May 07, 2004

So what should we be doing? Here's a hint: We can neither drill nor conquer our way out of the problem. Whatever we do, oil prices are going up. What we have to do is adapt.

The end, the last drop, is drawing nearer, and no neo-con wet dream is going to save us...It is a time for courage and vision, not fantasy and sadism...Sen. John F. Kerry offers courage and vision (JFK has proposed a national drive for 20% renewable energy resources by 2014, and that's just the beginning), the incredible shrinking _resident offers another four years of fantasy and sadism...Yes, the issue is SECURITY: not only NATIONAL SECURITY but ECONOMIC SECURITY and ENVIRONMENTAL SECURITY as
well...

Paul Krugman, New York Times: Thanks to the mess in
Iraq including a continuing campaign of sabotage
against oil pipelines oil exports have yet to
recover to their prewar level, let alone supply the
millions of extra barrels each day the optimists
imagined. And the fallout from the war has spooked the
markets, which now fear terrorist attacks on oil
installations in Saudi Arabia, and are starting to
worry about radicalization throughout the Middle East.
(It has been interesting to watch people who lauded
George Bush's leadership in the war on terror come to
the belated realization that Mr. Bush has given Osama
bin Laden exactly what he wanted.)
Even if things had gone well, however, Iraq couldn't
have given us cheap oil for more than a couple of
years at most, because the United States and other
advanced countries are now competing for oil with the
surging economies of Asia.
So what should we be doing? Here's a hint: We can neither drill nor conquer our way out of the problem. Whatever we do, oil prices are going up. What we have to do is adapt.

Restore the Timeline, Show Up for Democracy in 2004:
Defeat Bush (again!)

http://www.nytimes.com/2004/05/07/opinion/07KRUG.html


--------------------------------------------------------------------------------

May 7, 2004
OP-ED COLUMNIST
The Oil Crunch
By PAUL KRUGMAN

Before the start of the Iraq war his media empire did
so much to promote, Rupert Murdoch explained the
payoff: "The greatest thing to come out of this for
the world economy, if you could put it that way, would
be $20 a barrel for oil." Crude oil prices in New York
rose to almost $40 a barrel yesterday, a 13-year high.


Those who expected big economic benefits from the war
were, of course, utterly wrong about how things would
go in Iraq. But the disastrous occupation is only part
of the reason that oil is getting more expensive; the
other, which will last even if we somehow find a way
out of the quagmire, is the intensifying competition
for a limited world oil supply.

Thanks to the mess in Iraq including a continuing
campaign of sabotage against oil pipelines oil
exports have yet to recover to their prewar level, let
alone supply the millions of extra barrels each day
the optimists imagined. And the fallout from the war
has spooked the markets, which now fear terrorist
attacks on oil installations in Saudi Arabia, and are
starting to worry about radicalization throughout the
Middle East. (It has been interesting to watch people
who lauded George Bush's leadership in the war on
terror come to the belated realization that Mr. Bush
has given Osama bin Laden exactly what he wanted.)

Even if things had gone well, however, Iraq couldn't
have given us cheap oil for more than a couple of
years at most, because the United States and other
advanced countries are now competing for oil with the
surging economies of Asia.

Oil is a resource in finite supply; no major oil
fields have been found since 1976, and experts suspect
that there are no more to find. Some analysts argue
that world production is already at or near its peak,
although most say that technological progress, which
allows the further exploitation of known sources like
the Canadian tar sands, will allow output to rise for
another decade or two. But the date of the physical
peak in production isn't the really crucial question.

The question, instead, is when the trend in oil prices
will turn decisively upward. That upward turn is
inevitable as a growing world economy confronts a
resource in limited supply. But when will it happen?
Maybe it already has.

I know, of course, that such predictions have been
made before, during the energy crisis of the 1970's.
But the end of that crisis has been widely
misunderstood: prices went down not because the world
found new sources of oil, but because it found ways to
make do with less.

During the 1980's, oil consumption dropped around the
world as the delayed effects of the energy crisis led
to the use of more fuel-efficient cars, better
insulation in homes and so on. Although economic
growth led to a gradual recovery, as late as 1993
world oil consumption was only slightly higher than it
had been in 1979. In the United States, oil
consumption didn't regain its 1979 level until 1997.

Since then, however, world demand has grown rapidly:
the daily world consumption of oil is 12 million
barrels higher than it was a decade ago, roughly equal
to the combined production of Saudi Arabia and Iran.
It turns out that America's love affair with gas
guzzlers, shortsighted as it is, is not the main
culprit: the big increases in demand have come from
booming developing countries. China, in particular,
still consumes only 8 percent of the world's oil but
it accounted for 37 percent of the growth in world oil
consumption over the last four years.

The collision between rapidly growing world demand and
a limited world supply is the reason why the oil
market is so vulnerable to jitters. Maybe we'll get
through this bad patch, and oil will fall back toward
$30 a barrel. But if that happens, it will be only a
temporary respite.

In a way it's ironic. Lately we've been hearing a lot
about competition from Chinese manufacturing and
Indian call centers. But a different kind of
competition the scramble for oil and other resources
poses a much bigger threat to our prosperity.

So what should we be doing? Here's a hint: We can
neither drill nor conquer our way out of the problem.
Whatever we do, oil prices are going up. What we have
to do is adapt.


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Posted by richard at May 7, 2004 02:28 PM