November 04, 2007
Policies for a Slowdown: Pushing up Oil Prices
I find it interesting that one of the big drags on economic growth -- namely high oil prices -- is at least partially self-induced by United States policy.
I'm not talking about the misguided "energy policy" (as described by the Vice President's task force report from 2001), although this is of course important. Rather, I'm referring to the Administration's focus on Iran.
In a post from earlier this year, I observed that a limited strike on Iran could induce substantial costs on the US (and world) economy via higher energy prices. Now that oil is hovering above $90 dollars a barrel (the level it was assumed that oil prices would rise to in the Standard and Poor's Iran cutoff scenario), it might be useful to examine how the Administration's pronouncements have affected prices directly.
In order to do this, I rely upon event analysis of an informal nature. Consider this graph of the NYMEX crude oil accessed from INO on November 4th.
Figure 1: Price of oil for December 2007 delivery. Source: INO, accessed November 4, 2007, and author's notations, based on , , .
I want to stress this is a partial analysis; there are other factors impinging upon oil prices (including the tensions between Turkey and Iraq). But I think a more formal analysis would likely bear out the view that each time the Administration makes a more bellicose statement regarding the potential for military intervention in Iraq, the higher the oil price.
Of course, if one believes these threats are necessary, then the higher oil price is the price of pursuing our foreign policy. If one believes that Iran's acquisition of nuclear weapons is off by many years, then the pursuit of this diplomacy via threats is a costly diversion. Or it's even counterproductive. Indeed, with each dollar's increase in the price of a barrel of oil, an additional $3.7 billion is transferred (on an annualized basis) to the oil exporting countries (including Iran, Russia, Venezeula, Saudi Arabia, the Gulf States). (The calculation uses the Jan-Aug imports of barrels of oil recorded in the BEA trade release (see Exhibit 17)).
For some perspective, Figure 2 depicts the nominal and real price of oil, up to October (note that the data are averages of daily data). The higher oil prices will presumably have an internal redistributive effect away from consumers and to domestic energy suppliers, as about one third of oil consumption is accounted for by domestic production.
Figure 2: Nominal (blue) and real (red) price of oil (WTI, per barrel). Real price is deflated by CPI-all (October inflation assumed to equal September). NBER-defined recessions shaded gray. Source: St. Louis Fed FRED II, NBER, and author's calculations.
One is tempted to wonder what would have happened had the Administration implemented policies six years ago that would have reduced oil consumption (e.g., from Greg Mankiw, here).
Posted by Menzie Chinn at November 4, 2007 10:32 PMdigg this | reddit
Now why would a President from an oil family with extensive ties to Saudi Arabia, a VP who was head of the largest oil drilling company, and an administration giving so much to oil company lobbyists want to raise oil prices with sabre rattling? That would only make lots of money for oil companies and people owning oil leases in the US. That would be like making profits for their friends and family. Nope, makes no sense to me.
Posted by: RC at November 5, 2007 12:52 AM
Unfortunately, I believe that you are correct on this.
I also have reached the conclusion that Richard Bruce Cheney and his willing puppet Bush view foreign policy, domestic policy and energy policy as little more than tools to intermediate the transfer of wealth to family, friends and familiars.
They probably view Federal Reserve policy in the same way.
Even Richard Milhous Nixon was not so lacking in integrity.
However, knowing (or stongly suspecting) this, the "American people" returned the dynamic duo to power in 2004 and so deserve to lose each and cent that they are forced to "pump" into the pump.
Elections have consequences.
Posted by: esb at November 5, 2007 02:14 AM
Conspiracy theories! Evil oil men! Wonderful! We feared that the boys had gone back under their rocks for the winter. Glad to have them back!
Posted by: c thomson at November 5, 2007 04:11 AM
There is also the little detail that Iran is supplying many of the weapons killing our soldiers in Iraq.
Posted by: Rich Berger at November 5, 2007 05:35 AM
So we should just look away when the Iranians blatantly flaunt their production of nuclear weapons?
Some things are more important than the price of oil. Back in the "good old days", liberals believed that.
I guess that was before they formed the "reality based community".
Unless, of course, the point of Menzie's post was to argue that we should just get it overwith and bomb Iran. We're paying the economic price for intervention whether we bomb or not.
Posted by: Buzzcut at November 5, 2007 07:17 AM
Rich and Buzzcut,
Menzie takes this into account stating:
...if one believes these threats are necessary, then the higher oil price is the price of pursuing our foreign policy.
But the question is whether statements have more impact on the price of oil than fundamentals. I tend to believe the fundamentals, higher use by ROW and the inflated dollar.
Posted by: Anonymous at November 5, 2007 08:01 AM
Buzzcut: Let me dispense with labels first; you can call my view "liberal," I won't characterize your view conservative, as a means of discrediting the view. Second, I think it hardly liberal to tabulate costs. That's what I did. I leave it to others to assess the expected value of the benefits of the course currently pursued. Third, it seems to me bombing as first recourse forecloses many options, when there is still time (if you've got access to intelligence that indicates imminence of acquisition, you should share it with us). Since you seem to be familiar with the finance literature, you should be attributing some importance to the option value of waiting -- especially when most of the assessments of a limited strike indicate limited efficacy with regard to the stated objectves.
