At the same time, another set of figures rose precipitously. According to a recent Gallup Poll, 42% of Americans
"agreed with the statement that the Bush administration ‘deliberately
manipulated the price of gasoline so that it would decrease before this
fall's elections.'" Two-thirds of those respondents were registered
Democrats for whose party the price at the pump has proved a potent issue.
Such a conspiratorial train of thought is not exactly lacking in logic.
After all, the President and Vice President arrived in office deeply
tied to the energy business (which has been a major supporter of the
Republican Party) and promptly Halliburtonized the military, then Iraq,
and later New Orleans; the administration's first National Security
Advisor (now Secretary of State) Condoleezza Rice had already had a
double-hulled oil tanker named in her honor by Chevron.
The first American ambassador to Afghanistan after the fall of the
Taliban, and the present ambassador (think: viceroy) of Baghdad, Zalmay
Khalilzad, had been an advisor to Unocal, the energy company that negotiated unsuccessfully to put a natural-gas pipeline through the Taliban's Afghanistan.
In addition, Dick Cheney, charged with setting the administration's
national energy policy, notoriously did so (while denying the fact) in secret meetings
with Big Oil execs back in 2001. Officials from Exxon Mobil, Conoco,
Shell, and BP America met with Cheney's aides, while at least the chief
executive of BP met with Cheney himself. Chevron was one of a number of
energy companies that, according to the Government Accountability
Office, "gave detailed energy policy recommendations" to the Vice
President's task force -- while, of course, environmentalists of every
stripe were left out in the cold.
Reading the Gas Pump Numbers
What Do Falling Oil Prices Tell Us about War with Iran, the Elections, and Peak-Oil Theory
By Michael T. Klare
What the hell is going on here? Just six weeks ago, gasoline prices at
the pump were hovering at the $3 per gallon mark; today, they're
inching down toward $2 -- and some analysts predict even lower numbers
before the November elections. The sharp drop in gas prices has been
good news for consumers, who now have more money in their pockets to
spend on food and other necessities -- and for President Bush, who has
witnessed a sudden lift in his approval ratings.
Is this the result of some hidden conspiracy between the White House
and Big Oil to help the Republican cause in the elections, as some are
already suggesting? How does a possible war with Iran fit into the
gas-price equation? And what do falling gasoline prices tell us about
"peak-oil" theory, which predicts that we have reached our energy
limits on the planet?
Since gasoline prices began their sharp decline in mid-August, many
pundits have attempted to account for the drop, but none have offered a
completely convincing explanation, lending some plausibility to claims
that the Bush administration and its long-term allies in the oil
industry are manipulating prices behind the scenes. In my view,
however, the most significant factor in the downturn in prices has
simply been a sharp easing of the "fear factor" -- the worry that crude
oil prices would rise to $100 or more a barrel due to spreading war in
the Middle East, a Bush administration strike at Iranian nuclear
facilities, and possible Katrina-scale hurricanes blowing through the
Gulf of Mexico, severely damaging offshore oil rigs.
As the summer commenced and oil prices began a steep upward climb, many
industry analysts were predicting a late summer or early fall clash
between the United States and Iran (roughly coinciding with a predicted
intense hurricane season). This led oil merchants and refiners to fill
their storage facilities to capacity with $70-80 per barrel oil. They
expected to have a considerable backlog to sell at a substantial profit
if supplies from the Middle East were cut off and/or storms wracked the
Gulf of Mexico.
Then came the war in Lebanon. At first, the fighting seemed to confirm
such predictions, only increasing fears of a region-wide conflict,
possibly involving Iran. The price of crude oil approached record
heights. In the early days of the war, the Bush administration tacitly
seconded Israeli actions in Lebanon, which, it was widely assumed,
would lay the groundwork for a similar campaign against military
targets in Iran. But Hezbollah's success in holding off the Israeli
military combined with horrific television images of civilian
casualties forced leaders in the United States and Europe to intercede
and bring the fighting to a halt.
We may never know exactly what led the White House to shift course
on Lebanon, but high oil prices -- and expectations of worse to come --
were surely a factor in administration calculations. When it became
clear that the Israelis were facing far stiffer resistance than
expected, and that the Iranians were capable of fomenting all manner of
mischief (including, potentially, total havoc in the global oil
market), wiser heads in the corporate wing of the Republican Party
undoubtedly concluded that any further escalation or regionalization of
the war would immediately push crude prices over $100 per barrel.
