(a civil conversation) >From me: > Accumulation pulls up demand for energy and thus oil prices, > as in the 1970s. This > is not due to OPEC, etc., except to the extent that OPEC and > the like take advantage > of high demand conditions to try to grab a bigger chunk of > the scarcity rents. This > is not due to long-term "natural" scarcity of oil as much as > due to the > short-term inability to expand the quantity of oil supplied, > given existing wells, > pipelines, etc. and the short-term inability to conserve on > oil use. (In jargon, > both supply and demand are inelastic.) > ___________________ > DMS: But this is not what actually took place in 1973, 1979, > 1990, 1999. In 1973 the > price rise engineered after the Yom Kippur war also occurred > after the absolute expansion > of the productive apparatus with the subsequent decline in > the rate of return on investment > in the oil industry. There was no shortage of extractable > supplies. On the contrary, it was > exactly the development of the means of extraction, > depressing the rate of return, that created > the basis for the price rise. Similarly in 1979, the price > rise followed hard upon a period > of growth of fixed assets, and the price rise triggered the > drastic, draconian, > liquidation of those assets, across the board in oil, steel, > etc. The price jump in 1999 comes directly > after the price collapse brought forth by increased > production and the drop in production costs > below the historic low of 1949. The jump likewise occurs > after the rate of return in the oil industry > returned to low single digits. If OPEC didn't exist, the US > would have invented it. OPEC did exist > and the US still invented it, 3 times. > ___________________________
I don't know enough about the emprical data to agree or disagree. On the abstract level, however, it is quite possible that over-investment in oil would lead to over-production and cartelization. me: > All else constant, an oil crisis hurts the > profits of manufacturing and similar industries, which are > largely based in the > richest capitalist countries. The division between > oil-producing and oil-using countries > encourages the main reactions to the crisis. > ___________________ > > DMS: Oil prices rearrange profits and price increases have > strengthened the US at the > expense of Japan and Europe. In addition, significant > portions of developing country debt are > secured with oil revenues. Citibank hit some big skids when > oil prices declined after 1986 (but > not for that reason alone, the lost decade in Latin America > had finally taken a little toll on > the bankers who destroyed the decade to begin with). > ___________________________________________________ this seems a different topic. me: > This crisis doesn't simply encourage longer-term exploration > of new oil fields and > a move toward greater conservation (as in neoclassical > stories). It also encourages > recession and other attacks on the working class in order to > restore profitability. > The problem with the latter is that it prevents full > adjustment of the oil market, > i.e. adjustment of supply and demand. The defense of old > wasteful ways of using > oil -- as personified by the Bush administration -- also > prevents demand-side adjustment > (conservation). > ___________________________________ > > DMS: Actually, conservation had occurred. The amount of > energy, the amount of oil required > for each dollar of GDP had declined by approximately 30% from > the 1973 mark (I think, don't > have my notes with me right now). The proportion of IMPORTED > oil used in that total energy > reduction INCREASED dramatically. I agree that conservation occurred. (I once had a fruitless discussion with Mark Jones on this matter.) The problem is that not enough occurred. The US, for example, could emulate Europe and impose bigger taxes on oil. But that hasn't happened. me: > In the period after an oil crisis, the various reactions > combine to create over-production > of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid > fall in the real price of energy). This is encouraged by the > coming on-line of oil > that was discovered and/or exploited starting during the > "crisis" period. > (There's a bit of a corn/hogs cycle here.) As noted, low oil > prices discourage > conservation (as with the renaissance of gas-guzzling cars in > the US). It also encourages > the high-cost producers of oil to seek ways of restoring > their fortunes (e.g, Iraq's > invasion of Kuwait). It also encourages the eventual recovery > of accumulation, which > sends the system into another "energy crisis." > _______________________________________________ > > DMS: But Iraq is not a high cost producer of oil, having a > cost of production approximately > equal to Saudi Arabia, the low-cost producer. I have heard otherwise from other sources. >Iraq's costs > are well below Russia's, offshore > deep and shallow water, North Sea, Brunei, etc. Iraq's > invasion of Kuwait was based primarily > on Kuwait's refusal to abide by its quota, and other actions > taken regarding transportation that > damaged Iraqi revenues. > _________________________ I know about the slant-drilling, etc. JD
