The Oily New One World Disorder
by Harun Rashid
December 6, 2003
For a number of decades there has been talk of a New World, and we often
hear that it is already upon us. It is known as 'One World', with the
implication that one powerful country will control it. Further, it is
generally assumed that the powerful country controlling the 'New World' is
the United States of America.
The world of today is varied, with numerous cultures and languages. Most
of these are unfamiliar to the people of the United States and especially to
its government leaders. They use a number of assumptions to simplify the complex world situation, allowing them to project publicly a pretence of probity. It is worthwhile
to assay some of these assumptions because of rapid change in progress. In summary, the analysis of the current situation suggests that the imminent arrival of a 'One World' scenario is not only improbable, but likely impossible.
There are perhaps fifty factors that are suitable subjects, and of major social and economic significance. The proper examination of all of them would require many volumes. For the moment we will examine only the world oil economy, and see what prospects
it may foretell for the possibility a happy and peaceful world awaits us in the
future.
The first assumption in place in the heads of the US leaders is that there are adequate crude oil reserves to supply the needs of the world indefinitely. Every day scholarly-looking commentators, who represent major investment houses, give us reassurances that there is no perceivable problem with the oil supply or the reserves. They look steadily into the camera with serenity, speak to us with a cool confidence
that their analysis is impeccably correct. We are awed to imagine that their salaries are sufficiently high to convince us there is nothing to be concerned about.
Let us for the moment not challenge this assumption of sufficiently high reserves(though it is highly contestable), but go along with it in the hope it may be true. Many things about the reserves we just don't know. Oil comes from under the surface of the earth, and we cannot see it visually, know exactly where it is, nor measure exactly how much may be in any one place. We do not know the quality of the undiscovered oil, nor the circumstances required to bring it economically to the surface in quantity. We do not know how it is to be transported from where it is brought up to where it is to be processed and burned to provide energy. The aspects regarding the production of oil, bringing it to the surface by the millions of barrels each day, are independent of whether there are large reserves untapped or yet undiscovered.
Generally speaking, crude oil production is always a problem. If it is
true that there are ample and sufficient reserves to provide indefinitely the
millions and millions of barrels required by the world each day, each barrel
must still be laboriously produced at the wellhead. If sufficient oil cannot be
brought to the surface, there is every reason to question whether the
assumption sufficient reserves are now known should lull us into somnolence.
The oil, when brought to the surface, must be transported to a refinery for
processing into fuels, and this matter of transport always involves another set
of problems. Long pipelines, pumping stations, and large ocean vessels are
required, and these require constant fuel and maintenance.
The media analysts never discuss the existing constraints on increasing
the level of production and the requirements of transporting oil, and this is
worrisome, because the charts of world oil production indicate that a peak is
either past or in the near offing, depending on the source.
The second assumption is that the oil will be continuously offered for
sale. Oil is the property of the people of the country where it occurs, and the
international community recognises these property rights out onto the
continental shelf of the ocean. Oil men tend to regard the oil as their
rightful property, and expect the countries where they drill to allow them
freedom to always extract the oil to the maximum of their technical capability.
Most countries regard the oil, and the income from its sale, as the rightful
income of their people, although it is often misused and stolen by government
officials and powerful businessmen associated with them. The continuity of oil
flow is very often attained by bribing the government officials in one manner
or another, and they are protected by a police and military that has been
trained in the oil-buying countries to assure that the flow is undisturbed. The
current political climate in the Middle East, and in other oil-producing
countries, suggests that this assumption, that the oil will always be put up
for sale on the open market, may not be a reliable one.
The third assumption is that the price will always be economically favourable
to the developed countries, so that their millions of cars, trucks and planes
can continue to move around the world. It has long been assumed by the
international public that the daily oil price is freely determined by classical
free market forces, based on the market forces of supply (production) and demand.
It has been a public assumption, for the second half of the twentieth century,
that the oil will always be put forward by the sellers, the producing countries,
for delivery to the international market as it is produced, and that the buyers
will compete with each other for the best price at the port of loading.
OPEC has indicated that it now considers the future price when making adjustments in the level of production. Demand worldwide is steadily increasing, especially in China and India. If demand continues to increase, and the production indeed is peaking, then the OPEC ministers, who monitor the production/demand balance, may be expected to act to assure a favourable price. The assumption that enough supply will always be available
to meet the world's competing demands, and that the price will always remain low, may
not be safe bets to make.
