Debunking numerous myths that have emerged about the world’s resources of oil, this book argues that the use of U.S. military power to secure oil is not only needless and costly—in both lives and money—but also counterproductive to U.S. security. Intended to make government, the media, and citizens think more rationally about oil and the use of military power to secure it, this account suggests that the free market is still the best vehicle to deliver the product most efficiently from producer to consumer and that a withdrawal of U.S. forces from the Persian Gulf would be beneficial in the context of potential terrorist threats. Thorough and invaluable, this focused analysis chronicles the history of the battle over oil.
Debunking numerous myths that have emerged about the world’s resources of oil, this book argues that the use of U.S. military power to secure oil is not only needless and costly—in both lives and money—but also counterproductive to U.S. security. Intended to make government, the media, and citizens think more rationally about oil and the use of military power to secure it, this account suggests that the free market is still the best vehicle to deliver the product most efficiently from producer to consumer and that a withdrawal of U.S. forces from the Persian Gulf would be beneficial in the context of potential terrorist threats. Thorough and invaluable, this focused analysis chronicles the history of the battle over oil.
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Overview
Debunking numerous myths that have emerged about the world’s resources of oil, this book argues that the use of U.S. military power to secure oil is not only needless and costly—in both lives and money—but also counterproductive to U.S. security. Intended to make government, the media, and citizens think more rationally about oil and the use of military power to secure it, this account suggests that the free market is still the best vehicle to deliver the product most efficiently from producer to consumer and that a withdrawal of U.S. forces from the Persian Gulf would be beneficial in the context of potential terrorist threats. Thorough and invaluable, this focused analysis chronicles the history of the battle over oil.
Product Details
| ISBN-13: | 9781598130577 |
|---|---|
| Publisher: | Independent Institute, The |
| Publication date: | 11/01/2011 |
| Sold by: | Barnes & Noble |
| Format: | eBook |
| Pages: | 224 |
| File size: | 444 KB |
About the Author
Ivan Eland is a senior fellow and director of the Center on Peace and Liberty at the Independent Institute, a former director of defense policy studies at the Cato Institute, and a former principal defense analyst with the Congressional Budget Office. He is the author of The Empire Has No Clothes, Partitioning for Peace, and Recarving Rushmore. His work has been featured in numerous publications, including the Chicago Tribune, Northwestern Journal of International Affairs, and the Washington Post, and on television programs such as ABC's World News, CNN's Crossfire, and Fox News. He lives in Washington, DC.
Read an Excerpt
No War for Oil
U.S. Dependency and the Middle East
By Ivan Eland
The Independent Institute
Copyright © 2011 The Independent InstituteAll rights reserved.
ISBN: 978-1-59813-057-7
CHAPTER 1
Trading Blood for Oil
OIL HAS A BLOODY HISTORY. The ghost of petroleum hovers in the background even of wars that have liberty and democracy among their rationales. But occasionally statesmen are blunt about trading blood for oil. George W. Bush's invasion and occupation of Iraq was wrapped in an idealistic blanket, but George H. W. Bush, the younger Bush's father and a realist, showed more candor, baldly stating that securing petroleum supplies for the United States was the major reason he prosecuted the first Persian Gulf War. Blatant or veiled, the grab for oil resources has been a major factor behind many conflicts and military deployments.
Ever since the British Navy changed the propulsion of its ships from coal to oil in 1911, oil has been deemed a "strategic" commodity. National governments focused on securing enough oil to power their militaries — armies, navies, air forces, marines, and coastal protection forces — and eventually on seeking oil for their economies. The word "strategic" as it relates to oil has come to mean a product so vital to the military or economy that the government must step in, even to the point of war, to ensure adequate supplies or low prices. However, oil is not strategic, and war for oil is not necessary to ensure the flow of petroleum or to create security.
Besides, other key products that are as vital to the military or economy cause the government, media, and public much less concern than petroleum. Such products include rubber (there was a rubber shortage during World War II), semiconductors, and the platinum group metals, which are more rare and expensive than petroleum and are required to crack oil into gasoline, diesel fuel, and other products. If governments manage or use the military to secure oil, there are many other products that they should also be worried about. In that case, the government might as well be skittish about and manage every product in the economy, but that sort of government over-management is often disastrous — at its extreme it is called "communism."
