The Price of Oil Has Nothing To Do With Supply and Demand

Runaway gas prices have less to do with supply and demand and more to do with Wall Street and Iran.

One of my clients sent me a disturbing email from a group called “American Solutions for Winning the Future”. First off, I know that Bush expects us to accept his war against the concept of Terrorism - are we expanding the war to include the future, too?

In any case, the group’s mantra is Drill here - drill now - pay less, and their website features a video from their front man and king of gratuitous violence, Chuck Norris. What’s sad and laughable at the same time is that this myopic group actually thinks that if we start filling Alaska full of holes, it’s going to immediately lower gas prices.

It’s a cheap ploy to exploit peoples’ anger and fear over pump prices to further enrich the pockets of oil men - and studies show that this solution might lower the price of gas a few cents - but it will take 2-3 years to accomplish.

We need a better solution than that. Though some analysts are selling the pipe dream that gas prices are about to top out, and will soon ease off, Alexey Miller, the chief executive of Kremlin-owned Gazprom, the world’s largest energy company, predicts that oil will hit $250 per barrel “in the foreseeable future”.


BLAME CHINA

As gas skyrockets, affecting the price of everything we rely on to survive - food, clothing, electricity - that’s right - USA today just reported that thanks to the price of oil, electric bills will be going up 20-30% across the nation.

Most of these reports cite the growth of industry and higher standard of living in China as the reason for the squeezin. This excuse is as simplistic as it is inaccurate.

And it sure ain’t supply and demand. While it’s true that the oil companies are notorious for shutting down functional, profitable refineries to curtail supply and boost market price, how do you explain the current spike in prices when Americans have cut back on driving almost 5% compared to last year - which adds up to over 11 billion less miles traveled per month.

Writing for Information Clearing House, Paul Craig Roberts cites three more likely reasons that the price of gas has exploded.

1) The value of the US dollar on international markets has plummeted. 5-6 years ago, 1 US dollar was equal in value to 1 Euro. I just checked today’s rates, and it now takes $1.54 to buy one Euro, which means our dollar has lost over 35% of its value in just 5 years! If the price of oil had stayed constant, Americans would still be paying 35% more at the pump just to account for the weakened dollar.

To compound the problem, international traders are demanding Americans pay surcharges larger than the 35% that would equal the dollar’s current decrease in value, because they are hedging their bets. That means, they expect the dollar’s value to keep plummeting, and they want to be paid more up front to compensate for future shortfalls.

And as more oil markets cease trading in US dollars in favor of more stable currency like the Euro, the dollar won’t be worth the paper it’s printed on.


2) The Federal Reserve knows we’re in big trouble, so they’re pouring out liquidity to try and stabilize our currency. Those funds are financing speculation in oil futures contracts.

Basically, the investor class made a fortune on the subprime housing bubble, and now that it has collapsed, they’ve created a new bubble they can profit on. That bubble is oil futures. Investors are buying up future oil contracts, betting that the price of oil will continue to skyrocket. But oil prices are skyrocketing due because the traders are driving the prices up with their investments. It’s a Catch 22 that could only happen thanks to the right-wing politicians who deregulated every market they could get their hands on.

This phenomenon could get a lot worse if investment firms create derivatives based on oil futures and churn those debts into assets as they did with the mortgage market. Hopefully, the oil bubble will burst before that happens, or we’ll look back on the current downturn as the small hiccup before the big crash.

3) Tension in the Middle East. This leads me right back to my favorite subject - Iran. Every time that Bush or Cheney or an Israeli politician rattles their sabres in Iran’s direction, oil speculators panic and the price of oil jumps dramatically. Last week, when Israel mentioned that an attack on Iran is “inevitable”, the price per barrel jumped $8 in an instant. BuzzFlash’s Dave Lindorff predicts that an attack on Iran will send oil almost immediately to past $300 per barrel. That would bring the US, as well as most of the rest of the world, to an economic standstill.

IRAN AGAIN?

Since the price of oil is directly related to Iran, we should all be paying close attention to the latest developments between the US, Israel and Iran. Last Spring and Summer, I was raising alarm bells that an attack on Tehran was imminent. I may have to give back the tinfoil hat award, because it turns out I was right.

