Anatomy of a Price Surge
Demand and Bush administration policies are largely to blame for high cost of oil.
Thursday, July 3, 2008
As the pain induced by higher oil prices spreads to an ever-growing share of the American (and world) population, pundits and politicians have been quick to blame greedy oil companies, heartless commodity speculators and OPEC. It’s true each has contributed to and benefited from the steep run-up. But the sharp growth in petroleum costs is due far more to a combination of soaring international demand and slackening supply– compounded by Bush administration policies– than to those other actors.
On March 14, 2001, President Bush said the “reality is the nation has got a real problem when it comes to energy. We need more sources of energy.” Energy demand in mature industrial nations was growing as the rising economic dynamos of Asia were beginning to make an impact. Also evident was an unmistakable slowdown in the growth of world production.
Many energy experts urged the White House to minimize future reliance on oil, emphasize conservation and rapidly develop climate-friendly alternatives. But Vice President Dick Cheney, who was overseeing the energy review, would have none of this. “Conservation may be a sign of personal virtue,” Cheney declared in April 2001, “but it is not a sufficient basis… for sound, comprehensive energy policy.” After three months of huddling in secret with top executives of leading U.S. energy companies, he released a plan that called for preserving the existing system, with its heavy reliance on oil, coal and natural gas.
Bush then called for drilling in the Arctic National Wildlife Refuge and other protected areas. As a result, most public discourse on the Bush/Cheney plan focused on drilling in ANWR, and no attention was paid to the implications of increased dependence on imported oil. Increased reliance on imports meant increased vulnerability to disruptions in delivery because of wars and political upheavals. So, the administration began planning for stepped-up military involvement in major overseas oil zones, especially the Persian Gulf. Then came 9/11 and the “war on terror,” giving the White House the opportunity to accelerate the military expansion and pursue other objectives, including the elimination of Saddam Hussein.
But the invasion of Iraq– intended to ensure U.S. control of the Gulf and a stable environment for the expanded production and export of its oil– has had the opposite effect. Despite billions spent on oil infrastructure protection and the thousands of lives lost, production in Iraq is no higher today than it was before the invasion.
With Saddam gone, the Islamic regime in Tehran, Iran, is viewed in Washington as the greatest threat to U.S. mastery of the Gulf. This threat rests largely on Iran’s ability to attack oil shipping in the Gulf and ignite unrest among militant Shiite groups, but its apparent pursuit of nuclear weapons has inflated the perceived menace. To restrain Tehran’s nuclear ambitions, Washington has imposed economic sanctions on Iran and forced key U.S. allies to abandon plans for developing new oil fields there. Iran, with the world’s second-largest reserves after Saudi Arabia, is producing only about half the oil it could.
But the administration’s greatest contribution to the rising oil prices is its steady stream of threats to attack Iran if it does not back down on the nuclear issue. Iranians have been clear they would retaliate by attempting to block the flow of Gulf oil and cause turmoil in the energy market. Most analysts assume an encounter will produce a global oil shortage and prices well over $200 per barrel. It is not surprising that every threat by Bush/Cheney has triggered a sharp rise in prices. It follows that while the hike in prices is due largely to ever-increasing demand chasing insufficiently expanding supply, the Bush administration’s energy policies have intensified the problem.