Instead, governments should just allow the market to deliver oil. Oil is a valuable commodity, and therefore people, companies, and countries have a huge incentive to explore for, extract, and export it to consumers. Even in the Persian Gulf, where petroleum is cheaper to extract, oil-producing countries that are major sellers to the United States have oil exports that represent 32 to 44 percent of GDP. Furthermore, since the 1973 oil "crisis," the United States has reduced its oil imports from 6 to 3 percent of gross domestic product (GDP). Thus, it would seem that oil-producing nations have even more incentive to sell oil than the United States has to buy it. Because oil is valuable, it has flowed despite economic embargoes and around, and even through, wars.
That is not to say that the market for oil is perfect. In the short term, the price of oil can be irrational as world events or new discoveries cause either anxiety or exhilaration. The relatively wealthy American public — which doesn't even have to get out of its vehicles to know what gasoline is selling for and which puts pressure on its politicians when it considers the price to be too high — knows deep down that oil and its products are fairly cheap.
Governments, often under pressure from either their publics or oil companies, should take a longer-term view and rely on markets to buy and sell oil, but sometimes they don't. For example, even though governments do not have to go to war to secure oil that the market will provide more efficiently, they sometimes do so to surreptitiously subsidize oil companies' vested interests. Sometimes countries nationalize their oil production, although doing so is grossly inefficient and actually restricts worldwide oil production more than the famed producing cartels of companies (the Seven Sisters and Texas Railroad Commission of yore) or countries (Organization of Petroleum Exporting Countries — OPEC). None of these cartels has been very successful in holding the long-term price much above what oil would bring with an unfettered market. Furthermore, the 1973 oil embargo was disastrous for the OPEC cartel's Arab members and will likely not be tried again, even if the now more efficient oil markets would allow it, which they probably will not. Governments also irrationally distort the market by holding unneeded strategic petroleum reserves.
The U.S. government also worries about whether key oil transportation routes, for example, the Straits of Hormuz, will be blocked or that "rogue states," or terrorists will use oil profits for nefarious ends. Of course, the country that could block the Straits of Hormuz — Iran — has little incentive to do so because its oil exports, the main source of its foreign exchange earnings, must be shipped through that narrow passage too. Terrorists rely on kidnapping and drug dealing more than on oil to raise money for their diabolical deeds. Rogue states may or may not earn money from oil, so it is unfair to focus blame on oil per se. And even if the United States became independent of foreign oil, which is unlikely to happen anytime soon, rogue states would just sell their valuable oil to countries that care less about meddling into other nations' business than does the United States (for example, China and India).
Most politicians (regardless of party affiliation), the media, and the public all believe that oil independence, or at least reducing U.S. dependence on foreign oil, is a good idea. They are all wrong. Barring some unlikely breakthrough in nonpetroleum energy technologies, most of which are very expensive or otherwise infeasible, it would cost Americans significantly to reduce their dependence on foreign oil. Oil produced in the United States tends to be costly compared to petroleum produced in other places — for example, the Persian Gulf. That's a major reason why the United States imports a significant portion of the oil it uses. There is nothing wrong with that, and oil prices would go up if such imports were curtailed or stopped. Thus, despite politicians' promises, oil independence is unachievable and even undesirable.
Popular Myths about Oil
So what do most people actually believe about oil and its availability? If we look closely at the myths and beliefs that surround oil, we find that in almost every case the truth differs from the popular myths that swirl throughout American culture. For an extended discussion about each of these myths, please see Chapters 12 through 22; for now, here is a quick review of what most of us believe in spite of the evidence to the contrary.
The first popular myth is that no viable market exists for oil. Some allege that a free market for oil does not exist because of government subsidization, protection, and politicization. But it is now clear that embargoes are illusory and the market just reorders itself like it did during the 1973 oil "crisis." Additionally with the advent of the spot and futures markets today, countries have no real control over who buys their oil, so oil is bought and sold through a global networking system that assures us that where there is demand there is supply.
A second myth is that big oil and OPEC collude in order to stick consumers with high prices for oil and gas. The oil industry has one of the poorest public images of any industry. When the price of oil is high — for example, when record real price levels occurred in 2008 — the oil companies are usually pilloried in the media, which often imply that oil companies and/or foreign oil-producing countries collude to price-gouge innocent consumers. Yet repeated government studies — including one in 2006 by the Federal Trade Commission (FTC), the government's antitrust watchdog — have found no collusion among the oil companies to artificially raise prices.
