In case you hadn’t noticed, oil prices are way, way down and after yesterday’s OPEC meeting they’re unlikely to rise any time soon.
Why is this and what does it mean?
Like most things economic it’s largely demand driven. Japan is in recession (again), Europe teetering on the edge of deflation, China no longer on an expansionist binge, and as for US? Well, the U.S. has the same crappy .01% economy we’ve had for the last 7 years.
At the same time recoverable reserves have expanded through fracking and other techniques to the point where the U.S. is once again the #1 Oil exporter in the world.
Can I get a chorus of Proud to Be or at least a U.S.A., U.S.A. chant for that?
Pfft. It won’t last. Either demand will rise or we’ll spiral into an economic black hole. And should demand and consumption rise we’ll be killing off 50% of the population through climate change and demand will go down anyway. This is why Tar Sand development is as dead as the Dodo, they had a window to make obscene amounts of money that is now permanently closed.
But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again.
John Maynard Keynes- A Tract on Monetary Reform (1923)
So, let’s take a look at the the short term, Qui Bono?
It’s clearly the House of Saud who are driving these developments and their extraction costs are around $5 – $15 a barrel. This is why they are price makers, they can produce enough to fill most of the demand and as long as they are getting more in return they are making a ton of money they don’t have to share too widely.
Other traditional producers, like Venezuela and especially Iran, have larger and more restive populations and thus benefit from a price point that maximizes their income, something the Saudis aren’t concerned about. It’s not far fetched to speculate that the current oil glut has been orchestrated specifically to disadvantage Shia Muslims (Iran, Iraq, Syria, Lebanon) in what can easily be argued is open Jihad by militant Wahabi Sunnis that the ignorant West (that would be the Empire of the United States and our coalition of the coerced and cowardly) is only too happy to support in return for a little liquid black gold to keep our inebriated Military Industrial Complex well lubricated.
Not that they like us, they hate us almost as much as the Shia… almost. And low oil prices also mitigate against costly extraction technologies (North Sea and Arctic Drilling, Deep Sea Drilling, Fracking, Tar Sands) by making them unprofitable. Likewise the longer term threat of cheap renewable power via Solar, Wind, Tidal, and Hydro-electric.
So we’re not only whores, we’re cheap whores, practically sluts giving it away for nothing (regular readers will know that I have no objection to a healthy and active sexual life, sex work, or promiscuity).
The benefit of fossil fuel is that its reliability and low volume to energy ratio make it uniquely suited to military applications. Is it any wonder then that access to it is the number one priority of Empire?
It also illustrates the power of monopoly pricing, not just in extracting the maximum revenue, but in destroying the economic viability of competitive rivals.