The Oil Drum | DrumBeat: November 22, 2006

275 comments on DrumBeat: November 22, 2006

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westexas on November 22, 2006 - 10:20am

Once other regional powers start assert themselves one of the first things they will do is seek to control the regional bloc's oil market.

I suppose that there are two models: (1) Available exports always go to the highest bidder and (2) Available exports go to preferred buyers, not just to the highest bidder.

I suppose that we will see something in between these two extremes. In any case, the US is in trouble with either model.

Regarding #1, exporters are going to wonder about the wisdom of exchanging BTU's of energy for dollars.

Regarding #2, we can't take on the whole world. What do we do? Threaten to nuke anyone who cuts in on our "rightful" share of total world petroleum exports?

The analogy has been used thousands of times, but I think that we (regarding our auto/real estate driven economy) are in the last stages of Tulipomania here in the states--right at the point when the Dutch began to realize that the world would not beat a path to their door offering ever higher prices for tulips. Increasingly, the US economy is going to be restructured into an economy focused on meeting needs--and not wants (like Tulips and McMansions, with SUV's out front.)

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DelusionaL on November 22, 2006 - 11:14am

I agree. How and when can be the only guess. I think the the world realizes that they have us by the short hairs. In a situation of colapsing availability I think "sharing" is an utopian dream. The US has pushed people around for too long - and is the most vulnerable. I think the "thin veil" of society will disappear on various levels.
The collision of personal and gov't US debt./ declining energy suplies/ dollar devaluation will start to gain momentum.

I hate the thought of what we are in for.
Pres. Carter was so vilified - how he looks now...
My buddy thinks that in 2-4 years we are going to be demanding another GW...
The 4 horsemen and will I live long enough to see it? Probably...

Jeffery - I admire your courage. Best of luck to you and your family in the coming years.

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westexas on November 22, 2006 - 12:33pm

DelusionaL

Thanks for the kind words. We are in for "interesting times."

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fleam on November 22, 2006 - 4:01pm

Indeed - things have not even gotten that bad for the average American. There's an underlying, very unspoken, tension but that's it. Americans won't admit that there's something funny going on with college depending on 8+% loans, cars cost a year's income, people are working 60 hours, and their parents are markedly healthier and happier than they are (and calling them slackers) and things seem to be "tightening up" in all areas, from law enforcement to social class stratification (a lot still believe in the idiotic dream of social mobility and can't understand why it does not seem to be happening).

Things are going to get very interesting when things get actually bad. And we'll elect our Hitler or Mussolini, and people will natter on about how this has never happened before, first time in history, etc.

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westexas on November 22, 2006 - 4:05pm

check out the EB article on the spreading incidents of copper theft

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GliderGuider on November 22, 2006 - 11:43am

For some time now I have been sitting on a question that was raised by your Export Land model. It is brought into sharp relief by your two market models above.

Model 1 describes a free market. Model 2 describes a command economy.

The only way you can convince a company not to maximize its profits is to remove the profit motive by directing its operations to satisfy criteria besides profit. Keeping oil at home to satisfy domestic needs will amount to accepting a lower price than might be available on the world market. The only way I can see of doing this is by nationalizing the oil companies.

Am I missing something? Is there any other way to accomplish this short of outright nationalization?

Even if there is, I expect we will see a wave of nationalizations sweep the industry as the decline starts to bite.

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vtpeaknik on November 22, 2006 - 1:25pm

Well we've already seen a trend of nationalization, e.g. in Russia and Venezuela and Bolivia, and now most of the world's oil and gas is only available via national oil companies.

I would add a third model to the #1 and #2 above, and this has an impact on the "export land" model. The #2 above says "Available exports go to preferred buyers, not just to the highest bidder." In the export lands model the domestic users are considered the "preferred buyers". But the problem with this, and with many assumptions I've seen in discussions here about geopolitics, is that it is assumed that a "country" is a unified block acting as one individual, or family, or tribe, would. In reality, TPTB in a given country may see their own interests as higher than that of "the peasants" within their borders, and may see certain other, nonlocal, world powers as the "preferred buyers".

Of course, keeping the peasants from turning to barricades and pitchforks is part of the calculations of TPTB, but only part, and they only need to dedicate part of the oil and gas towards that end. Thus model #3 is that "preferred buyers" are chosen on a playing field that may ignore national boundaries.

That plan may or may not suceed. E.g., in Nigeria TPTB rake in the billions while the peasants only get oil stains on their clothes (when they wash them in the river). But this arrangement is getting more and more tenuous. So the question is: who will win this game, fascism/organized crime or local popular pressure.

As for the USA, I think it is clear that TPTB care not for the locals. Their plan, as brought into action over the last 20 years or so, was to move manufacturing elsewhere, eventually impoverishing the locals (once their purchasing power is no longer needed to keep the global rich getting richer). Now, even our fertilizer is made overseas, where the natural gas is.

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RussFag on November 22, 2006 - 7:42pm

Quote: `Am I missing something? Is there any other way to accomplish this short of outright nationalization?'

The answer is an export duty. In Russia if you want to export a ton of crude oil you must pay $237.6 to the state budget (from December 1 it will be $180.7), thus the internal price is much lower. If the government want to increase internal supply it can raise a duty to the prohibitive level.

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GliderGuider on November 22, 2006 - 7:51pm

Duh. Of course! Thanks for that.

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Dragonfly41 on November 22, 2006 - 11:45am

To be frank here, WT, I believe #2 was the Neocons plans all along. Iraq was the open display of what would happen to any country that tried to weazel in on the game (sell oil in Euros, chose who to export to, allow whomever they wanted to develop their fields, etc.)

That plan, for some strange reason (sarcasm), is not working very well. And now since we bet the whole bank and political capital on that game, the other pathways to securing energy resources have all been cutoff. Russia watched it all and let it happen, all the while moving their chess pieces into position against western oil companies, unruly neighbors siding with the West, and building alliances with emerging, sympathetic economies (i.e., China).

So, BushCo has played it's game, short of nuclear confrontation, and has gotten us...further in debt and more relient on a southern neighbor that is losing ground on the energy treadmill, finding it hard to keep its own population in check.

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Dragonfly41 on November 22, 2006 - 11:46am

In view of the above, should it be a surprise that the US Dollar is fighting for its life right now?

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fleam on November 22, 2006 - 4:03pm

Shhhhhh! You're not supposed to talk about that right now! I'm surprised enough to see discussions of the real estate bubble in the papers, but if they started to talk about the huge hit the dollar's taken so far, confidence in the confidence game will end.

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garyp on November 22, 2006 - 1:41pm

There's a third model - exports are reigned in to only supply close partner countries, otherwise production is deferred until later.

Oil in the ground is like money in the bank - you don't have to spend it today.

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PeakTO on November 22, 2006 - 5:57pm

I think you can already see your #2 in play with Russia.

They sell NG to friendly ex-bloc countries at below market prices. And the opposite is true, when the relationships are more beligerent, they cutoff/reduce supply.

Venezuela is another obvious example of #2 as well.

=======
It's all about population!

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275 comments on DrumBeat: November 22, 2006

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“Any coward can fight a battle when he's sure of winning, but give me the man who has pluck to fight when he's sure of losing. That's my way, sir; and there are many victories worse than a defeat.”

—George Eliot