Our Ms. Brooks: Why Foreign Policy Matters
Rosa Brooks' current column in the Los Angeles Times is a classic. Not only does she skewer Sen. McCain's rather unsophisticated idea of foreign policy (sarcasm mine), she also does a pretty good job of explaining the connection between foreign policy and the price of gas.
It's fairly straightforward. For the most part, oil prices are driven by plain old supply and demand. In recent years, global demand for oil has gone up substantially -- driven partly by suburban sprawl and U.S. consumer thirst for ever-less-efficient SUVs but mostly by skyrocketing demand from rapidly developing countries, particularly China and India. Meanwhile, global oil production has struggled to keep pace with rising demand, and spare production capacity -- the ability to produce "extra" oil quickly -- is limited.
That makes oil markets acutely sensitive to relatively small disruptions in supply. If production drops in one corner of the world, the price of oil goes up, and you pay more at the pump. And as with all markets, oil prices also depend on expectations about the future. When investors fear there may be future developments -- crises, corruption, coups, wars -- that will cause disruptions in global supply, oil prices also go up.
On the supply side, U.S. foreign policy can have a major impact on global oil prices. Obvious example: Iraq has the world's fourth-largest oil reserves, but the U.S. war in Iraq caused oil production there to plummet, from a prewar level of 2.6 million barrels a day to below 1.5 million a day in 2004. This contributed to rising oil prices over the last few years. In May, Iraqi oil production finally returned to prewar levels, but the Iraqi oil industry remains vulnerable to continuing insecurity.
And not just Iraqi supplies have been affected by US foreign policy under George W. Bush. Venezuela and Russia both have gotten rather heavy handed when it comes to production as a result of what both nations perceive to be rather insulting behavior by the US.
In Venezuela (the world's fifth-largest oil supplier), the Bush administration backed a failed 2002 coup against President Hugo Chavez, effectively eliminating our diplomatic leverage with the Venezuelan government. Since then, Chavez has nationalized all oil production sites in Venezuela formerly under the control of foreign companies, a move that has further raised global oil prices. In Russia, too, ham-handed U.S. policies alienated Moscow, which has nationalized oil and gas companies and shown a distinct willingness to manipulate energy supplies for political purposes. Partly because of Russian government policies, Russian oil production has recently declined.
Here, however, is where Ms. Brooks makes her point ever so clear:
And global anxiety about U.S. bellicosity toward Iran -- which has the world's third-largest oil reserves -- continues to cause intermittent spikes in oil prices, as investors brace for the production disruptions a conflict with Iran would cause. (Last week, for instance, when an Israeli Cabinet minister said that an Israeli military strike against Iran -- backed, he appeared to imply, by Washington -- might be "unavoidable," global oil prices made their biggest-ever one-day jump.)
So which candidate offers an approach to foreign policy that's more likely to help stabilize global oil production?
Not sure? Here's a thought experiment. Remember McCain's little "joke" in April 2007 -- back when he was just one of several Republican primary candidates -- singing "Bomb, bomb, bomb, bomb, bomb Iran" to the tune of the Beach Boys' "Barbara Ann"? Well, imagine newly elected President McCain making the same joke in January 2009.
What do you think would happen to global oil prices?
And that is a message which should be repeated endlessly for the next 6 months.
It's fairly straightforward. For the most part, oil prices are driven by plain old supply and demand. In recent years, global demand for oil has gone up substantially -- driven partly by suburban sprawl and U.S. consumer thirst for ever-less-efficient SUVs but mostly by skyrocketing demand from rapidly developing countries, particularly China and India. Meanwhile, global oil production has struggled to keep pace with rising demand, and spare production capacity -- the ability to produce "extra" oil quickly -- is limited.
That makes oil markets acutely sensitive to relatively small disruptions in supply. If production drops in one corner of the world, the price of oil goes up, and you pay more at the pump. And as with all markets, oil prices also depend on expectations about the future. When investors fear there may be future developments -- crises, corruption, coups, wars -- that will cause disruptions in global supply, oil prices also go up.
On the supply side, U.S. foreign policy can have a major impact on global oil prices. Obvious example: Iraq has the world's fourth-largest oil reserves, but the U.S. war in Iraq caused oil production there to plummet, from a prewar level of 2.6 million barrels a day to below 1.5 million a day in 2004. This contributed to rising oil prices over the last few years. In May, Iraqi oil production finally returned to prewar levels, but the Iraqi oil industry remains vulnerable to continuing insecurity.
And not just Iraqi supplies have been affected by US foreign policy under George W. Bush. Venezuela and Russia both have gotten rather heavy handed when it comes to production as a result of what both nations perceive to be rather insulting behavior by the US.
In Venezuela (the world's fifth-largest oil supplier), the Bush administration backed a failed 2002 coup against President Hugo Chavez, effectively eliminating our diplomatic leverage with the Venezuelan government. Since then, Chavez has nationalized all oil production sites in Venezuela formerly under the control of foreign companies, a move that has further raised global oil prices. In Russia, too, ham-handed U.S. policies alienated Moscow, which has nationalized oil and gas companies and shown a distinct willingness to manipulate energy supplies for political purposes. Partly because of Russian government policies, Russian oil production has recently declined.
Here, however, is where Ms. Brooks makes her point ever so clear:
And global anxiety about U.S. bellicosity toward Iran -- which has the world's third-largest oil reserves -- continues to cause intermittent spikes in oil prices, as investors brace for the production disruptions a conflict with Iran would cause. (Last week, for instance, when an Israeli Cabinet minister said that an Israeli military strike against Iran -- backed, he appeared to imply, by Washington -- might be "unavoidable," global oil prices made their biggest-ever one-day jump.)
So which candidate offers an approach to foreign policy that's more likely to help stabilize global oil production?
Not sure? Here's a thought experiment. Remember McCain's little "joke" in April 2007 -- back when he was just one of several Republican primary candidates -- singing "Bomb, bomb, bomb, bomb, bomb Iran" to the tune of the Beach Boys' "Barbara Ann"? Well, imagine newly elected President McCain making the same joke in January 2009.
What do you think would happen to global oil prices?
And that is a message which should be repeated endlessly for the next 6 months.
Labels: Election 2008, Energy, Foreign Policy
posted by Diane at 10:02 AM
2 Comments:
McClatchy had a good article on Monday about how the US could reduce oil prices right now:
http://www.mcclatchydc.com/227/story/40360.html
She also could have mentioned the effect of paying for a disastrous occupation of Iraq and Bush's tax cuts for the tycoon class with the national credit card.
Lower USD = higher gas price.
http://finance.yahoo.com/q/bc?s=EURUSD=X
In summary, every single thing this Administration has done has the effect of raising oil prices, and coincidentally, the profits of their best friends (from the Saudis to the Halliburtons).
~
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