Wednesday, October 5, 2005

The terrific spiking of oil prices over the past several weeks and months gives pause, and no doubt continue upward at least in the short term. Having said the obvious, does this provide the basis for still another doomsday theology?

No way: those who argue we are even close to a grinding, depression causing crisis are (a) the usual suspects, and (b) unsurprisingly, wrong. Before anyone decides to stockpile filled oil drums in the backyard, it would be useful to consider the following.

(1) Those who wish us ill will not dare not push us to the wall. Can it be seriously argued Tehran’s mad mullahs, despised by 70 percent of Iranians, will refuse to sell oil on the world market and thus plunge its already staggering economy into a massive depression (refusal to sell to the United States is a nonstarter: we don’t buy Iranian crude)? Will the psychotic Hugo Chavez refuse to sell Venezuela’s steadily declining oil production on the world market and thereby starve his poverty-stricken base (yes, we currently buy PEDEVSA petroleum, but as long as it goes on the market, we can buy it and other oil as needed)?

(2) China, despite its hate-love feelings toward Washington, has too many other eggs to fry with us. Its petro-needs steadily climb, due to its economic success, in large measure because of exports to America, which it will do everything to maintain, as it will U.S. investments in China, second-largest of any country. Moreover, China is by far the largest holder of U.S. debt. Should the government even think about unloading its portfolio, the subsequent economic turmoil would seriously and negatively affect not just its U.S. trade but all China’s export markets. In short, if China pushes too hard on the energy button, she’ll burst her growth bubble … and even American diplomats can make this clear to their Beijing counterparts.

(3) There are significant untapped petro-energy potential in northeast and northwest China. While the country’s petroleum sector assiduously develop these reserves, it is only natural it look overseas to offset its surging demand, which contributes to the current high spiking of crude prices.

(4) Steady development of new oilfields continue, particularly in Russia, the former Soviet “-stans” and Iraq, and there is no reason to believe this will halt suddenly. All these states have enormous untapped reserves; indeed, none — as well as Saudi Arabia — know the extent of their petroleum fortune. These will be steadily developed — and other reserves continually found — over the next five to eight years.

(5) Huge “heavy” oil sand reserves in Canada, Australia and, yes, Venezuela have become economically viable at these prices and will be developed. Within the same timeframe, an estimated 5 million barrels daily will be added.

(6) This “crisis” will push us — finally — to tap America’s significant reserves in ANWAR and offshore California and Florida. Fanatical tree huggers’ silly politics for years have blocked development of huge fields which will finally come online during the next 10 years.

(7) Simultaneously, alternative power sources, particularly hydrogen, wind and solar, will come online during the next 10-12 years. Decades of research is only now coming to commercial viability, which will shortly provide a plethora of new energy options.

This relatively new “crise d’urgence” bears a distinct resemblance to the alarmist fears concerning long-term “global warming,” for which there is neither proof nor clear analysis of the negative effects thereof. Every historical study shows climate conditions move in decades long trends.

Yet, much of the political and scientific communities have sounded ear-splitting, mind-numbing alarms that are a repeat of the 1970s and ‘80s, when many of the same people were beating their “global cooling” breasts. (Can we forget the late Professor Carl Sagan telling us over and over in his avuncular, folksy manner, that the freezing end was nigh? Remember how the obedient media and government choirs echoed the awful news, calling for ever more grand government controls and policies to save us?)

That petroleum prices have risen at an eye-popping rate does not mean we face “global cooling” caused by a lack of oil to keep us warm. Prices will remain high and may go higher, but there is energy to spare, which will cover declining production rates from old-line oil wells.

The petroleum sky is not falling. We have and will continue to have enough energy resources. Current upward price swings have little to do with current and projected supply. If this is the case, the current petroleum scare appears to be just another false alarm, designed to create new and even stronger national and international governmental bureaucracies.

John R. Thomson specializes in Middle Eastern economic and political issues.

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