Posted by: Menzie Chinn at November 5, 2007 08:11 AM
Menzie, you're the one who has labeled certain items in your posts as "reality based", which is a pretty loaded term, IMHO. Don't blame me if I read into your posts that you're a liberal. You opened that can of worms when you used the term "reality based" in previous posts.
As to the point at hand, Iran, I honestly don't know what to do, and I don't necessarily support bombing runs at this time. But I reserve the right to support bombing runs in the future, something the "reality based" community outright does not support (judging from placcards at the most recent anti-war protest rally in Chicago last week).
Posted by: Buzzcut at November 5, 2007 08:29 AM
Also, we should be VERY confident that shutting off the flow of oil from Iran would be very destabilizing for the regime. A couple of months of no oil income would go a long way towards formenting revolution.
Of course, the catch is, how do you shut off that oil flow. Bombing the oil terminals could strengthen the regime at home, not weaken it. This is probably why bombing has not commenced.
The best case scenario in Iran is an "Orange/ Cedar" style internal revolution. How we outsiders get that to happen is an open question.
Posted by: Buzzcut at November 5, 2007 08:35 AM
...sorry for the multiple posts...
...isn't Saudi miscalculation with regards to production rates really the cause of $96 dollar oil?
Posted by: Buzzcut at November 5, 2007 08:37 AM
'The best case scenario in Iran is an "Orange/ Cedar" style internal revolution. How we outsiders get that to happen is an open question.'
In a perfect world you get this through properly placed sanctions.
Unfortunately this is not a perfect world; many governments are duplicitous by nature. This means that sanctions cannot be concentrated.
So, it will boil down to a race between regime change inducted by weakened sanctions and Iranian success in developing a nuclear weapon.
Globalization is the gun; politics is knowing when to pull the trigger.
Posted by: Grzesiek at November 5, 2007 09:04 AM
Buzzcut: I've done a search of my posts. I don't find the phrase "reality based" in any of the posts. Perhaps I have used it in some comment, but I'm not partial to that phrase, so doubt I used it. I did use the word "reality", on a number of occasions (punching in the words "reality" and "based" into the search facility pulls up about an equal number of posts from myself and Jim.
I do wonder whether inducing a shutoff of oil shipments and fomenting chaos in Iran would serve US interests. It seems to me we already have plenty anarchy in the region as it now stands.
You might be right that Saudi miscalculation is at the root of the current price. But at least some of the price moves seem to be coincident is policy pronouncements rather than information regarding Saudi oil production. If we have an asset-based view of oil prices, then these coincident events are informative regarding the source of price moves.
Posted by: Menzie Chinn at November 5, 2007 09:11 AM
America goes halfway around the world to start a war of choice, but the country right next door, the one that has been the dominant power in the region for 2,500 years, is somehow not allowed to do anything?
American soldiers are dying because the U.S. opted to start a war. The onus is on us. We are the fuel driving the conflict.
Any attack on Iran will be hugely counterproductive. In the first place, the U.S. military has limited ability to control Iran. The U.S. military is presently totally overextended and has no ability to expand into another conflict. Air strikes will have minimal military effect but will induce massive social counter reaction.
I recently told a friend to expect $300 per barrel oil if the U.S. attacks Iran. That's not far off from the prediction made in the Standard and Poor's article referenced above. Iran does have the ability to close the Straits of Hormuz. No insurance company would cover a tanker trying to run the straits.
Production figures over the last two years have shown that oil supply is now inelastic. We have reached oil peak.
Posted by: fred schumacher at November 5, 2007 09:32 AM
It is amusing to ponder if European-level excise taxes on petrol would send a clear, credible signal of the determination of American citizens to increase fuel efficiency. Such a tax program, if implemented, would make individual Americans significantly richer over time. At the moment, the market has no reason to believe anything other than a continuing strong entitlement attitude with respect to inexpensive fuel.
How many types of tax increases promise higher levels of per capita GDP? In addition to increased energy security?
On the supply side of this equation, it is curious to note that US foreign policy through diplomatic isolation and then military invasion and occupation has kept the former site of the world's second largest conventional reserves of light, high-grade crude oil--Iraq--working well below potential for almost 2 decades now.
The mantle of the second largest reserves of conventional crude has now gone to Iran, which like Saddam Hussein's Iraq before it, is being punished by the USA for opposing Israeli territorial expansion and supporting the enemies of Israel.
Given that the nuclear non-proliferation treaty is in shambles (see Israel, India, Pakistan, N. Korea), and that nuclear weapons are practically much less useful than the public tends to believe, perhaps the USA should exhort Israel to unilaterally disarm its nuclear weapons? Within the region, the supremacy of IDF conventional forces is beyond dispute. Given that the USA is the ultimate guarantor of Israeli security, perhaps more attention should be paid to maintaining and strengthening US hegemony, and thus the ability of the US to extend effective protection to close allies like Israel?
