My new geopolitical theory
I have a new geopolitical theory. It goes like this: As the price of oil–and of gasoline–goes up, the IQ of politicians goes down. The R-squared correlation on this is 100%.
Massachusetts Democratic Congressman Ed Markey, for one, is suffering from this. He loudly blamed the White House for the fact that oil has risen steadily during President Bush’s term in office. Apparently he never studied Economics 101 (supply and demand), much less the psychology of Nymex speculators spooked by Nigerian militants or Hugo Chavez’s rants.
The public, and the presidential candidates, operate under the myth that a president can affect oil prices. Oh, he can temporarily, perhaps, by releasing some oil from the Strategic Petroleum Reserve. That might bring prices down for a couple of days. Or, he can order us to stop using oil one day a week by issuing some kind of decree, like no cars, trucks or airplanes in use for a day. But in a free-market society used to using 20 million barrels per day, and with few alternatives…I don’t think so. How could it be enforced, except by troops?
Last week, several Democratic senators, including New York’s Chuck Schumer and North Dakota’s Byron Dorgan, also apparently saw their IQs go down. They told the administration that if it doesn’t make the Middle Eastern producers hike their oil output ASAP–and sales to the U.S.–then Congress will block the pending sale of $20 billion of weapons to Saudi Arabia. Come on.
Sure, their oil-for-our military support has been the quid pro quo for many years and is the cornerstone of U.S. energy policy. Many would argue that we should not tie up military decision-making to oil prices any more than we de facto already are. But this sort of blackmail would be too tricky. It could force the Saudis to buy their arms elsewhere. (Russia? China? North Korea?) Not something we would welcome.
Besides, the Saudis already are working hard with increased drilling and field re-development to boost their output. One new field is supposed to come on line later this year, adding about 500,000 barrels per day to total output. This comes after a multi-year effort costings Saudi Aramco several billion dollars, with a rig count that’s gone up 50% in the past three years, and by applying all the latest new technologies that the West can provide.
Dorgan, for one, ought to know better than to think oil output can be so easily and quickly ratcheted up in another country just because of a threat from the U.S. Senate. His state is seeing an oil production boom in the Bakken shale in the Williston Basin now, but back in the 1980s and 1990s, North Dakota’s oil and gas industry was pretty quiet. I recall a week when there was only one rig working in all of the state. It was not for lack of interest or trying, or lack of people needing to use oil–it was oil and gas prices being way too low.
Economics 101 again. But oh, how these staunch capitalists in Washington, these defenders of free markets (who then howl when European glove makers or Chinese toy makers threaten U.S. manufacturers), keep forgetting this idea in favor of panic or grandstanding.
–Leslie Haines, Editor-in-chief, Oil and Gas Investor
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