A third myth says that oil reserves have peaked, and we are running out of oil. Erroneous predictions of peak oil have been made before, however. In fact, such peak oil predictions usually occur when the market is tight and prices are high, and evaporate when prices go back down. The peak oil craze coinciding with the high prices during 2007 and 2008 was the fifth time predictions have been made that the world was running out of oil — they started in the 1880s, and the penultimate episode was during the tight oil markets of the 1970s. In between, World War I and World War II sucked up much oil and caused the U.S. government each time to predict that global oil supplies would soon peak. All four previous times, the peak oil predictions proved unfounded. Similarly, recent predictions of peak oil lack sufficient evidence to back them up. In fact, statistics show that the world's oil reserves are increasing in size.
A fourth myth is that oil is a "special product" and even strategic, and so it must be secured by the government. Yet, there are many critical products that the market is allowed to supply amply at efficient prices. Oil should be no different. If governments avoid enacting counterproductive policies, industrial economies are fairly resilient even to significant oil-price hikes. Furthermore, enough oil is produced domestically, many times over, to meet the needs of the U.S. military in time of war, and this supply can be augmented with petroleum from nearby friendly countries — for example, Canada and Mexico. Thus, oil is not strategic.
A fifth myth is that we need a strategic petroleum reserve (SPR) in case of emergency. Prior to the 1973 oil crisis there was no SPR; its subsequent history reveals that it was a product of the Cold War mindset. Although it contained oil, it was as much about demonstrating the U.S. government's will to protect its economy from oil supply disruptions in order to deter foreign countries from shutting off supplies. The ninety-day supply was supposed to give the United States that long to negotiate a resumption of the oil flow or to use force to get the supplies moving again. But as Donald Losman of the National Defense University has cogently argued, if the U.S. government goes into hysterics over oil by declaring it as a strategic commodity, when it is best allocated by the market, it will only tempt any potential U. S. adversary to strike at the perceived U. S. Achilles Heel. Sarah Emerson, an analyst at Energy Security Analysis, Inc., noted, "In a way, the SPR is an anachronism." Government policies, the result of slow processes, often come along too late to make a difference. Oil could still be released from the SPR to attempt to reduce the world oil price, but there is no clear policy to do that.
In our sixth myth, a bipartisan consensus exists among politicians and the public about the desirability of American independence from oil and foreign oil. Can so many people be wrong? Yes.
Somehow the implication is that if the United States were independent of foreign oil, U.S. military personnel would not have to die in the Middle East, and the United States would not have to meddle in or be allied with nasty, corrupt Middle Eastern countries. The good news is that if we rely on market forces to bring us the oil we need, we will not need independence from foreign sources of petroleum to achieve these laudable objectives.
Even if the consensus view on the desirability of being independent of foreign oil is right, independence has been difficult to achieve. Although every president since Richard Nixon has endorsed independence from foreign oil, the percentage of America's oil consumption that is imported has risen from 34 percent in 1973 to more than 70 percent now.
Before the early 1970s, the United States had market power in petroleum as a producer, but now its market power is based on it being the world's largest oil consumer. Because the United States has the biggest and wealthiest economy in the world, it accounts for only 5 percent of the world's population but consumes about a quarter of the world's oil. Because the United States is such a large market, it is closely watched for trends, and even anti-U.S. oil producers, such as Libya and Venezuela, court U.S. sales. Saudi Arabia even discounts oil to maintain its share of the American market. As business and environmental journalist for Harper's Magazine, Paul Roberts, has noted, ".... the sheer extent of American demand, coupled with the country's own booming production (the United States is still the number-three producer), gives Uncle Sam a degree of influence over world oil markets and world oil politics that goes well beyond anything the U.S. might achieve militarily."
The seventh myth says that price hikes in oil and gas cause economic disasters. This myth can usually be traced to the stagflation that followed the 1973 Arab oil embargo and production cutback. Yet, inflation — increases in the general price level in the economy — is not caused by increases in the price of one item, such as oil or gasoline. Increases in the price of one item mean that people have less to spend on all other items, thus lowering prices for those other items and putting offsetting downward pressure on the overall price level. Only when the government increases the money supply in the economy can people spend more money on oil or gasoline and on other items too. Thus, only increases in the money supply can cause general price inflation. Burgeoning U.S. money supplies were primarily responsible for the stagflation of the 1970s.
Myth eight is the belief that the United States wants to control oil supplies in order to keep the price of oil low. But in fact, the United States does not want the price of oil to go too low. From 1959 to 1971, the U.S. government imposed controls on imported oil to raise the price of oil for domestic producers — which was a huge subsidy. Even before that, the Texas Railroad Commission and other state regulatory commissions formed a cartel that restricted and allocated production to try to keep the domestic price of oil higher than the international market price. The federal government attempted to aid and abet this cartel. In the early 1970s, when the Nixon administration imposed price controls on the U.S. economy — including the price of oil — the U.S. domestic oil price went from being artificially high to artificially low. So there is some minor manipulation in the market, but it is not universally about low prices for oil.