All these and related issues raise interesting questions about the cost effectiveness of aggressive colonialism. Ignoring the victims for the moment, the social return to western colonialism has been rather high over the centuries. By the mid-20th century the return to international taking seems to have turned resoundlingly negative. That would explain why the frequency of colonial-type interventions has radically declined over the last century, and offers hope for a more peaceful, wealthier future.
Posted by: E. Poole at November 5, 2007 09:56 AM
My hat's off to you. You managed to pack an incredible amount of delusion and falsehood in one short post.
Iran (nee Persia) has been the dominant power in the region for 2,500 years? Tell that to Israel, the US and possibly the Soviets. And maybe the Ottomans - they had their day, too.
Oil reaching $300 a bbl? Even the worst S&P scenario tops out at 238 and that is 2007 before it drops to 106 in 2008.
It's our fault that Iran is supplying weapons to kill our soldiers? Oh, that's right, they are the dominant power in the region and they have a right to do so.
Posted by: Rich Berger at November 5, 2007 10:26 AM
If anything, this shows that Bush is a great President, with a 'tough love' approach.
He is forcing the oil price higher, at the right time, to enable American ingenuity to develop technological solutions to these problems. Look at how much hybrids are growing, ethanol is growing, and solar is growing.
The best we can hope for is for oil to hit $120. That will get botht he US and China off of Oil pretty quickly.
Posted by: GK at November 5, 2007 11:05 AM
Israel, the Soviets, the Ottomans, and if you want to go farther back, the Romans, never controlled Iran. Alexander the Great defeated the Iranians, and then was absorbed by them. The U.S. deposed an elected government in Iran and brought back the king. The connection between Iran and southern Iraq goes back centuries, far predating the existence of the U.S.
Mao Tse-Tung called America the Paper Tiger, and now George Bush has proven him right. You can spend more on the military than the rest of the world combined and still not be able to control a third-rate nation, Iraq, or a collection of tribes and warlords, Afghanistan. Mao understood the limits of military power. Bush and Cheney do not.
There is not much difference between $250 (as the Standard and Poors article says) and $300. It's within the ballpark.
I grew up in a refugee camp in Europe after WWII. My family came from Yugoslavia, where as late as 15 years ago we lost 11 family members, all civilians, in the battle for Vukovar. I don't think you people really grasp what war is like. The all-out death and destruction that doesn't happen to "brave soldiers" going overseas, but destroys everything around you and leaves you stranded, a stranger in a strange land.
In the buildup to the Iraq war, I spoke at a university teach-in. I said there would be massive numbers of refugees. History has proven me right. One-fifth of Iraq's pre-war population are now refugees. Do you know how long it takes to rebuild a community life when you make refugees? It takes generations.
Today's New York Times has an article on the installation of the first Catholic cardinal from Iraq. Since the U.S. started the war in Iraq, 2/3 of its Christian population is gone. These are the last speakers of Jesus' native language, Aramaic. (By the way, Aramaic was the lingua franca of the middle east for millenia, and even Persia used it as its primary legal language.)
My cousin is a chemical engineer in the Norwegian oil patch. This summer we talked about oil and where it's headed. His company has been steadily diversifying out of oil work. It's his feeling that oil has peaked. Oil prices will continue to go up. All the saber rattling will continue to drive up oil prices.
George Bush is not a man in touch with reality. He does not make his decisions based on reality. My hope is that the American military will mutiny before he gets done completely destroying it.
Posted by: fred schumacher at November 5, 2007 11:47 AM
Perhaps it would be useful to ask just why we especially care about Iran having a "nuke-u-lar" weapon more than we care about (say) Pakistan having a nuclear arsenal. If it's because we think the Iranian mullahs & clerics are all nutty religious fanatics who just cannot wait for some version of an Islamic rapture...well, that's one view. If you're worried that a nuclear Iran might not be sufficiently overawed by US sabre rattling, then wouldn't it make more sense if Bush cooled the rhetoric and gave the Iranians less urgency for building the bomb? Each time Bush rattles that sabre all he does is give the Iranians yet another reason for wanting a deterrent capability. Or pehaps you're worried that with the bomb Iran will be able to control world oil supplies. If that's the case, then don't you have to ask yourself if Bush isn't already accomplishing the same thing for the Iranians everytime he opens his mouth.
Posted by: 2slugbaits at November 5, 2007 11:49 AM
Among other posts: "Still fighting the rear guard action against reality" is the one that most clearly sticks in my mind.
Now, if I overstetched by reading "reality based" into "reality", my bad, and I appologize.
Posted by: Buzzcut at November 5, 2007 12:04 PM
Iran is a dominant power in the region?
They have only half the population of their neighbor Pakistan, and their other neighbor, Turkey, also has more people than them.
They could not beat Saddam in an 8-year war, and they lost half their navy in 1988 in a confrontation with the US - Operation Praying Mantis.
Posted by: GK at November 5, 2007 12:06 PM
I do wonder whether inducing a shutoff of oil shipments and fomenting chaos in Iran would serve US interests. It seems to me we already have plenty anarchy in the region as it now stands.
