Good Company

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Sunday, October 17, 2004

It's all about oil? I'm shocked

Glenn Reynolds at Instapundit cites a story on the Chinese trying to stop the UN from imposing sanctions on Sudan to keep oil flowing out of the Sudan to China.

So, once again, It's all about oil? Just like it was in Iraq for the French, Russians, Chinese and other countries who are alleged to have been targets of the Saddamite "Axis of the Bribed?"

This Foxnews piece has information on allegations about the son of the UN secretary general as well as links to the Duelfer Report (downloadable in pdf format). This is from the "key findings" section:

One aspect of Saddam’s strategy of unhinging the UN’s sanctions against Iraq, centered on Saddam’s efforts
to influence certain UN SC permanent members, such as Russia, France, and China and some nonpermanent
(Syria, Ukraine) members to end UN sanctions. Under Saddam’s orders, the Ministry of Foreign Affairs
(MFA) formulated and implemented a strategy aimed at these UNSC members and international public
opinion with the purpose of ending UN sanctions and undermining its subsequent OFF program by diplomatic
and economic means. At a minimum, Saddam wanted to divide the fi ve permanent members and foment
international public support of Iraq at the UN and throughout the world by a savvy public relations campaign
and an extensive diplomatic effort.

As Gomer Pyle used to say, "Su-prise! Su-prise!"

The world-wide demand for oil is on the rise. And, while I'm cetainly no economist, I do grasp the concept that increasing demand should cause an increase in prices until either supply is increased or demand lowered.

For years, the end-user of crude oil (the public) has been getting bargin prices for gasoline in that the price of gasoline (and crude oil) has not been rising at a rate to keep pace with inflation (yes, even in Europe, where much of the price at the pump is tax related and not cost of crude connected). This April 2004 article from the SF Chronicle points out that gasoline pump prices in the U.S. adjusted for inflation, are not at historic highs. See also the nice chart posted at The Big Picture.

What that also means is that there has been little incentive to exlore for and exploit "hard to get" oil reservoirs. I remember working at a major oil company in the early 1980's, just before the big oil "bust" that dropped crude prices down to the low teens. There were exploration and deveolpment projects on the table that could have been justified if oil prices had gone up - but which were quicly abandoned when prices dropped. Why add to an apparent glut and lose money doing it? If "real" prices rise, then these projects can be economically justified, perhaps including the massively expensive "oil shale" projects...

I guess in fairness I should also point out that when gas prices are relatively low, consumers are willing to buy larger (possible safer) vehicles. If gasoline prices go up high enough, we may see a glut of the big Ford "Ex" SUVs at the used car lots (along with their GM and Chrysler counterparts) and an increase in econo-boxes on the streets.

I should also point out that one of the drawbacks in developing alternative fueled vehicles (AFVs) has been the high cost. If gasoline prices rise to some level where AFVs are price competitive then there should be an significant increase in them.

More globally, we see nations like China and France doing what nations do - they are trying to protect their own economies. All the fine "we are one world" language aside, national interests are the trump card, especially for countries which lack their own natural resources. China, in this case, seems to have locked up a substantial amount of Sudan's oil exports and I would really and truly be shocked to learn they were willing to abandon that supply for some "humanitarian" concern. Especially given their own track record in that area.

Update: Fixed links.

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