PUBLICUSS
By Robert F. Seibert
Saudi Arabia Does Us A Favor
Although it might not seem so
initially, in refusing President BushÕs request for an immediate increase in
its oil production, Saudi Arabia may be doing us a great favor. The kingÕs refusal of George BushÕs
request is appropriate given the state of the petroleum industry. Metaphorically, the king acted like a
responsible corner drug dealer, not providing the user with more drugs than he
or she can safely use, not selling them drugs for which they cannot pay. A wise
vendor doesnÕt destroy the market for the product.
The Bushes may be unhappy about
this turn of events. After all,
they have been holding hands (literally, I remind you) with the Saudi
leadership for decades. ItÕs been
something of a turbulent romance between the Saudis and the U.S. over the
years. The nadir of the
relationship occurred in 1973, during the Arab oil embargo against the
U.S. Henry Kissinger actually
stated publicly that if they wouldnÕt sell us their oil we might just go and
get it. And the public discourse
after the World Trade Center attacks in 2001 put the Saudis at the center of
U.S. fear and loathing. We were
actually so angry at the Saudis that we attacked and destroyed Iraq. You canÕt get much madder than that, I
guess.
The Saudi refusal to dramatically increase oil production is
predicated on a number of factors, none of them connected to a desire to
humiliate the U.S. Let me review a
few of them with you.
First, the Saudis understand the
oil market in global terms. They
are very aware of the leveling of the production curve for petroleum and the
implications this holds for the global market. For our purposes, it means more expensive oil at the global
market level because it is increasingly expensive to produce it. Most of the truly inexpensive sources
of petroleum have been exploited and are now in relative decline. This is not likely to change, even if
we change our behavior.
Second, the increased cost of
petroleum is exaggerated here in the U.S. because of the terrible condition of
our currency. A decade of
irresponsible deficit spending has reduced the value of the dollar and
disproportionally increased our costs for the product. The decline of the dollar and the rise
of other currencies (Euro, Pound, Deutschmark, Yuan, etc) make our exports
cheaper and our imports dearer. In
so far as we have pursued a weakened dollar to jump-start our exports, we pay
the price on the other end. A fair amount of the increased cost of petroleum
can be attributed to the real decline of the dollar: and a substantial premium
is paid because of speculators pushing the petroleum
futures to the extreme. Economists and other analysts differ on
the specifics, but they all concede that rampant speculation is a contributor
to the crisis.
And then, of course, there is
rising global demand. As China and
India (together a third of the worldÕs population) embrace an industrial life
style, demands for the product will rise.
Combine this increase in demand with the flattening of the production
curve, and you have the formula for rapidly rising petroleum prices.
Third, the U.S. is lagging the
world in its commitment to plain old-fashioned conservation. We could alleviate some of our
immediate problem by the simple expedient of enforcing a national speed limit,
say of 60 – 65 miles per hour.
That in itself could substantially reduce short-term demand, but itÕs a
solution not being considered. I
wonder why not? Another positive
effect of a national speed limit would be a predictable decline in the number
of traffic fatalities nationally.
Who would be against that?
Fourth, the U.S. could expand its
program of incentives for the purchase of hybrid high mpg vehicles. We have actually limited that program
to a few tens of thousands per year.
I canÕt see any practical reason for not doing this, other than the fact
that the manufacturers most ready for ramped up production of these models are
not U.S. national champions:
Toyota, Honda, Nissan, for example. The same is also probably true for an increase in the CAF
standards for our national fleets.
Fifth, we could seriously consider
expanding the public transit systems in the United States, a system
dramatically in need of repair and modernization. DonÕt hold your breath on that one either.
The Saudis know all of this and for
obvious reasons conclude that we are not ready to recognize the realities of
petroleum production and use. They
are in the industry for the long haul and hope to secure a prosperous future
for their country by the responsible and conservative use of their natural
resources. If they intentionally
or inadvertently move us in the same direction, congratulations are in order.
Something is going to change our
priorities. Six or seven dollar
per gallon gasoline will surely do that.
Regular shortages will do that. Prudent conservative measures can make
the transition reasonable and manageable.
In the meantime, buy a bike.
Publicuss, May 23, 2008