Like I said, my hope would be an Orange revolution (what color would be appropriate for Iran?)
You would be taking a risk for more chaos, no doubt about it. That's why I don't support bombing at this time, because I think that it would be more likely to cause chaos than, say, using sanctions to cut off the oil flow.
Also, consider that some chaos may be worth it. What kind of chaos would ensue if Iran nuked Israel, for example.
It looks like Isreal bombed a North Korean built nuclear reactor recently. I don't see chaos unleashed from that action. Surgical strikes can work, they shouldn't be ruled out of hand.
Posted by: Buzzcut at November 5, 2007 12:10 PM
Buzzcut: I concede that "Still fighting the rear guard action against science" would have been more precise.
Posted by: Anonymous at November 5, 2007 12:49 PM
See the Washignton Post article today.
Oil is possibly yet another bubble and traders may be causing this. Bush policies may be adding to this as Menzie states here, but are not probably central to it.
Posted by: TedK at November 5, 2007 02:21 PM
Latest evidence suggests that it may no longer be the case that the big oil companies do better with higher oil prices, although it certainly used to be the case. Exxon Mobil just had a quarter of declining profits. Why? Increasingly they do not own crude oil production and thus must buy crude oil to use in their refineries for their distribution networks. They do not necessarily gain from higher oil prices anymore.
The very well-informed Juan Cole, who pretty much always seems to be right when he is in disagreement with the administration, has been estimating the percentage of weapons from Iran being used against US soldiers at about 8-12%, with much of that possibly coming from other sources than elements of the Iranian government. After all, Iran is in alliance with the current Iraqi government, as most people seem to forget, including frequently the US government.
Iran is producing nuclear weapons? There is no evidence of that, and nobody is claiming that. They are enriching uranium, but the forecasts of how long it will take for that to lead to them even having enough to build one bomb have been put way off. The IAEA sees no evidence they are building bombs, and they were right about this matter on Iraq. Furthermore, there is the minor detail that the Commander-in-Chief and Head of State, and Religious Leader, Ali Khamene'i, has issued a fatwa against nuclear weapons. I see no reason to believe that this religious leader would lie about his intentions or views. If a nuclear weapons program is going on, it is being done so behind his back.
Posted by: Barkley Rosser at November 5, 2007 03:08 PM
Oh yes. The claim that the NPT is in shreds because of the conduct of Israel, India, Pakistan, and North Korea is nonsense. The first three never signed the treaty, and North Korea pulled out of the treaty after we blew them off before they publicly built and tested a plutonium bomb, which had been banned under the earlier agreement from the Clinton period that Bush blew off because he was hoping to overthrow the North Korean government.
As for Iran, although they did hide some of their earlier activities (the US has been opposing any enrichment or civilian nuclear program in Iran for a long time), they have not been shown to be in violation of the NPT at all. So, while the NPT is shakey, it is not in shreds.
Posted by: Barkley Rosser at November 5, 2007 03:47 PM
E. poole and Fred Schumacher,
I was wondering what you and others thought of these links:
"The mantle of the second largest reserves of conventional crude has now gone to Iran,..."
According to this Venezuala now has more oil than Saudi Arabia, and in super heavy tar oil reserves, 5 times as much as Saudi Arabia. Venezuala was applying to OPEC to be acknowledged as having more oil than Saudi Arabia. Palast believes Iraq was invaded, not to take over the oil fields but to take its oil off the market and drive up the prices.
I think this was the theme of the latest "24" series, to bomb the Middle East so those that own oil leases can pump more oil and sell it at higher prices. Unfortunately Jack Bauer has been jailed for drunk driving so he might not be able to save us this time.
Of course it is absurd that a secretary of state Condaleeza Rice, with an oil tanker named after her, would do the bidding of oil companies over the American people's interests. It's also absurd that putting lobbyists in as heads of government departments would cause them to make decisions for their former clients. Unfortunately in virtually every case where Bush has done this, that's what has happened. So why should oil be different?
I agree that oil companies might not make more profut from higher prices. However oil leases they own and manage become worth more with higher prices, and others they own become economical. Tar sands leases they own or manage become more economical, such as in Canada. Oil companies have also paid more dividends overall since prices started to go up, coincidentally when the Bush oil family was elected.
I think most people would believe the Bushes and their cronies capable of manipulating the oil market for their own gain. They are not known for a lack of corruption. The question is how far would they go? Invading Iraq to make money is a horrendous accusation, but most countries invade others to make money in one form or another.
I wish the press would ask Cheney if he is going back to work for Halliburton after he finishes as VP. I'm sure he would be quite welcome.
I am told the best chance for non polluting energy is using Thorium.
"The best we can hope for is for oil to hit $120. That will get both the US and China off of Oil pretty quickly."
China is well set up to get oil from Uzbekistan by pipeline I think, I will have to look it up though.
The idea that oil traders might force oil prices higher, and use political connections to the Bush administration is pure conspiracy theory. Next thing you'll be saying energy traders pushed up electricity prices to California. Oh, wait..
"Some things are more important than the price of oil."
It depends if you are buying or selling it.