According former deputy asst. secretary of state for Near Eastern affairs J. Scott Carpenter, Dick Cheney was hell bent for implementing a plan the Bush admin. hatched in December of 2007 that would launch airstrikes on Iranian Revolutionary Guard bases, but was stopped by the Pentagon. The Joint Chiefs knew full well that once a limited airstrike was initiated, it would escalate into full-scale war across the entire Middle East. Now that General David Petraeus is in charge of military operations in the Middle East, the Pentagon is no longer an obstacle.

Some DoD officials even went so far to admit that thanks to the occupation of Iraq, our military effectiveness has been compromised to the point that Iran has more and better options for hitting back at the United States than the US military has for hitting Iran.

So we came closer to attacking Iran last year than most Americans know. And given recent events, we may be right back in the same position. Cheney’s trip to the Middle East in March was seen as a harbinger of war. Bush is currently traveling through Europe, ratcheting up anti-Iran rhetoric and trying to find supporters for his Iran war.

According to Dion Nissonbaum of McClatchy newspapers, the very fact that a military strike is percolating back into mainstream debate is a significant - and I’d say ominous - shift.

On May 8th, US Rep. John Conyers sent Bush a letter warning that an attack on Iran without Congressional approval would be grounds for impeachment. Rep. Dennis Kucinich just delivered 35 valid articles of impeachment that now rest with the House Judiciary committee that Conyers chairs. Conyers doesn’t need to wait for another war to impeach Bush, but that’s just what he may do. But the fact that Conyers felt the need to even write this letter speaks volumes.

A new grassroots group has formed, the Campaign for a New American Policy On Iran. Last Tuesday, the group held an event & press conference titled “Time To Talk With Iran” on the Cannon House Office Building Terrace. The event was attended by congress members Barbara Lee, Lynn Woolsey, Ron Paul, Marcy Kaptor and former Reps. Bob Barr and Sheila Jackson-Lee.

Beyond the House of Representatives, an article by Conn Hallinan posted on Alternet.org cites an anonymous source who claims several US Senators have already been briefed about a possible war with Iran.

HOPEFUL SIGNS

IRAN - The grassroots group I just mentioned - the Campaign for a New American Policy On Iran - offers resources and ways to join with others opposing war with Iran. Visit their website at newiranpolicy.org.

IRAN - The U.S. Conference of Mayors is holding its annual meeting next week in Miami, Florida. Mayor Bob Kiss of Burlington, Vermont submitted resolution to the International Affairs Committee urging the Bush Administration to pursue diplomatic engagement with Iran on nuclear issues and urging Congress to prohibit the use of funds to carry out any military action against Iran without explicit Congressional authorization. 20 mayors from across the US have cosponsored the resolution. Contact Terry Bellamy and urge her to participate!

OIL - Though Senate Republicans killed a bill that would levy a windfall profit tax on oil companies, Saudi Arabia, the world’s biggest oil exporter, is getting nervous about the political and economic effect of high oil prices. So the Saudis plan to increase output next month by about 1/2 million barrels a day, which if sustained would be the kingdom’s highest rate of output ever.

Though the Saudi kingdom is reaping record profits, they are concerned about the sharp decrease in demand occurring in the US and other developed nations. The Saudis also realize that the price of gas is making alternative fuels more viable, which will cut into their business. This is short-term relief at best, and the results may be negligible, but it marks a major shift in Saudi policy.

OIL - In yesterday’s Citizen-Times, Joy Franklin writes about a recent lecture in Asheville by Arjun Makhijani, the author of “Carbon-Free and Nuclear-Free: A Roadmap for US Energy Policy”. Makhijani’s new book talks about the current revolution in energy technology which may very well lead us out of this energy crisis without forcing us to make drastic changes in lifestyle. The book cites that the cost of solar energy systems has dropped by half in the last few years, and that both wind and solar energy systems are now positioned to cost less than nuclear power solutions.

Now all we need are leaders willing to encourage investment in alternative energy. Lacking that, I guess we could install wind turbines on Capitol Hill and harness all the hot air emanating from Congress and the White House.