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Bush and the oil price

Eugene Wrayburn | 09.12.2007 12:28 | Terror War | South Coast

The invasion of Iraq and the ongoing threats against Iran are often explained by radicals as an attempt by the US and UK to appropriate their oil reserves for the benefit of their oil companies. Yet this explanation ignores the significant gains for oil companies which arise from conflict in the Middle East and elsewhere. Tese gains derive from a seemingly permanent increase in the oil price.

In economic terms the so-called Peak Oil Crisis represents an opportunity for any self respecting oil company. No producer can be happier than when the product they supply attracts a sustained premium due to its scarcity.

Similarly, the invasion of Iraq has caused the long term prospects of increasing oil supply to the market to take a battering. When Iraq was invaded its state apparatus was dismantled in the name of de-Baathification. However, if you want to stabilize a territory in order to control it and extract resources, it is not advisable to sack the civil service, the police and the army. OK, so coalition forces rushed to secure the oil-fields, yet this can easily be explained by the need to avoid bad publicity from pictures of burning petrol.

George W. Bush is an oilman. He has friends in the oil industry and was CEO os Harken Energy before he became Governor of Texas. His family also has strong links with the House of Saud and the various stuffed animals that occupy the thrones of Abu Dhabi and Kuwait. All of these stand to gain from a high oil price- they get richer. Witness profits at ExxonMobil and the hyper-development taking place in Dubai as Sheikhs rush to invest the super-profits they are accumulating in synthetic real estate.

If it is about oil appropriation and ownership then why are Western companies and their governmental allies content to accept the existence of Aramco, the Saudi state-owned oil company. Or Kuwait, whose government discusses equitable joint production arrangements with Western oil companies.

Prior to the decision to go to war the sanctions against Iraq were increasingly being contested. There was a stalemate within the UN Security Council with Russia, China and France oppoosing any increase in their toughness and emphasising the pain that was being inflicted on the Iraqi people. Of course, the underlying reason for their approach was the potential for lucrative contracts with the Iraqi state for their oil companies once sanctions were lifted.

The redevelopment of Iraqs oil fields would have probably enabled Iraq to add 10-15 million barrels of oil a day to the worlds supply. Russian, French and Chinese oil companies would be in a better position to compete with US and UK ones and profits for ExxonMobil would be reduced. On the other hand conflict with Iraq and the resulting chaos alongside the maintenance of hostilities with Iran keeps the price of oil high. Possibly, more importantly in strategic terms it adds a constraint to the development of the Chinese economy in particular by making oil expensive for Chinese companies.

 http://en.wikipedia.org/wiki/Image:Oil_Prices_1861_2006.jpg

A good example of the Bush crusade to maintain a high oil price is offered by last weeks kerfuffle about the National Intelligence Estimate on Iran. As oil prices dipped lower following the news Bush immediately stepped up to the microphone and issued more paranoid rhetoric to push the price back up.

So in summary we could say that there is money in conflict and especially so in restricting the supply of essential resources. Supply-side shocks are great for producers when demand exists to pay the costs of the hit. So next time someone explains the Iraq Slaughter as an attempt to own or control Iraqs oil, consider the benefits for oil companies outlined here which ensure they don't have to make any expensive investments in order to increase their rate of profit!

Eugene Wrayburn

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  1. Price manipulation AND Peak Oil — Chris