Tuesday, April 18, 2006

The oil reason for Iran talk

Oil companies pump oil out of the ground, refine it, and move it.  They pay a pittance to the countries they lift it from (Chavez is on the hot seat, mainly because he is trying to change this), and a relatively small amount on their other costs, which are pretty much fixed.  The supply is always about the same, and the demand is always about the same.  Oil is an addictive substance, and people seem prepared to pay whatever they can be fooled into paying, until they are literally incapable of paying more and the economy collapses.  If oil is $10 a barrel, oil companies lose money;  if it is $60 or $70 a barrel, they make hundreds of billions of dollars a year.  The job of oil company executives is to arrange for people to pay the higher amount, which they do through various kinds of advertising and spin, largely based on raising questions of possible future supply problems.  The actual day-to-day amounts of oil available on the market varies very little, due to the fact that enormous amounts of it are always available in storage, but the executives have to find varied ways to make people think there is an upcoming crisis.  This scam works until they cause a recession.  During the recession they sell much less oil at a much lower price, thus keeping the oil in the ground for when they can sell it at a higher price.

Oil prices were sagging, so we recently heard, out of the blue, that the Kuwaiti oil fields were failing.  There was no evidence for this, but it succeeded in keeping the price up for a while.  Keeping the price per barrel as high as possible is the single most important reason for all the talk about Iran.  All the talk about the United States wanting to control the oil fields of Iraq or Iran is more spin;  the key is to control the oil market.