Monday, November 26, 2007

It's not the oil, stupid

Patrick Foy analyzes the real reason for the attack on Iraq, which has to be understood in the context of the past – the Gulf War and the sanctions – and the future – the fact that the United States is not in fact going to get any of the oil for which it has made so many sacrifices.  Of course, the lite Zionists are desperate to fool Americans into thinking it was about the oil, as the truth is too dangerous to Israel.

David R. Henderson describes the economic nonsense behind most of the geopolitical writing about oil (note that the Arab ‘oil weapon’ remains the biggest ScareJew due to the Jewish belief that Arab hatred of Israel is non-rational, and that gentile Americans can be easily swayed by irrational fears of shortages):

“ . . . the case for making war for oil is profoundly weak. The pragmatic case against war for oil, on the other hand, rests on a few simple facts. First, no oil-producing country, no matter what it does to its oil supply, can cause us to line up for gasoline. Second, an oil-producing country cannot impose a selective embargo on a target country, because oil is sold in a world market. Third, the only way one country’s government can hurt another country using the ‘oil weapon’ is by cutting output, which hurts all oil consumers, not just the target country; helps all oil producers, friend and foe alike; and harms the country that cuts its output.”

Henderson considers the history of American calls for war for oil (Israeli citizen Luttwak, needless to say, is an ultra-ultra-Zionist; given the current ‘peak oil’ nonsense, Luttwak’s claim in 1975 thatthere is absolutely no reason to expect major new discoveries’ is particularly funny):

“Consider how long the foreign-policy establishment has taken as accepted the idea that the U.S. government needs to use military force to keep the world’s oil supply flowing. In March 1975, Harper’s published an article, “Seizing Arab Oil,” authored by ‘Miles Ignotus.’ The author’s name, Harper’s explained, ‘is the pseudonym of a Washington-based professor and defense consultant with intimate links to high-level U.S. policy makers.’ Many insiders speculated that the piece was written by Edward Luttwak, still a prominent military analyst. In it, the author expressed frustration at the high price of oil and argued that no nonviolent means of breaking the cartel’s back would work. Even massive conservation, he argued, was unlikely to solve the problem. Moreover, he claimed, ‘there is absolutely no reason to expect major new discoveries.; So what options were left? ‘Ignotus’ wrote, ‘There remains only force. The only feasible countervailing power to OPEC’s control of oil is power itself – military power.’ He argued at the time that military force should be exerted on Saudi Arabia.”

The realities of the international oil market:

“In 2006, the five most important exporters of oil to the United States, in order of importance, were Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, and Iraq. Total imports from these countries were 59 percent of U.S. imports. Of these five, the one most likely to want to hurt the United States is Venezuela or, more accurately, Venezuela’s government under Hugo Chavez. But interestingly, Chavez has done the exact opposite, actually subsidizing oil imports to the northeastern United States. But imagine the worst: imagine that Chavez wanted to target the United States using the ‘oil weapon.’ Say he cuts sales by half to 753,000 barrels a day. The U.S. will respond by scrambling to find other sources of oil. Where will it find them? Let’s go back to Chavez. He needs to find people in other countries to sell this 753,000 barrels a day to. Let’s say he ships the oil to buyers in China. Then those buyers in China will find that they want to buy 753,000 fewer barrels from their suppliers, say Iraq or Saudi Arabia. Presto! The American buyers’ problems are solved because they can get their 753,000 barrels elsewhere. In short, when the government of one country tries to selectively target people in another country, but still wishes to maintain output, it can’t succeed. The selective ‘oil weapon’ is a dud. It’s like a game of musical chairs with the same number of chairs as players. The game would be awfully boring, which is why it is not played that way. But in the case of international trade, boring is good.”


“. . . one main reason for the particular pattern of oil exports and imports is transportation cost: if you’re in New Orleans, why buy from Iran when the cost of shipping from Venezuela is much lower? It follows, therefore, that when a country’s government disrupts this pattern by cutting off oil supplies to a nearby country, transportation costs rise. The higher transportation cost acts as an excise tax, the burden of which is typically shared by the buyers and sellers. The disrupting government would be hurt by having to accept a somewhat lower price from a more distant buyer. The people in the disrupted country would be hurt by having to pay a somewhat higher transportation cost to get their oil. But the maximum hurt in either case would be no more than the difference in transport costs, and this would be a small amount, probably under $1 per barrel. For the hypothetical 753,000-barrel production cut, therefore, the maximum hurt to U.S. consumers would be $753,000 a day or $275 million a year – less than $1 per year per U.S. resident.”


“Of course, the government of an oil-producing country can do substantial harm to the people of another country by cutting the amount of oil it produces and sells. (I use the word ‘government’ here on purpose because outside Canada, the United States, and Britain, almost all the world’s oil is produced by governments.) But any government that wants to hurt a particular country by reducing its oil supply faces three huge problems.

First, an oil producer cannot single out particular countries or consumers to hurt. If one oil producer cuts supply, then, all other things being equal, the world oil supply drops and prices rise. All oil consumers are hurt, and their hurt is proportional to the amount of oil they use. Thus the ‘oil weapon’ is an incredibly blunt instrument that, when used, will hurt friend and foe alike.

Second, the oil-producing country, by cutting output, will cause the world price of oil to rise, which will help other oil-producing countries that don’t reduce their supply. So for example, if Iran’s government chooses to reduce its supply of oil to hurt the United States, it also helps its avowed enemy, Saudi Arabia.

Third and finally, to continue with the weapon analogy, the oil weapon blows up in its user’s face. Specifically, any country that produces less than about 10 percent of the world supply will find that the price increase it gets will not compensate for the reduction in revenues due to lower production.”

Note that this sensible analysis only applies to individual oil producers who control a relatively small part of the oil market.  If Iran, under Israeli nuclear attack and with nothing to lose, decided to destroy all Gulf oil production, it would wreck the international economy.  Also note that both these refreshingly intelligent pieces are from conservative publications, as conservatives gradually wake up to the dangers of Zionist warmongering.