Prices at the gas pump would then have been driven into the $4-5 per
gallon range, virtually ensuring a Republican defeat in the mid-term
elections. This was still early in the summer, of course, well before
peak hurricane season; mix just one Katrina-strength storm in the Gulf
of Mexico into this already unfolding nightmare scenario and the fate
of the Republicans would have been sealed.
In any case, President Bush did allow Secretary of State Condoleezza
Rice to work with the Europeans to stop the Lebanon fighting and has
since refrained from any overt talk about a possible assault on Iran.
Careful never explicitly
to rule out the military option when it comes to Iran's nuclear
enrichment facilities, since June he has nonetheless steadfastly
insisted that diplomacy must be given a chance to work. Meanwhile, we
have made it most of the way through this year's hurricane season
without a single catastrophic storm hitting the U.S.
For all these reasons, immediate fears about a clash with Iran, a
possible spreading of war to other oil regions in the Middle East, and
Gulf of Mexico hurricanes have dissipated, and the price of crude has
plummeted. On top of this, there appears to be a perceptible slowing of
the world economy -- precipitated, in part, by the rising prices of raw
materials -- leading to a drop in oil demand. The result? Retailers
have abundant supplies of gasoline on hand and the laws of supply and
demand dictate a decline in prices.
Finding Energy in Difficult Places
How long will this combination of factors prevail?
Best guess: The slowdown in global economic growth will continue for
a time, further lowering prices at the pump. This is likely to help
retailers in time for the Christmas shopping season, projected to be
marginally better this year than last precisely because of those lower
gas prices.
Once the election season is past, however, President Bush will have
less incentive to muzzle his rhetoric on Iran and we may experience a
sharp increase in Ahmadinejad-bashing. If no progress has been made by
year's end on the diplomatic front, expect an acceleration of the preparations for war already underway
in the Persian Gulf area (similar to the military buildup witnessed in
late 2002 and early 2003 prior to the U.S. invasion of Iraq). This will
naturally lead to an intensification of fears and a reversal of the
downward spiral of gas prices, though from a level that, by then, may
be well below $2 per gallon.
Now that we've come this far, does the recent drop in gasoline
prices and the seemingly sudden abundance of petroleum reveal a flaw in
the argument for this as a peak-oil moment? Peak-oil theory, which had
been getting ever more attention until the price at the pump began to
fall, contends that the amount of oil in the world is finite; that once
we've used up about half of the original global supply, production will
attain a maximum or "peak" level, after which daily output will fall,
no matter how much more is spent on exploration and enhanced extraction
technology.
Most industry analysts now agree that global oil output will eventually
reach a peak level, but there is considerable debate as to exactly when
that moment will arise. Recently, a growing number of specialists --
many joined under the banner of the Association for the Study of Peak Oil
-- are claiming that we have already consumed approximately half the
world's original inheritance of 2 trillion barrels of conventional
(i.e., liquid) petroleum, and so are at, or very near, the peak-oil
moment and can expect an imminent contraction in supplies.
In the fall of 2005, as if in confirmation of this assessment, the CEO
of Chevron, David O'Reilly, blanketed U.S. newspapers and magazines
with an advertisement stating, "One thing is clear: the era of easy oil
is over... Demand is soaring like never before... At the same time,
many of the world's oil and gas fields are maturing. And new energy
discoveries are mainly occurring in places where resources are
difficult to extract, physically, economically, and even politically.
When growing demand meets tighter supplies, the result is more
competition for the same resources."
But this is not, of course, what we are now seeing. Petroleum supplies
are more abundant than they were six months ago. There have even been
some promising discoveries of new oil and gas fields in the Gulf of
Mexico, while -- modestly adding to global stockpiles -- several
foreign fields and pipelines have come on line in the last few months,
including the $4 billion Baku-Tbilisi-Ceyhan (BTC) pipeline from the
Caspian Sea to Turkey's Mediterranean coast, which will bring new
supplies to world markets. Does this indicate that peak-oil theory is
headed for the dustbin of history or, at least, that the peak moment is
still safely in our future?