A fourth assumption is that the Western oil companies will always be able
to gain access to the world's oil reserves; that they can bribe and otherwise
control the governments of the producing countries to allow the drilling and
production efforts to continue without interference from a dissatisfied civilian population. The political climate today does not permit this assumption to remain unchallenged. Although the ministers may agree, and be held to the agreement by
force of arms, the people of the country, if they object to the use of the oil in
military vehicles and planes of the buyer, may insist that the contracts be
terminated, and that the buyers go elsewhere. The people of these countries will
then be labelled 'terrorists, communists, and socialists' and be arrested and killed, but
the civil unrest will not abate so long as the sellers have a national perception of injustice on the part of the oil buyer.
A fifth assumption is that the price of oil will always be subject to a
perceived international auction market. If there is an imbalance in the
supply/demand equation, caused by numerous factors not presently acting on the
market, then the economic price will reflect the efficiency of the buyer's
economy. Those countries with greater efficiency will be able to afford
higher prices than those with low efficiency. The Chinese, for example, have
ten times the efficiency per barrel than the Western industrial developed
countries have. The demand in China for crude oil is increasing at a rate
that will soon pass Japan's consumption of around 7 million bbl/day in 12-24 months.
China may already surpass Japan in the quantity of its oil imports. China
will in a few years surpass even the United States as a consumer in the
international oil market. The US presently imports around half of its oil (about
10 million bbl/day) from foreign producers. The other 10 million bbl/day is produced domestically. The increasing competition in the world, adding steadily to the demand side, tends to drive the oil price higher. It is presently over USD30/bbl, and it will
steadily increase. It could easily go to USD50/bbl, and then slowly to over one hundred dollars a barrel, perhaps even two hundred. This increase in the oil price will
place increasing economic stress on the US economy, driving it into recession.
The question is whether the US will use force to guarantee that it will get adequate oil at lower prices? The Iraq situation suggests that the US already is facing harsh criticism in its indifference to the opinions of others in broad world affairs, and the assumption that there will always be sufficient oil to keep the US economy growing is subject to frequent re-analysis and constant review.
A sixth assumption is that only price will determine who receives the
crude oil. If the producing countries decide to regulate the sale, introducing other
factors, such as political or ethical considerations, this assumption may also
be weak. While the US and other Western countries use their secret services to
get and keep favourable politicians and military Generals in political control,
the resoluteness of the people, once aroused, will make such secretive control
impossible to maintain.
A seventh assumption is that the oil producers will never set a minimum
price, a price below which they will refuse to sell. With oil reserves falling,
such prudence is reasonable, protecting the supply of oil for the future demand
of their own domestic market. Another concept not presently seen is that of total
return, where the oil price will be set to assure that the current production
rate, however it may vary, always gives a pre-set return, the price adjusted to
assure that the national income will be constant, regardless of fluctuations in
market price and independent of production levels. It is reasonable to believe that
oil producing countries, especially those where there is extreme poverty, will change the manner in which the oil market is managed so that it to their benefit.
An eighth assumption is that oil will continue to be sold in US currency.
The US economy is effectively bankrupt, unable to sustain its enormous military
budget. Foreign buyers of US bonds are becoming reluctant to increase their
exposure to potential default, which appears ever more likely. Oil producers
are forced to consider selling their oil in other currencies, such as the Euro,
Australian and New Zealand currency. If the US cannot continue to pay for its
oil imports with its own currency, then it will be forced to buy the currency
in which the oil is traded, making the situation extremely difficult from a
financial perspective. Yet this is what is quietly happening, with many large
national oil concerns re-positioning their sales to receive currencies
independent of US paper.
What is to be noted is the potential instability of the world, threatening
its future peace and security. The oil situation is only one of the various factors
that may operate to bring to reality a world that is completely different from the one
envisaged by the futurists who face the TV cameras today. The deception that
has characterised the world of diplomacy in recent centuries may end, replaced by
a more honest and forthright manner of international dealing. The US has
seen the reaction of the world to its disregard of the WTO regulations in the
matter of the steel tariffs. It may soon see the painful consequences of
embarking on a role of oil-stability disguised as 'regime change' as in Iraq.
The sharp decline of the US dollar versus other G7 currencies is only one of
the more visible aspects.
back to list of articles
The url of this page is: https://harunrmy0.tripod.com/43OilDisorder.html