"Of course, if one believes these threats are necessary,..."
Necessary for who? Necessary for oil lease owners and cronies of Bush to make money? Who else has profited from invading Iraq so far? Anyone on this forum? Follow the money.
Posted by: RC at November 5, 2007 05:33 PM
Markets are often defined as rational operators; however, they appear to act more often as non-linear chaotic systems. The characteristic quality of a chaotic system is that inputs have amplifying outputs.
Markets work so well not because they subscribe to a correct ideology, but because they function as massively parallel processors. Markets tap into the brain power and creativity of a very large number of people. It is this access to creativity that gives free markets an advantage over command economies. In a command economy, outcomes are dependent on the creativity of a small number of people.
This is not to say that command economies don't work. During wartime they function very well. Both the U.S. and the Soviet Union were on a command economy during World War II. Ironically, Germany wasn't, until late in the war, when Albert Speer was put in charge of the economy and managed to increase production in spite of shortages and intensive strategic bombing. ClearChannel is a command economy. It succeeded because of a handful of creative people (and one very, very creative programmer).
Markets also have characteristics similar to a phased-lock-loop radio receiver. A PLL receiver takes part of its output and feeds it back into the input to achieve "lock" on the signal. PLLs are very good at digging a signal out of the back-ground noise. Markets are also very good at finding a signal. Sometimes the feedback loop can be overloaded, resulting in greed or panic.
The oil and grain markets, I think, have definitely locked in on a signal. The Washington Post article hints at it and so does the graph that started this blog. First, both markets recognize their commodities have reached a status of inelastic supply. Oil has hit peak and human population growth has caught up with the Green Revolution. Demand is increasing, but the ability to significantly ramp up production is not there.
Second, the markets are cueing in to the Bush Administration's belicosity. They see statements of late, regarding Iran, to be a recapitulation of the buildup to the Iraq War. We have now seen enough of George Bush and Dick Cheney to know that they march to their own drummers and are not at all receptive to outside input. As Seymor Hirsh stated in a recent video interview on the New Yorker website, you can always trust Bush to do what he says and there is nothing you can do to change the action he decides on.
It has been said that in a rising market any fool can make money. But these markets are not foolish. They are not bidding up the price because they want to throw away money, and they are not bidding up the price because they have too much money and no where to put it. They've locked in on a signal.
Posted by: fred schumacher at November 5, 2007 05:50 PM
Sure Halliburton has made gobs of money, and I am perfectly willing to believe that was part of Cheney's motivation, and clearly he has been very important in the invasion of Iraq. But, regarding the broader issue of oil companies and Iraq, there are two problems. The first is that there have been quite a few statements made at the time of the invasion from oil majors CEOs indicating a distinct lack of enthusiasm for the invasion. Something about reducing the security of production and transportation of oil, and such matters. You might say, as you have, ah ha! oil prices have risen and so have their profits! (at least until recently). But oil production in Iraq is not zero and is currently not that far off what it was in 2003. The price is clearly higher for other reasons, none of them forecast very well back then.
Posted by: Barkley Rosser at November 5, 2007 07:02 PM
Iraq is so significant in terms of oil reserves I doubt oil CEOs would publish all their hopes and wishes in regard to it. However they seemed happy to tell Greg Palast all about it in interviews:
I wonder if a non oil administration might not have kept the price closer to $20, perhaps imposed an oil tax at the pump, invested more in renewable energies, and then all that money might have stayed at home.
Posted by: RC at November 5, 2007 10:42 PM
So you think that the price of oil would be different if the US hadn't invaded and Saddam was still alive and in control of Iraq?
Posted by: Buzzcut at November 6, 2007 06:09 AM
I'm all for a modestly higher gasoline tax, or even better, a carbon tax, if the revenues are used to eliminate another tax like the income or capital gains tax.
But anyone who thinks that government spending on "renewable energy" or any such thing can decrease what we're spending on oil really needs to justify it with a nice multiple regression analysis.
I think that the price of oil drives investment in renewables, not the other way around!
Yes, it's a Saab turbo convertible hybrid that runs on 100% ethanol. It makes 260 hp and does 0-60 in under 7 seconds!
Did I mention that it's a convertible?
Take that, Prius!
Posted by: Buzzcut at November 6, 2007 06:23 AM
Your link did not work for me. Was that the oil company CEOs plotting?
Do I think Gore would have kept the price at $20/per barrel? I think that given rising demand from China and the emerging problems in the megapools, such as al Ghawar in Saudi Arabia, Cantarell in Mexico, and Daicheng in China, no way. Maybe Gore would have gotten a gas tax through, although maybe not, given the likelihood of solid Republican opposition with filibusters in the Senate.
Personally, I think the invasion ultimately had to do with Bush's own oedipal issues rather than oil, Israel, or any of the other usual conspiratorial candidates. Remember that with regard to the price of oil, he had mixed motives as of 2003. Sure, a higher price would increase profits for many oil companies (and Halliburton would do very well with its war-related contracts), but OTOH, a higher price of oil threatened a recession, which potentially threatened his reelection, although in the end no recession happened even though the price of oil did go way up, far more than anybody was forecasting. Heck, a lot of people, including some in the Administration, were defending the invasion on the grounds that it would bring about a lower price of oil, once our companies got in there and started increasing production in Iraq!
