Moonage Political Webdream

Based on the findings presented above, I would disagree with Bill Mann’s opinion that the high oil price is purely a supply and demand issue. The low elasticity of supply is definitely important. The lack of investment in exploration and of significant energy conservation in the U.S., combined with high economic growth in Asia and elsewhere, have led to a situation of demand growing faster than supply. The Bush administration has some influence over these factors but not enough to lower the world oil prices.

You state that this isn’t a supply and demand issue, and then list a number of things that are solely supply or demand driven. The most important sentence is the last one — you are saying something that reflects EXACTLY my position. If he can’t change the prices, then why would he be blamed for them (the premise of the original post)?

Thanks for your reply. This is a very interesting discussion.

Let me first clarify my point above. The key word is purely - what I was arguing is that supply and demand are very important, and the Bush administration has little influence on them, but they are not the only factors driving the oil price. The other factors, such as the terrorism premium and energy conservation efforts, are partly dependent on actions by the White House. You state:

Terrorism, middle eastern terrorism, predated GWB, and I don’t buy for an instant the thought that the risk of terrorism has changed dramatically since 2003, or 2001 for that matter.

I would disagree - I think the war in Iraq has affected the terrorism premium, and that war was George W. Bush’s idea. However, there’s no way to prove that because the terrorism premium is impossible to quantify and no one knows what it would be if the U.S. had not occupied Iraq. So we can agree to disagree on this point - but undeniably, the conduct and effects of the Iraq war have bolstered support for Muslim extremists and thus made terrorist acts more likely.

To answer your first question, I agree that the war in Afghanistan and the confiscation of funds supporting terrorism as part of the war on terror have reduced the terrorism risk. There’s a big difference between those, which were direct attacks on Al Qaeda, and the war on Iraq, which had no ties to Al Qaeda at all, or at most very rudimentary ones.

One reason why I supported the war on Iraq was that I hoped that the replacement of the ruthless regime of Saddam Hussein with a democratically elected government would have a moderating influence on other Arab countries. However, the very poor conduct of the war leading to many civilian casualties and the emergence of local warlords, the blatant profiteering by certain U.S. corporations, and the lack of urgency in setting up elections and allowing the Iraqis to govern themselves, have made me question that support. The Bush administration has badly botched this war and it might have been better if it had not attacked Iraq at all, but instead have allowed the U.N. inspectors to finish their work.

IMO, the conduct of the Iraq war has greatly increased the risk of terrorism by making it easier for Al Qaeda to find recruits and obtain funding. Therefore, the terrorism premium would have increased and this was entirely under Bush’s control. You’re correct that Bush has ended the policy of containment - I wouldn’t call it appeasement (remembering Michael Moore’s images of the senior Bush being entertained in Saudi Arabia) - but he has replaced it with a policy of reckless attack that has done more harm than good.

However large the terrorism premium is, it is still only part of the oil price. A significant other part is the effect of speculation on oil futures by hedge funds, which explains how the oil futures can drop by 18% in a week. Let me close by citing an article in today’s Wall Street Journal, which gives some entirely different reasons for the fall in oil prices.

Host of Factors Weigh on Oil Prices

(…) Oil prices have been pushed down by a host of factors, including a dip in demand from refineries as they prepare for scheduled plant maintenance. There is also growing confidence that Venezuela and Russia won’t have any big drops in oil production. And the Organization of Petroleum Exporting Countries intends to raise its output of oil as it prepares to meet in Vienna on Sept. 15.

Also fueling the decline: Some of the traders who had been betting that oil would soar into the stratosphere are cutting their losses and closing their positions. Such speculators help explain why oil prices rose so briskly into mid-August, and now the speculators are having an opposite effect as they head for the sidelines.

(…) Political turmoil in any of a number of the big oil-exporting countries could send prices soaring.
More at: http://online.wsj.com/article/0,,SB109395633115305657,00.html?mod=todays_us_page_one

Best regards,
Calpinist

Technorati Tags: Oil Supply

Tags: Oil Supply

No Comments »

Trackback This Post | Subscribe to the comments through RSS Feed