Oil Peak or Peak Oil?

The tensions between Turkey and Iraqi Kurdistan contributed to jitteriness in the oil markets that drove the prices to as high as $88.20 at one point on Tuesday before falling back to over $87. The oil price spike in turn frightened investors and hit stock markets around the world.

The United States consumes about 21 million barrels of petroleum every day. About 85 million barrels a day is produced in the entire world. The US thus consumes about a fourth of the supply, even though it has only 5 percent of the world’s population. The US only produces about 7.5 million barrels a day, so it has to import some 13 million. the geniuses in the White House have so alienated some US suppliers, like Venezuela, that Caracas is planning to sell nearly half of its over 2 mn. b/d to China rather than selling it all to the US. Since petroleum is now increasingly scarce and is a seller’s market, Chavez’s plan would cut down on the amount of petroleum available to the US.

On the other hand, nearly a fourth of US dwellings completely lack insulation, and most others have old windows that radiate away energy, just plain holes and gaps through which energy escapes, etc. If Bush had given tax breaks for putting in insulation and for conservation instead of giving away billions to rich people who don’t need it, the US would have saved millions of barrels a day, replacing everything Iraq or Venezuela produces (and wiping out the reason for the Iraq War).

Insulation is better than war.

(Ethanol, by the way, is an expensive fraud from the same people that brought you sugar tariffs and corn syrup that promotes obesity.)

Anyway, as Reuters points out, the geography of the oil analysts is bad if they think a Turkish-Kurdish clash would have much effect on oil. Kirkuk has only been exporting about 300,000 barrels of petroleum per day through the Turkish port of Ceyhan for the past 3 months, and at many points in recent years it has not been able to export anything. The Kirkuk exports fell to 200,000 on Tuesday because of PKK attacks in Anatolia and tensions with Turkey.

What is at stake in the exports from Kirkuk just is not great enough to account for the spike in petroleum futures prices, in a rational world. World production declined from about 86 million barrels a day in June, 2006, to 84.5 million barrels a day in June, 2007. (About one million barrels a day of this decline was owing to a Saudi reduction from producing 9.6 mn. b/day to 8.6 mn. b/day in that period).

Production increased to 85 mn. b/d in September. So during summer of 2007 the world’s producers put on the market five times as much petroleum & other liquid fuel as was lost on Tuesday from Kirkuk. Even if Kirkuk exports were shut down, the world daily production would still be a above what it was just last June, when prices were not nearly as high.

It may be that analysts are afraid that a Turkish incursion into Iraq will somehow bring in other regional players, roiling Persian Gulf production. But Kuwait, Saudi Arabia and Iran are in fact unlikely to get involved in a Turkish-Kurdish conflict. They are far to the south and except for Iran, don’t have Turks or Kurds. Even if Iran intervened, and even if Iranian Kurdistan was thrown into turmoil, that would not affect Iranian oil production, which is mainly down south at Ahvaz. Sunni-Shiite battles among Arabs in Baghdad are far more dangerous to the stability of the Gulf than the situation in Anatolia.

So the price spike just seems to me driven by unfounded speculation if it is as advertised. If there is increased demand or instability elsewhere in the market, that is something different. But that is not what the news reports are saying.

What is clear is that Dick Cheney’s desperate bid to grab Iraq for US petroleum corporations and for proprietary contracts to supply the US is backfiring big time. Instead of reducing the importance of Saudi Arabia, Cheney and the Neocons have magnified it. Instead of bringing online a big new supplier (Iraq) they have actually reduced the average production from Iraq as compared to the days of the UN sanctions on Saddam! Instead of assuring the US position as a superpower by assuring it special access to Gulf petroleum through military means, Cheney and his friends have destabilized the key energy-producing regions of the world and are driving some producers to deliberately seek proprietary contracts with China s so as to avoid over-dependence on an overbearing US that openly announces it would like to overthrow their governments. (I’m thinking of Venezuela here; with tweaking the same thing could be said of Iran).

Cheney’s militarism is too blunt an instrument for the delicate job of assuring US energy security. Nearly $90 a barrel is not security for us– it is a threat to our economy. Prices may not stay this high all that long in the short term, since primary commodity markets to fluctuate. But as the peak oil people point out, no new big fields have been found or exploited for a very long time, and demand from China, India and elsewhere is growing rapidly. It is going to be an expensive or cold winter for a lot of Americans. It likely won’t be the last. Courtesy in some part, the short-sighted and counter-productive policies of one of the country’s most notorious traitors, Richard Bruce Cheney.