraq’s reserves, and the longer it stays in the ground, the more valuable it becomes. Heinberg is inclined to agree that the United States has no intention of leaving Iraq, pointing to 14 permanent military bases that have been built there since the war started. These bases complete a line of military outposts stretching through Afghanistan, all situated near areas where large reserves of oil are known to exist.

Also see “Cheney, Energy and Iraq Invasion.”

Author: Sam Koritz

I like cheese.