Paddy Briggs comments on The Washington Times article: Socialist oil death spiral

I am surprised that a newspaper in America’s Federal capital would give space to an article so woefully short on logic and verifiable facts. To suggest that America’s car fleets will be electric powered in ten years time is just hokum! And to charge that oil producing States with as diverse political systems as Iran, Venezuela and Saudi Arabia are “socialist” is equally absurd. I wonder how the Saudi King Abdullah would react if someone said to his face that he is a “socialist”!

Richard Rahn’s right-wing rant does not only misuse its invective (the use of “socialist” as a term of abuse, for example) but adds little or nothing to the furthering of the debate about the realties of the energy world. To suggest that the multinational oil companies would prefer that the oil price be determined by a “truly free market” is ignorant in the extreme. The huge profits in recent years of Shell, BP, ExxonMobil and others have been primarily driven by high oil prices. Nothing that an oil Major does in the short term (acquisitions aside) has any discernable affect on their profitability for a very long time. The lead times of the industry are just too long for there to be an immediate response in profits to any action taken today. Even the predilection for cost-cutting (that has led to disasters like the BP Texas oil refinery explosion) produces only a small blip on profit performance. So oil companies are adept at managing things in such a way that the higher the oil price the better their results. Whilst I would not charge that there is a conspiracy between the national oil companies and the oil majors to keep prices high there is undoubtedly mutual advantage!

Rahn’s charge that the national oil companies are incompetent and corrupt doesn’t really stack up either. One of the reasons that multinational oil companies find it virtually impossible to negotiate production sharing agreements these days is that Shell, BP and the rest have not much to offer a country like Saudi Arabia or Kuwait or Venezuela. The national oil companies have developed their own technical competences to such an extent that even a company as technically advanced and experienced as Shell has few magic solutions that will mean that (for example) the Saudis will beat a path to their door offering production sharing. It just doesn’t happen. The good old days of Aramco are gone – their national oil company successor Saudi Aramco is perfectly technically competent to do most of what it needs to do by itself.

The best way to read Rahn’s tirade is to assume that for most of the things he declares as facts the truth is the exact opposite. Let’s list a few:

• The OPEC cartel is not socialist or even remotely unitary in its politics.

• The world will be more not less dependent on oil in ten years time

• All energy experts see the need for energy diversity. A better balance between renewable and non renewable energy consumption is essential for the planet’s survival. Man cannot continue to live on hydrocarbons alone!

• The oil price today is determined by supply and demand with only a marginal effect coming from self-imposed restrictions on production and supply by the OPEC producers.

• America will have a continued requirement for imported oil throughout the 21st century and probably well beyond.

© Paddy Briggs November 2007