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Wednesday, July 06, 2005

Peak Oil and the War on Terror

There has been quite a bit of talk on the left side of the blogosphere about high oil prices and Hubbard's peak. For those of you who don't know, Hubbard's Peak is when we achieve maximum oil production and begin a long decline, coupled with highly rising prices. This either is, or soon will be a serious problem, although I believe it will not prove to be an insurmountable one. It is an interesting questions though as to when this will occur. We can only make a very rough guess because we lack a key piece of data; how much oil is in Saudi Arabia. The Saudi's have been claiming that they can bring a lot more production on line quickly if need be. There are those who doubt those claims though, and say that Saudi Production is already at, or at least near, maximum capacity. Only the Saudi's know for sure, and they sure aren't telling anyone. This Newsweek Article inspired some interesting thoughts though. It seems that the current high oil prices may be fueling so real reforms in Arab governments and economies, especially in Saudi Arabia itself. If this article is accurate, the perception that we are near Hubbard's peak, whether true or not, may have some very beneficial effects on the war on Terror. First off of course is the direct effect on Saudi Arabia. I have written before that Saudi Arabia is embroiled in a quasi civil war. Prince Abdullah, the guy we would really prefer to see win this battle, needs time, and especially money to institute reforms. Unemployment is quite high in Saudi Arabia (and most of the Arab world) and a demographic bubble of the young adults is adding further stress to the system. A big infusion of oil cash, which Saudi Arabia is certainly receiving, can help mitigate those pressures, allowing for orderly reform rather than civil war. A taliban style Saudi Arabia is a real possibility if things go badly there, and that is certainly something that we desire to avoid. A similar dynamic, although not a severe, exists for the smaller Gulf states as well. additionally of course, high oil prices have the potential to greatly benefit Iraq. With the insurgency there it is unlikely Iraq will be able to greatly increase it's Oil Production quickly, but high oil prices means that nation gets a lot more capital for what it does produce. This capital will hopefully be able to fuel economic expansion, which will do a lot to quell the domestic insurgency. We could also consider the likely effect of high oil prices on some of the other Oil producing states, such as Iran. While certainly the increased money will help the Iranian governments coffers, it seems unlikely that a country with a command style economy will be able to effectively invest that money into wealth producing industries. This means that the increased money will have little effect on the lives of ordinary Iranians. While increased social programs may help to keep the people happy, this will be a difficult balancing act. And, should the Saudi's indeed be able to increase production, a significant increase in Iranian social programs, followed by a reduction in the price of oil and the need to cut those programs could be the end of the mullacracy. You can sometimes buy off the mob, but if you do you can never stop. Although not an Arab nation, Venezuela is in a similar to Iran in this way. Of course expensive oil is not an all good from a geo-political point of view. It will create more money for rich Arabs, who will doubtless continue to contribute to terrorist organizations. Also, Oil has certainly been the enemy of economic reform in the past, and while we can hope for a different outcome this time, there is certainly no guarantee. Even more significant perhaps is the expensive oil will greatly hurt Europe in it's attempts to find it's way out of it's economic morass. A vibrant European economy would be far more able to address it's internal issues with Muslim immigrants and their descendants. A stagnate, weak economy is likely to increase European nativism and help to radicalize young European Muslims.


Anonymous tsykoduk said...

So, to sum it up

"High oil prices have good and bad effects"


7/06/2005 12:53:00 PM  
Blogger Dave Justus said...

Yeah! Profound ain't I!

7/06/2005 01:34:00 PM  
Blogger GaijinBiker said...

Hey, the upside is that running out of oil should slow down global warming.

Nobody looks on the bright side anymore these days...

7/06/2005 11:55:00 PM  
Blogger Vestigial Fish said...

Don't think we'll ever run out of oil. Just cheap oil. As oil becomes more expensive, certain reserves that have been hitherto unprofitable to exploit will become available.

For example, Canadian Tar Sands and Oil Shale will become even cheaper to produce.

7/07/2005 07:57:00 AM  

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