Myth nine says that possession of oil vastly increases a country's economic and political power. Current history refutes this notion easily. Post–World War II Japan and Europe (especially Germany) and the Asian Tigers (Singapore, Hong Kong, Taiwan, and South Korea) have all experienced economic miracles though they possess little or no oil. The U.S. position as a supplier in the oil market has been in relative decline since the late 1800s, when it had a virtual monopoly, but during that same period it grew into a world power and then a superpower. And countries with the most oil, like the Middle Eastern countries or Venezuela, have not grown into superpowers.
Myth ten says that the United States must coddle autocratic and terrorist-supporting Saudi Arabia because of its huge oil reserves and supply. The story behind this myth is a bit more complicated than it appears, and it is explained in more detail in Chapter 21, but it is to some degree based on the notion that we get a majority of our oil from Saudi Arabia; in fact, we obtain only about 18 percent from the Saudis.
And finally, myth eleven is that the dependence of Europe on Russian energy is a threat to U.S. security. Although Russia has the largest natural gas reserves in the world (27 to 28 percent of the global total), the United States also has large natural gas reserves and produces 84 percent of the gas it consumes. It adds to this domestic supply with imports, via pipeline, from Canada — another 15 percent of U.S. consumption. So it is unlikely that the United States will ever be as directly dependent on Russia for energy as are the Europeans.
Thus, there is little threat to U.S. security from European dependence on Russian energy, and the U.S. has little direct dependence on Russian energy. However, U.S. hand-wringing continues to this day — as is evidenced by the uneconomic U.S. governmental jockeying to compete with Russia in its sphere of influence over oil and gas pipeline routes to Europe through the Caucuses and Central Asia.
Conclusion
With all of the irrationality of government (the nationalization of oil resources, producer cartels, price controls, economic embargoes, the use of force to "defend" oil, strategic petroleum reserves, government subsidies for alternative fuels, and so on), the media, and the public, isn't oil "strategic" just because everyone thinks it is? The market, although somewhat distorted by these government measures and consumer irrationality, is still the best vehicle deliver oil most efficiently from the producer to the consumer. If there is money to be made, commerce will go around and through these obstacles. The price might be slightly higher than a completely free market would deliver, but even in this this imperfect world, the market remains the best alternative. And if governments and the public become better informed, perhaps the oil market would become freer.
(Continues...)
Excerpted from No War for Oil by Ivan Eland. Copyright © 2011 The Independent Institute. Excerpted by permission of The Independent Institute.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
Contents
1 Trading Blood for Oil,PART I A History of Oil and the Use of Military Power to Control Supplies,
2 American Dominance in Oil,
3 Iran, Iraq, World War I, and the Interwar Years,
4 World War II,
5 The Cold War,
6 Three Cartels: The Seven Sisters, the Texas Railroad Commission, and OPEC,
7 Another Middle East War and Embargo, Shortages, and Price Rises,
8 The Carter Doctrine,
9 The 1980s: European Dependence on Soviet Energy and the Iran-Iraq War,
10 The U.S.–Iraq Wars,
11 The Oil Market Today,
PART II Myths about Oil and Its Market,
12 Myth 1: No Viable Market Exists for Oil,
13 Myth 2: "Big Oil" Colludes with OPEC to Stick Consumers with High Prices,
14 Myth 3: Global Oil Production Has Peaked and the World Is Running Out of Oil,
15 Myth 4: Oil Is a Special Product or Even Strategic,
16 Myth 5: A Strategic Petroleum Reserve Is Needed in Case of Emergency,
17 Myth 6: The United States Should Become Independent of Oil, Foreign Oil, or Overseas Energy,
18 Myth 7: Oil Price Spikes Cause Economic Catastrophes,
19 Myth 8: U.S. Policy Is to Maintain the Flow of Oil at the Lowest Possible Price,
20 Myth 9: Possession of Oil Means Economic and Political Power,
21 Myth 10: The United States Must Defend Autocratic Saudi Arabia Because of Oil,
22 Myth 11: Dependence of Europe on Russian Energy Is a Threat to U.S. Security,
PART III No Need to Use Military Power to Safeguard Foreign Oil,
23 Safeguarding Oil with Military Power Is Mercantilism and Imperialism,
24 Threats to or from Oil,
PART IV Policy Prescriptions,
Notes,
Index,
About the Author,