As it happens, nothing in the current situation should lead us to
conclude that peak-oil theory is wrong. Far from it. As suggested by
Chevron's O'Reilly, remaining energy supplies on the planet are mainly
to be found "in places where resources are difficult to extract,
physically, economically, and even politically." This is exactly what
we are seeing today.
For example, the much-heralded new discovery in the Gulf of Mexico, Chevron's Jack No. 2 Well,
lies beneath five miles of water and rock some 175 miles south of New
Orleans in an area where, in recent years, hurricanes Ivan, Katrina,
and Rita have attained their maximum strength and inflicted their
greatest damage on offshore oil facilities. It is naive to assume that,
however promising Jack No. 2 may seem in oil-industry publicity
releases, it will not be exposed to Category 5 hurricanes in the years
ahead, especially as global warming heats the Gulf and generates ever
more potent storms. Obviously, Chevron would not be investing billions
of dollars in costly technology to develop such a precarious energy
resource if there were better opportunities on land or closer to shore
-- but so many of those easy-to-get-at places have now been exhausted,
leaving the company little choice in the matter.
Or take the equally ballyhooed BTC pipeline, which shipped its first oil in July, with top U.S. officials in attendance.
This conduit stretches 1,040 miles from Baku in Azerbaijan to the
Turkish Mediterranean port of Ceyhan, passing no less than six active
or potential war zones along the way: the Armenian enclave of
Nagorno-Karabakh in Azerbaijan; Chechnya and Dagestan in Russia; the
Muslim separatist enclaves of South Ossetia and Abkhazia in Georgia;
and the Kurdish regions of Turkey. Is this where anyone in their right
mind would build a pipeline? Not unless you were desperate for oil, and
safer locations had already been used up.
In fact, virtually all of the other new fields being developed or
considered by U.S. and foreign energy firms -- ANWR in Alaska, the
jungles of Colombia, northern Siberia, Uganda, Chad, Sakhalin Island in
Russia's Far East -- are located in areas that are hard to reach,
environmentally sensitive, or just plain dangerous. Most of these
fields will be developed, and they will
yield additional supplies of oil, but the fact that we are being forced
to rely on them suggests that the peak-oil moment has indeed arrived
and that the general direction of the price of oil, despite period
drops, will tend to be upwards as the cost of production in these
out-of-the-way and dangerous places continues to climb.
Living on the Peak-Oil Plateau
Some peak-oil theorists have, however, done us all a disservice by
suggesting, for rhetorical purposes, that the peak-oil moment is… well,
a sharp peak. They paint a picture of a simple, steep, upward
production slope leading to a pinnacle, followed by a similarly neat
and steep decline. Perhaps looking back from 500 years hence, this
moment will have that appearance on global oil production charts. But
for those of us living now, the "peak" is more likely to feel like a
plateau -- lasting for perhaps a decade or more -- in which global oil
production will experience occasional ups and downs without rising
substantially (as predicted by those who dismiss peak-oil theory), nor
falling precipitously (as predicted by its most ardent proponents).
During this interim period, particular events -- a hurricane, an
outbreak of conflict in an oil region -- will temporarily tighten
supplies, raising gasoline prices, while the opening of a new field or
pipeline, or simply (as now) the alleviation of immediate fears and a
temporary boost in supplies will lower prices. Eventually, of course,
we will reach the plateau's end and the decline predicted by the theory
will commence in earnest.
In the meantime, for better or worse, we live on that plateau today.
If this year's hurricane season ends with no major storms, and we get
through the next few months without a major blowup in the Middle East,
we are likely to start 2007 with lower gasoline prices than we've seen
in a while. This is not, however, evidence of a major trend. Because
global oil supplies are never likely to be truly abundant again, it
would only take one major storm or one major crisis in the Middle East
to push crude prices back up near or over $80 a barrel. This is the
world we now inhabit, and it will never get truly better until we
develop an entirely new energy system based on petroleum alternatives
and renewable fuels.
Michael T. Klare is a professor of peace and world security studies
at Hampshire College in Amherst, Massachusetts and the author of Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum.
Copyright 2006 Michael T. Klare