While I have just argued to RC that the price of oil was almost inevitably going to rise over the last few years due to fundamental supply and demand conditions, there is good reason to believe it would be lower today if we had not invaded. For starters, production in Iraq has never gotten back to where it was when Saddam was in power. There has been a reduced supply out of Iraq due to the invasion for over four years, although by now that is not much more than about half a million barrels a day, probably.
Another factor is that it is quite possible that if we had not invaded Iraq, Ahmadinejad would not have been elected president of Iran (although his election was heavily driven by internal economic and social factors). Now, I have already argued that there is no solid evidence of an actual nuclear weapons program in Iran. But, if the more reasonable Rafsanjani had been elected, we might not be in such a war frenzy over Iran, and I do accept the recent reports that at least some of the most recent runup in prices reflects the expectation of war between the US and Iran. Quite a few observers claim that without that, the currentt price would be in the $70 per barrel range without that speculation, with even that higher than would be the case if we had that extra production coming out of Iraq. But would that price be below $50 per barrel if Saddam had remained in power? No way.
Posted by: Barkley Rosser at November 6, 2007 10:28 AM
"I'm all for a modestly higher gasoline tax, or even better, a carbon tax, if the revenues are used to eliminate another tax like the income or capital gains tax."
I got a better idea. Put the government finances in order. Apply carbon taxes to that problem. Tax cuts are a thing of the past. Bush's deferred taxes will soon come back to haunt us.
Posted by: General Specific at November 6, 2007 10:47 AM
If Iran wanted to kill GIs in Iraq you'd know about it - in fact if you bomb Iran you might know about it all too soon. There is simply no evidence at all other than the administration's word that they have armed the militias fighting the US (they *may* have armed some who are not fighting them). Experience should show you how much that word is worth when they're trying to build support for a war. Most observers think it's our friends the Saudis (people terrified of Shia Iran) who provide the bulk of the arms entering Iraq.
There is almost as little evidence that Iran is actively pursuing a nuclear weapon - the IAEA (who were spot on about Iraq's nukes in the face of very strong US arm-twisting to say otherwise) clearly don't think so. And neither do the Russians, who ought to be in about the best position of anyone to know.
Your media over there is a disgrace in not demanding evidence to back these claims by proven liars.
[edited by JDH for civility]
Posted by: derrida derider at November 6, 2007 05:16 PM
I'm trying to avoid speculating too much on this subject. My original post was that the Bush administration is full of people from the oil industry. I believe that is well proven. Also I think it is well known that the price of oil went up soon after Bush came to power, and that his foreign policy has been a strong factor in this.
Another factor which may have pushed the price up was increasing the strategic oil reserves:
Historically politicians who have a vested interest in something happening often pursue policies that make that thing happen. We saw that Enron was capable of manipulating electricity prices, so why would traders and Bush cronies stop at manipulating oil prices? Beyond that I have no real evidence that this did happen. It will be interesting if the Democrats win the presidency and oil goes back down again though.
Greg Palast's investigations are a separate issue, and there I am referring to what hard evidence he uncovered:
The idea that various companies have conspired to reduce oil production and keep prices high is not implausible, as Palast shows the oil companies made a lot of money from these price increases. So historically this market restriction has happened, in fact OPEC was created to form a cartel and restrict production, to keep prices higher.
According to Palast's research, this has happened historically with Iraq oil, I see no reason for anyone to falsify this evidence. Being history, no one benefits from making this up.
Restricting Iraq oil production from the first Gulf war to the present day is a more serious accusation. Still one cannot deny that Iraq is largely unexplored for oil and was unable to sell much of it because of the food for oil program. If Iraq had increased production through more exploration then likely prices would have crashed, since they were already down to $20 a barrel.
I do think iraq was invaded largely because of oil, mainly because no other dictators were deposed by Bush, no other democracies in non oil countries were proposed by Bush, etc. There are plenty of countries in Africa where do gooders could help people, and Bush did nothing for them. So the humanitarian motives seem like an excuse to me. The WMD issue may have been a factor, but the intelligence said there was no threat and it was right.
So that leaves some vague motives related to oil. The most likely scenario was to depose Saddam, put in Chalabi as the new friendly dictator and make crony deals with him. This is nothing unusual for the US, to prop up dictators who favor cronies of the government. In fact it has been the historical rule. So I think this is plausible.
This plan didn't work obviously, but propping up pro western dictators and suppressing terrorists has never been an easy task. Look at the Shah and Iran for example. Look at Saudi Arabia and their terrorist problems. Look at Somoza, the Monroe Doctrine, etc. In all these cases terrorism developed from the disgruntled population.
So historically the price of oil has been manipulated as much as might be happening today. That doesn't mean this manipulation is happening, however OPEC must be pleased with how their cartel is working lately.
