February 26, 2001
Who
Cares if the Oil Runs Out?
We have to show a little more faith in the free
markets
OIL
AND SADDAM
Saddam
Hussein is a madman, who should not be allowed control of the worlds
oil resources, as this will put the West in permanent recession.
This is the argument of the "hard
nosed realists" who have been conned into supporting our
continuing presence
in the Middle East. The idea that Saddam is any more irrational
than the other brutal dictators who inhabit that region, our erstwhile
ally Assad for instance or our continuing allies in the Saud
family, is a hard point to prove at least objectively. Similarly,
the idea that the Arab world, or at least the Arabian peninsular,
would be able to stick together under one ruler ignores the whole
history of false starts of the Pan-Arabist movement. These two points
are interesting, but not really our business, unless the third point
has any relevance turning the spigot on the world’s oil supply
will cast the West into permanent darkness.
DON’T
MENTION OPEC
One
other thing I will not mention is the idea that the whole process
has badly backfired. The embargo on Iraq has severely restricted
oil supplies worldwide, which combined with an increased demand
from recovering economies in Europe and Asia has given OPEC
new life. Of course, this is all true; the one action that could
do most to lift the upward pressure on oil prices would be lifting
the blockade on Iraq. This is beside the point as it purely
shows bad execution of the original plot and not the intellectual
conceit behind it. Similarly, the fact that Britain, as an offshore
(and therefore expensive) producer and exporter of oil, actually
benefits from expensive oil is ignored by our leaders.
THE
LIGHTS GO OUT
So,
we’re stripped to the essentials, minus the implausibility and unintended
consequences, of the economic case for intervening in Iraq. If Saddam
is set loose he will take over all the oil producing regions of
the Arabian peninsular, block the pipelines and the oil dependent
will be cast into darkness and perpetual recession. Will it? Are
we not ignoring something quite basic here, like supply and demand?
A
FUTURE WORLD
Imagine
a world where the lily-livered West ignored Saddam’s threat to their
basic values and he went and invaded Kuwait, and Saudi Arabia, and
the United Arab Emirates, and Qatar, and Iran. No, stop smirking
at the back, we have to pretend that this is plausible after
all, our leaders think it is. So evil Saddam gets to overrun all
these model democracies and just to prove that he is mad as well
he decides to sharply restrict the oil supply so much that the price
of oil rockets. What happens then?
NEW
SUPPLY
When
the supply falls and demand remains constant the price rises. That
is basic economics, and this law is familiar to every intelligent
adult. However, what happens then? The first thing that would happen
would be that oil from other sources would come back on line attracted
by the high prices. In the short term, some of it may be stockpiled
but others would come from marginal or nearly exhausted oil
drillings. Too expensive at present prices, these would suddenly
become economical. Some of the marginal fields will even be in the
North Sea, and benefit Britain’s economy. Investment in these fields
would rocket, and it would rocket for every other part of the oil
industry as profits are suddenly more attractive. This would show
in the medium term as new drilling and transportation technologies
are developed and previously uneconomic or politically unstable
fields are drilled. In the long term, of course, there will be a
large amount of money going to the almost speculative art of oil
exploration. The returns will mean that more money will be gambled
and more oil sources found. In fact, this is largely what
happened after 1973, which is why our oil supply is now far more
diverse than it was then. These new sources of supply will mean
that the price will still rise sharply, but much of the savage edge
will be taken off.
|