A Philosopher's Blog

Oil

Posted in Business, Politics by Michael LaBossiere on February 21, 2011
El Saharara oil field, in Libya, operated by R...

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As revolution and rebellion sweep the Middle East, Americans watch as their gas prices creep upwards. Oil is, of course, the defining factor of the Middle East and the foundation of our interest in the region. Oil and the money it generates have helped create and sustain autocratic leaders and dictatorships. It yields the funds needed to maintain oppressive states. It also provides the  influence needed to ensure that other nations will be willing to support almost any regime that can keep the oil flowing.

Speaking of oil, given that the region is so volatile, one might wonder why we are still so reliant on oil and why major companies are quite willing to stick with it as their prime source of profit. One obvious reason is inertia and investment-the economy grew on oil and is designed to run on oil. Switching over is seen as costly and difficult and hence there is little inclination to do so.

Another possible factor is that the volatility provides a built in price enhancer. After all, almost as soon as news of trouble in the Middle East makes the news, oil prices begin to rise. For example, the unrest in Libya is currently used to justify a significant increase in the price of oil. These surges in prices provide excellent sources of profit boosts and they happen often enough that they can be counted on.

Of course, the unrest does present some risks. Facilities can be damaged, people can come into power that are not friendly to the oil companies, supplies can be cut in a way that actually interferes with profits and so on. However, it does seem that a crisis in the Middle East is generally money in the bank for certain companies.

For the rest of us, the fluctuation of oil prices would seem to give us yet another reason to get away from an oil based economy. Of course, such attempts are slammed as being unrealistic, leftist, unnecessary or otherwise defective and hence little or anything is every done.

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12 Responses

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  1. FRE said, on February 21, 2011 at 4:42 pm

    Even before 1970, there were warnings about the risks associated with our growing dependence on imported oil, but the warnings were largely ignored. Since then, we have become even more dependent on imported oil.

    Even with the technology that was available in 1970, much could have been done to prevent our becoming ever more dependent on imported oil. Better city planning would have reduced commuting distances and made public transportation more practical and more efficient. Vehicles could have been made considerably more fuel efficient. Large commercial vehicles could have used natural gas for fuel. For medium distance travel, train service could have been improved to reduce the amount of travel done by air and private automobiles. But, instead of doing any of those things, we unwisely ignored the problem.

    Better city planning, etc., would not have been easy since it would have required more government control of how property owners could develop their land. There would have been constitutional issues to deal with. Even so, if people did not have a knee-jerk reaction to bad news, probably ways would have been found to deal with those problems. Transferring a considerable portion of the income tax burden to an energy tax might have gone a long way towards reducing our dependence on imported oil.

    One would suppose that our importing oil would create wealth in the oil exporting countries and improve the lives of the people there. Probably it has to some degree in a few places, but it has also damaged the lives of many people in oil exporting countries by creating severe pollution and making it possible for autocratic rulers to hang on to power to the detriment of the people. Our dependence on imported oil also greatly influences our foreign policy in ways that are not always beneficial.

    As a result of ignoring potential problems, we may be faced with a sudden reduction in imported oil accompanied by severe economic effects. It could become a serious hardship. But, with a bit of luck and a concerted effort, we may be able to muddle through with only moderate problems.

    • Michael LaBossiere said, on February 21, 2011 at 7:52 pm

      Interestingly, oil has been something of a curse in other countries. The typical scenario has been that a limited number of people (usually the rulers) get very rich and use that money and power to control the rest of the population. The problem is, to oversimplify it a great deal, a concentration problem.

  2. goldtracker said, on February 21, 2011 at 5:47 pm

    Whenever you have a change in leadership the vacuum left tends to make markets nervous. So oil today isn’t unexpected. I have say the post by zero hedge is really interesting. $100 billion of US GDP wiped out for every dollar rise in Oil. That’s intriguing and something to think about.

