by Trisha

Created on: June 05, 2008   Last Updated: June 07, 2008

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Oil Companies...The New Terrorist!

Since 1993 when OPEC unleashed their embargo during the Arab-Isreali war and engineered the first violent oil rise, there have been major price pikes. After the first two oil spikes, prices eventually dropped to levels below where the rise began, and after the third they fell 75%. The 1st spike began in 1979 with the Iranian revolution, but prices did not return to pre-revolution levels until seven years later. The 2nd spike in 1990 was prompted by the Iraq invasion of Kuwait. The 3rd spike which began in early 1999, peaked in late 2000, and by late 2001 had given back 75% of increase, but went no further. In 1979 the return of the Ayatollah Khomeni, the founding of the Islamic Republic, and the Iran-Iraq War led to several years of uncertain supply,political, and military risk in the Persian Gulf oil producing nations.

The 1990-1991 spike was closely tied to Persian Gulf War, and prices began a sharp downward run as Operation Desert Storm, and the United States led re-conquest of Kuwait began. The 2001 recession in the United States, and the terrorists attacks in September of that year which sparked fears of a worldwide economic downturn brought prices to about $17 dollars a barrel by the beginning of 2003 from a high of $30 a year and a half earlier.

The United States and global economic expansions which began in the latter half of 2002, still have not ceased, and neither have the rise in oil prices. This current price increase is demand driven, but the demand is not the only factor driving the price of oil. Oil is a limited chief raw material, we all know this, but it is limited in the sense of the amount that is available at any particular price at any particular time.

The world is not running out of oil, but it is running out of "immediately accessible inexpensive oil". It has become increasingly hard for oil producers to supplement supply by the 1. million barrels a day that us needed annually to keep up with demand . The time lag for bringing new production to market is long, far to long for the discovery of new sources, as in the Brazilian continental shelf finds to attract price.

The United States, the world's largest consumer of oil is also it's third largest producer , behind Saudi Arabia and Russia. America has substantial untapped oil and energy resources such as natural gas, nuclear energy, and in coal in The Arctic Natural Reserve. One million barrels is what might be flowing today from The Arctic Natural Reserve if in 1995 President Clinton had not vetoed legislation to prevent drilling there.

The United States also has one of the most technically advanced environmentally regulated energy sector. By refusing to develop it's own resources, the United States has permitted external producers to determine marginal productions. The world's largest oil consumer is "hostage" to some of the world's smallest. Unwilling to increase it own production, it should be of no surprise to United States consumers that oil companies refuse to do so for our benefit.

For the most part, oil prices are a classic supply and demand question. Demand for oil is rising. Supply is not. Perhaps more importantly for oil prices, is the perception that future demand is stronger. India and China are current industrializes, but there are huge swath's of the world waiting for their turn to join the consumers future.

It is blindness not to use there desire for a better life, and blindness not to understand that the era of cheap natural resources is ending, if it is a future that only oil companies seem to perceive.

Source: George F. Will. The Washington Post
Source: Joseph Trevisani. FX Solutions

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