The question of whether Bush is sabre rattling to keep oil prices high is a more serious accusation, and one that is probably unprovable. I think that is a separate issue that is dominated by Bush Derangement Syndrome, but it may be true for all I know.
Posted by: RC at November 6, 2007 05:26 PM
We're reaching diminishing returns. Sure, if someone wants to believe that everything is being driven by the oil companies or their lackies, they can find evidence for it, especially if they ignore the evidence to the contrary.
I note in the motives for Bush's invasion you failed to deal with the one I put forward as most likely, oedipal desire to prove himself the bigger man than his dad by taking out Saddam. Just in case you think this is not it, I suggest you go read Woodward's books. Cheney played to this big time, although one can always view Cheney as the Oil Companies' Man here.
Sure, the plan was to put Chalabi in. But he was not put in. Why not?
Most of the mumbling about oil companies before the invasion was about privatization schemes and bringing in the oil companies. But, except for Halliburton for peripheral stuff, they are not in, not even now after over four years. Still no oil law there. Why not?
And, of course, there remains this contradiction: did Bush want to do it to give Iraqi oil production to the companies, or to have terrorists reducing global production by blowing up Iraqi facilities? The latter is what has happened, but do you really think that this outcome was a plot by Bush and the oil companies? Please...
Posted by: Barkley Rosser at November 6, 2007 11:09 PM
From Gen Petraeus's Sept testimony:
"In the past six months, we have also targeted Shia militia extremists, capturing a number of senior leaders and fighters, as well as the deputy commander of Lebanese Hezbollah Department 2800, the organization created to support the training, arming, funding ? in some cases ? direction of the militia extremists by the Iranian Republican Guard Corps Quds Force. These elements have assassinated and kidnapped Iraqi governmental leaders, killed and wounded our soldiers with advanced explosive devices provided by Iran and indiscriminately rocketed civilians in the international zone and elsewhere.
It is increasingly apparent to both coalition and Iraqi leaders that Iran, through the use of this Quds Force, seeks to turn the Iraqi special groups into Hezbollah-like force to serve its interests and fight a proxy war against the Iraqi state and coalition forces in Iraq."
Call him a liar if you would like, but I do not find his statements very hard to believe given Iran's anxiety about our success in Iraq, and their long-standing support of terrorists in the region.
You would have been better off if JDH had edited your post for truth.
Posted by: Rich Berger at November 7, 2007 05:11 AM
So, DD overstated it. But a careful parsing of this statement does not provide much. The statements about funding and all that refer to Hezbollah, one leader of which was caught in Iraq apparently. Iraq is likely to be a transit territory for those guys going to Iran and back. Heck, the current PM of Iraq, al-Maliki was a major supporter of Hezbollah at the time of its founding in the early 80s, while he was in exile in Syria.
So, beyond that we have that some Shi'i militias are attacking or capturing Iraqi government leaders. Well, we know that there is ongoing intr-Shi'i fighting between rival militias within the government. It is also the case that the most anti-Iranian ones are the Mahdi army of Moqtada al-Sadr, whom the US has been most after, although his group has been laying low most recently. The most pro-Iranian ones are the Hakim-led group, who are part of the government.
As for the explosive devices provided by Iran, just what percentage of such explosive devices are coming from Iran? Juan Cole has reported that we are talking about 8-12%, with many of those having likely come from other sources indirectly rather than directly from the al-Quds force or other elements of the Iranian government.
The bottom line, forgotten in the push to war with Iran, is that the current leaders of Iraq are friendly with the current leaders of Iran. The Iranian government has no interest whatsoever in overthrowing them, although they may well wish to see US forces out of Iraq.
Posted by: Barkley Rosser at November 7, 2007 07:40 AM
Well, Barkley, I am not impressed with your blithe dismissal of Iranian complicity in the killing of our troops, relying as much as you do on General Juan Cole. 8-12%, that's not so bad!
Posted by: Rich Berger at November 7, 2007 09:05 AM
Well, there is a lot we are not being told about this. But, certain points should be kept in mind. The only people that are being directly armed by the Iranians are Shi'i militias associated with the Iraqi government, such as the Badr army of the Hakims. These guys are not shooting at US troops on their own. However, if our troops attack them, certainly they will fire back. The Iranians are not arming the Mahdi army that we have been attacking more. The Iranians are also not arming the Sunnis, who do most of the attacking of us. They have arms from us, the Saudis, and the Russians, mostly. To the extent they have arms from the Iranians, they have gotten them indirectly.
Posted by: Barkley Rosser at November 7, 2007 10:49 PM
And as for Petraeus, I doubt he lies, but I also suspect that he shades or presents the truth in ways that fit as well the current political line of the administration. That statement about Iranian arms is pretty vague on a lot of key points. It is certainly no basis for going to war with them, although it might be a basis for complaining to them.
Posted by: Barkley Rosser at November 7, 2007 10:51 PM
And to just pound the point in hard, I note that today the US military in Iraq is releasing all nine of the Iranians it seized, who were accused of being al Quds agents. Turns out they are not, just as they and the Iranian and Iraqi governments both claimed all along. However, in the meantime while they were held, they were promoted to Congress as justifications for Kyl-Lieberman and the more recent anti-al-Quds resolution that Hillary Clinton voted for. The war whoopers against Iran are at it, just as they were before our invasion of Iraq, pushed hard by Dick Cheney, and using every scrap of pseudo-information, even when it turns out to be just plain false, to push the drive.