  3. WTP said, on February 21, 2011 at 9:08 pm

    “Oil and the money it generates have helped create and sustain autocratic leaders and dictatorships” Because freedom of thought, freedom of speech, and democracy were so well regarded and respected in these areas of the world until all that nasty oil got discovered. Like Ka-Daffy was our idea.

    “one might wonder why we are still so reliant on oil and why major companies are quite willing to stick with it as their prime source of profit. One obvious reason is ” it’s the most efficient tool for the job. Other energy sources are simply not viable. The cost of switching to a different energy source will be irrelevant once it becomes viable.

    The standard mantra on oil and the Middle East that has been repeated over and over until everyone believes it, is that we support and create these dictators for the sole purpose of getting cheap oil. Like it wouldn’t be much cheaper and far more reliable if we were buying it from democratic countries like the UK or Japan.

    “the unrest in Libya is currently used to justify a significant increase in the price of oil.” No, the price of oil is rising because if there is an interruption in the supply, more must be stockpiled to ensure supply through the anticipated drought, thus creating a temporary spike in demand. If the oil continues to flow, as it generally has throughout these many mini-crises, the price will drop and some people will lose money. Do you think that all of the people who bought oil for $140/bbl several years ago were able to sell it for that price, or did some people take a financial beating as the price descended into the $30’s?

    I thought you believed that “while I enjoy a conspiracy theory as much as anyone, I only give them the credence they earn-which is generally little to none”?

    • FRE said, on February 22, 2011 at 1:13 am

      It’s true that there is no easy substitute for oil, although that is less true now than it was 40 years ago. The technology now exists for battery electric vehicles to replace vehicles which operate on petroleum-based fuels, although there would be distance limitations and increased costs which would make them less than ideal. But even 40 years ago, we could have used better city planning to reduce the need for driving and make public transportation more practical. That, plus increasing the fuel efficiency of vehicles, would have greatly reduced our need for oil. If we had done that, it would have also increased the practicality of battery electric vehicles by reducing the distance they would need to be driven.

      Our rejection of nuclear power has also exacerbated the oil problem. If we had plentiful and inexpensive nuclear power available, we could use it to manufacture liquid fuels to substitute for petroleum. And, contrary to what is commonly believed, nuclear power is less expensive than power generated from coal; the cost of nuclear power has been driven up by bureaucratic bungling. For more information on that, visit the following:

      http://www.phyast.pitt.edu/~blc/book/chapter9.html

      Also, we have not selected the best nuclear technology. For more information on a superior nuclear technology that does not use uranium and which solves many of the problems associated with uranium reactors, visit the following:

      So it appears that better city planning plus technology can get us out of the imported oil problem and other problems as well, but perhaps not fast enough.

    • Michael LaBossiere said, on February 22, 2011 at 4:48 pm

      It helps. I didn’t claim that it was the sole factor.

  4. WTP said, on February 22, 2011 at 10:07 am

    “we could have used better city planning” Better how? It’s easy to say we could have done things better. Maybe, maybe not. Maybe if we planned “better” we’d be looking at what we have today and saying “That’s what we should have done!”. Either way, people are going to live the way they want. A big part of why people moved out of the cities was, and to a great extent still is, crime. Cities are crappy places to raise children. One of the issues of the 60’s and 70’s was to get children out of the bustle and chaos of the cities because of the harm it was doing to them.

    As for nuclear power, please notice who’s bureaucratic bungling it was that drove up the cost of nuclear power. Contrary to your link, the bungling was, in fact directly caused by fear of reactor accidents, or of radioactive materials released into the environment, or of radioactive waste. I was there, I read the newspapers. I saw the mockery of nuclear power by the political left and the cultural movers and shakers. One popluar bumper sticker that used to fascinate me that I to see frequently read simply “Nuclear Unclear”. As if transposing the first two letters of the word “nuclear” was some sort of argument, rational or otherwise. It was fear that drove the beaucratic bungling, which only intensified after Chernobyl, regardless of the facts of that situation relative to the kind of plants built in the US.

