Archive for May 22nd, 2008

Oil denial

Last semester I taught Syriana as a first year seminar for perhaps the last time. In that course I use the film Syriana, a 2004 political drama, as the basis for a college course for incoming freshmen, designed for an interdisciplinary look at real world problems. The movie is now four years old, though as a vehicle to teach about Islam, American foreign policy, mideast politics, the CIA, and the oil industry it’s a great take off point. However, in just the three short years since I started teaching it, the scenarios discussed as ‘future possibilities’ — oil over $100 a barrel, OPEC unable to increase production, possible stagflation and world recession — look ominously closer to reality. President Bush, sounding as if he could have jumped out of the film, warned OPEC leaders last week that they were running out of oil and needed to modernize their economies.

Today the federal reserve predicts a slowing economy, rising unemployment and rising inflation. Analysts talk about $200 a barrel oil prices, gas at $12 a gallon as ‘an inevitability,’ and oil shortages within five years. The predictions made by geologists arguing that we were reaching a peak in oil production, which would lead to devastating economic consequences seem to be coming true. This is precisely how they predicted it would begin; oil today reached $134 a barrel.

Yet there remains a kind of ‘oil denial’ out there, an unwillingness to really confront the problem. That denial was on parade in Congress today, when oil executives were accused of price gouging and somehow stifling market competition. Many in Congress, including Senator Clinton, have argued that OPEC should be brought to court for anti-trust violations, since it is a cartel. I’m not sure how they could do that, but even if they could the argument that they are colluding to increase prices rings hallow. Most OPEC states are producing at capacity now. Only Saudi Arabia supposedly has excess production capacity, and even that is very limited. Moreover, the idea that the US somehow has the right to tell states with a non-renewable resource that they must exploit that resource as fast as possible to keep prices down makes no sense. In any event, given how low prices were just a decade ago, when OPEC was unable to work together to keep prices even above $20 a barrel, can one really believe that somehow they are responsible for a price over $130 a barrel?!

Others think that the solution is more drilling, opening up all of Alaska, and most of the offshore regions to oil exploration. This no doubt would increase domestic supplies and probably will be done as it becomes apparent that we need all the oil we can to stay economically afloat while we transition to new forms of energy. It is not a solution, however, it won’t bring back cheap oil. The economic consequences of high energy costs will ripple through the system; we may find ourselves in a crisis of the sort that happens once a century, rivaling the great depression (if not surpassing it), and perhaps initiating a new kind of series of wars.

Too sensationalist? That would have been my reaction if this had happened three years ago, before I started teaching Syriana and researching issues around the oil industry. The first time I taught it I had the class read parts of Matthew Simmon’s Twilight in the Desert. A geology professor, Tom Eastler, happened to have that classroom for the class after mine and noticed the book. “Oh, Matt Simmon’s book,” he said. I found out he knew Matthew Simmons and his work, and with the help of Dr. Eastler I got a quick education on the various sources and arguments around peak oil theory. At the time, I thought the predictions seemed a bit far fetched. Oil might be over $100 a barrel by 2009? OPEC would refuse to increase production citing a belief the price wasn’t sustainable, when in fact they couldn’t increase production? The world economy drifting into recession, the threat of more wars in the Mideast? Yet things are unfolding much like the predictions made by these scholars — and things will get far worse than this if they are right.

That’s what makes oil denial so frustrating. We may be on the verge of a true crisis that could threaten the foundation of our society. Yet we try to deny the problem is there. Blame the oil companies! Blame OPEC! Blame the government for not allowing more domestic oil exploration! Like global warming denial, oil crisis denial is based on a mix of wishful thinking and complacency about the future. Because we’ve had 60 years of stability and prosperity, most people think that we’re immune to the kind of crises that brought down past powers and hit every other great society in the history of the planet. And, while it’s possible that peak oil theorists are wrong and that this is a bubble based on a weak dollar and commodity speculation, it’s also possible that this is a start of a great oil crisis, one whose end may be decades away.