Posted by: Barkley Rosser at November 8, 2007 09:51 AM
There's more to the story than you reveal-
Posted by: Rich Berger at November 8, 2007 09:58 AM
I had trouble opening that. Would you like to enlighten us on what is/are the main point(s) in this article that you think is/are so important, please?
Posted by: Barkley Rosser at November 8, 2007 05:15 PM
I am restricting what I am saying to within certain boundaries, that's why there are diminishing returns. Just because I think there may be a cause and effect relationship between an administration with strong family and financial ties to oil and the price of oil doesn't mean I have an opinion on everything else they do. If I think there is insufficient evidence for something I prefer not to discuss it, except to say who knows.
I don't know what is worse, to invade Iraq to impress your father, or to replace one corrupt dictator with another. The second makes more sense from a historical perspective because the US has propped up dictators for perhaps hundreds of years. I'm not knocking the government by saying that, democracy has never worked well with colonial or imperial policies. I don't see Bush trying to have elections in Saudi Arabia, Egypt, Jordon, Kuwait, and I don't see him demanding the Palestinians have an equal vote to the Israelis in Israel itself. The only one he complains about democracy in, is the only one that has the fairest elections, which is Iran. Fair enough, but I am sympathetic to the rhetoric of the neocons for democracy. It has to happen someday, and no one expected it to work as well as it did in South America.
Personally I don't like the idea of Bush invading to impress Poppy, it sounds like a cover story, or worse that Bush is as bad as the opinion polls seem to think. The idea of the US president invading countries randomly like a Caesar is too scary to think about. If the Bushes have such a hold on the Republican process then I really wonder where the US will end up. What is even more worrying is people accepting the idea of a president doing such a thing and then reelecting him.
Ultimately the idea of imperialism is to make money for the ruling country, but I don't see where the money is actually going to the US people. The companies making all the money don't seem to be paying much in taxes or providing jobs in the US. If this is a new kind of Monroe Doctrine, then there is little return for it. The only chance of this was with low oil prices, but then we get back to my original post. If you want an emperor you have to give the people the bread and circuses at least.
I'm not trying to prove Chalabi was the reason for the invasion, but a lot of people think so. Here's what Chalabi himself said, and I can't think of a reason for him to lie about this:
I don't have a reference but I did read that the State Department stopped Chalabi and demanded elections instead. It seems reasonable that a faction in the government would be against Chalabi and have some ideals for democracy. Indeed the noecons themselves professed to be doing it for democracy to some degree.
It's difficult to find evidence for what happened because both the left and right spout their talking points on this.
My *guess* is that Chalabi promised the Jewish lobby and the Jewish neocons a pipeline to Israel and a less threatening Iraq. He promised the Bushes some fat contracts and oil leases. He seems to have promised Iran a lot as well, which may be his main client.
Since he is allegedly involved in bank fraud from Jordon I wouldn't put much past him. Once the invasion happened he may have been to unreliable, unpopular with the Iraqis, and in looking for a new dictator a quagmire developed.
There's a temptation to look for a master plan, and Palast may go to far in claiming to find one. The equal temptation is to think of them as incompetent and idealistic, but the truth is likely a mix of these.
My view of the current situation is if you wouldn't invade Iraq now with the current situation you should leave. It's broken, but if you wouldn't fix it if someone else broke it, then why fix it if the US broke it. No one wanted to fix it when people were starving under the Food for Oil program, so why now?
Posted by: RC at November 8, 2007 10:51 PM
I do not disagree that Chalabi played a very important role. But he is a corrupt and power hungry guy who was feeding a bunch of suckers lines he knew they wanted to hear. Heck, even though he did not get the top job, he has served, more than once I think, as Energy Minister in Iraq since the invasion, but to the extent he promised oil deals to the US companies, he has not delivered (except to Halliburton, of course).
Bush is even worse than the current polls say, much worse. And oedipal motives are not about impressing Poppy; they are about impressing Mommy, and by all accounts, W is the apple of his mother's eye. Iraq was not a random invasion. It was where Poppy had invaded and had not "finished the job like a man," as Cheney fed him the line accordoing to Woodward, although presumably the part that was to impress both Poppy and Mommy was to get revenge for Saddam attempting assassinate Poppy. Apparently in the first Bush administration, W was the hit man revenge guy, going after their enemies, while being egged on by his really nasty mother.
(Forget the grandmother bit; she is bad trouble.)
Also, I would not call al-Maliki a dictator. Far from it. If anything, the problem is that he lacks sufficient power to do much. Heck, he cannot even get an oil law passed!
Posted by: Barkley Rosser at November 9, 2007 09:59 AM
I guess the old saying applies to the Bush administration, "never attribute to malice what can be adequately explained by stupidity".
Posted by: RC at November 10, 2007 04:41 AM