    • WTP said, on February 22, 2011 at 10:11 am

      FWIW…One other popular bumper sticker that you used to see on cars of many Republicans back in that day read “Nuclear energy is safer than riding in Ted Kennedy’s car”.

      • Michael LaBossiere said, on February 22, 2011 at 4:43 pm

        That is true. Or was. Actually, probably still is.

      • FRE said, on February 22, 2011 at 4:55 pm

        Actually, it’s safer than riding in anyone’s car. If it were safer only than riding in Ted Kennedy’s car, it would not be safe enough.

  5. FRE said, on February 22, 2011 at 2:11 pm

    Better city planning how? There is no mystery about that.

    Leapfrog development has created much of the problem. New developments occur away from the city because land is cheaper there. It is assumed that roads will be built and improved to expedite accessibility. The result is more and more driving; it makes no sense. It also exacerbates social problems because many people cannot survive without a car, including poor people who either cannot get to where the jobs are or are forced to spend money on a car when they would be better off spending money on other things. Regardless of the reasons for people’s moving to the suburbs, doing so has greatly exacerbated the problem of depending excessively on oil. If it were not practical to move to areas where there is no public transportation, people would work to improve the areas where they live instead of escaping to the suburbs.

    Regarding the bureaucratic bungling that drove up the cost of nuclear power, the fact is that regardless of who is responsible, it did happen and it was to our detriment. We need pragmatism, not pointless arguments over whether a particular position is liberal, conservative, or whatever. Unfortunately, politicians the world over divide people and create issues simply to win elections and we permit them to get away with it. Too often that results in bad decisions and we all end up paying the price.

    Part of the problem is that journalists are usually ill informed. Few have had even one course in physics at the college level. They rarely investigate thoroughly. When they write articles on radiation (or almost any subject), they either fail to quantify or put the numbers into perspective so that people can readily understand them. For example, they write about radiation leaks without bothering to report how the radiation leaked compares with the natural background radiation. If there is a tritium leak that adds perhaps 0.00001% to the natural background radiation, they fail to state that and leave the public thinking that there is a serious danger. They also fail to advise the public that coal-burning power plants emit many times as much radiation as nuclear plants are permitted to emit.

    The irresponsible media have the public so afraid of anything nuclear that the NMR scanner (nuclear magnetic resonance) had to be renamed MRI (magnetic resonance imaging).

    I’ve hit on newspaper articles, but TV is even worse. The purpose of news programs is no longer to convey information, but rather, to entertain the public to maximize advertising revenue. Else, they wouldn’t have two newscasters (a man and a woman) reading alternate lines and telling jokes.

    If the public had been adequately informed about nuclear power, then we’d be much better off. We’d also be better off if thorium technology had not been scrapped in favor of uranium.

    Probably there should be a philosopher’s blog on what is wrong with the media and how we have been affected by it. I’m certain that there would be many interesting responses.

  6. WTP said, on February 22, 2011 at 6:39 pm

    New developments occur away from the city because land is cheaper there. Because it is safer there. Because there is more open space there. Because the crime is less there. Because people want to raise their children there. Because due to things like rent control, you can’t find a decent place to live in some cities even when you want to live there.

    Because people want to live there.

    “Part of the problem is that journalists are usually ill informed. Few have had even one course in physics at the college level. They rarely investigate thoroughly.” Oh, precisely. Well, that and their left-wing bias had them seeing things that way and to put their trust in “scientists” who told them what they wanted to hear. Of course, the problem with journalists still exists so how do you know your concerns of today are not media-driven? Eveyone I’ve ever talked to in the oil business, and by this I mean real engineers and such that I’ve met casually…not PR folks, has told me there are enough known, proven oil reserves to last for another 150 years. And that’s not counting the 2/3 of oil in most wells that we don’t have the technology today to pumpt out.


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