Page 2 of 4 Oil, war, lies and bulls**t'
By Cyrus Bina
which the anachronistic view of oil - which requires direct control - is both
the point of departure and the point of arrival, at the same time.
For instance, journalists like Thomas Friedman and Ted Koppel tend to fall into
this same trap, by peddling oil as the cause of war, in headlines, the Op-Ed
page of the print media, and on radio and television airwaves, without a hint
of understanding about the circularity of their pronouncements; sadly enough,
economists, international relations specialists, and other social scientists
fare no better.
On a more professional terrain, former Federal Reserve chairman Alan Greenspan
had already implied that the US invasion of Iraq was for oil. The question here
is not whether oil was not on the uppermost part of the vice president Dick
Cheney's mind when the
George W Bush administration's invasion of Iraq was under way. But that
Greenspan is habitually captivated by the ancient idea that the world oil is
partitioned between us and the Arabs, and that the United States (after the
invasion) and Saddam Hussein - who fought the proxy US war with Iran in the
1980s - (before the invasion), have been able to control it.
Greenspan, in his own words, favored the US invasion of Iraq on the presumption
that today's oil does immutably operate in the same manner as in the colonial
and cartelized era, and that the physical access and cartelized pricing are
still the determining parameters of today's oil. Aside from his callous
attitude, if not his reactionary mentality, Greenspan's apparent delusion may
have to do with his unshakable conviction in romanticized (neoclassical)
competition, together with his sheer ignorance of the concrete reality of oil,
a combination of which is quite consistent with his narrow political worldview.
In the same vein, when it comes to questions of oil, power and hegemony, even
progressive international relations specialists, such as Simon Bromley (author
of American Hegemony and World Oil) have not been entirely immune from
circular reasoning. And when it comes to concrete historical facts, they too
pretend as if, for instance, the cartelized oil and/or the American hegemony
have not yet been relegated rather objectively to the junkyard of world
history.
As for "hegemony" alone, it appears that, today, is the most misused and abused
word in the English language. The casual use of hegemony, by the left and the
right, to mean control and domination, is literally one the terrible
idiosyncrasies of our time.
As I have pointed out elsewhere, hegemony in its original and proper
connotation exhibits four interwoven characteristics. It is: (1) mutually
consensual, (2) internally driven, (3) historically specific, and (4)
institutionally mediating. And more importantly, hegemony is a feature of whole
(that is, the Pax Americana), not an attribute of part (that is, the United
States). This, I believe, is an authentic interpretation and precise extension
of Antonio Gramsci's hegemony to the sphere of international relations.
Hence, it's silly and circular to define the existence of American hegemony in
terms of the readily assumed American hegemony. Nevertheless, the majority of
political scientists (and economists) still speak of the American hegemony,
despite the absence of the long defunct Pax Americana. Today's oil price, both
in magnitude and volatility, proves vociferously the fallacy of arguments that
are stubbornly geared toward the "hegemonic control" of oil, notwithstanding
the transformation of oil from cartelization to decartelization (and
globalization), since the early 1970s.
How does the oil price relate to the falling value of dollar and the
gravitational force of macro-economy as a whole? In order to answer this
question, we need a concise distinction between the long-run and short-run
price of oil at the present stage of globalization.
Globalization of oil reflects the formation of global prices in which the
highest-cost and lowest-cost oil regions tend to operate, side by side,
competitively and in a unified manner. And, in this global pool, short-run
market prices are not likely to form in isolation within each locality, but
rather emerge universally and in a unified manner. The formation of the
long-run price of oil, too, is achieved through global competition.
What is governing the magnitude of the long-run price is the "production price"
(costs, plus average profit) of costliest (least productive) oilfields within
the least productive oil region of the world, namely, the United States. These
fields are located beneath the continental shelf of the United States, known as
the lower 48 states.
Both the conservative and liberal media blame OPEC (the usual suspects are the
Arabs, Iranians and Venezuelans) for the oil price hike and accordingly concoct
a reason for military conflict, such as the US invasion of Iraq. A bit more
sophisticated version brings in additional issues - supposedly beyond oil - and
speaks rather panoramically of the US /China, dollar/euro or other arbitrary
binary pairs in the mix, without admitting first that the American century,
under the Pax Americana, has long been over, and that the epoch of
globalization is not the same as "Americanization" and America's purported
hegemony.
The left-wing media, while staying away from the blame-game and showing a bit
of human compassion, nevertheless concur with the same conclusion. A notorious
case in point is Michael Klare of The Nation, who - as the darling of the
liberal left - has successfully made an industry out of this unauthentic and
unbecoming trick in respect to war and oil. Klare's proposition is indeed a
replica of what James Schlesinger, a Chicago School economist - (and formerly a
CIA director and a one-time US secretary of energy) - had already pontificated
on oil and war, in 1991, following the earlier US war against Saddam Hussein.
Aside from strict copycatting, Klare and his likeminded liberal/radical
colleagues are in reality acting as strange bedfellows in concert with the Bush
administration's war policy, simply by obscuring the cause of war and
perpetuating a campaign of misinformation on the side of this administration.
Steeped in rusty knowledge of yesteryear's oil cartel, Klare doesn't even
realize (or doesn't care) that on the terrain of reasoned cause/effect
relationship the question of "resource wars" - a proposition in need of proof -
cannot be understood, let alone falsified, by a mere description of "resource
wars", despite his rather elaborate dog-and-pony show. And the fact that our
society is hooked heavily on oil consumption has essentially nothing to do with
why our government should behave the way it does.
After all, there is such thing as systematic explanation as to how capitalism
works and how the production and distribution of these resources are to be
utilized as guideposts for critical and objective examination of the
21st-century global capitalism. One needs not be overly voluntarist, or for
that matter crude, in respect to pricing of a resource, which is uncontrollable
in the view of its globalization, beyond the determination of a real or an
imaginary entity in today's world.
And, more importantly, we need not change the context of oil to suit the
context of war. Yet, Klare does this with an incredible ease; he identifies oil
as the cause of war, not by investigating the specificity of oil in its
evolutionary context but by repeating the same "resource wars" syllogism ad
nauseam. This, I believe, is a notable example of panoramic appeal and
misrepresentational fakery, reminiscent of "bullshit" - according to Frankfurt.
Oil is a commodity whose point of origin is insignificant once it arrives in
the inter-connected global pool. Therefore, notwithstanding the differential
regional cost of production, the market price oil is universally the same. The
short-run market price of oil is determined by the spot and futures oil
markets. This means that, from the standpoint of globalized pricing, there is
no distinction between "cheap oil" and "expensive oil".
The spot market reflects the daily delivery of oil on a competitive basis. This
market leads to market-clearing prices in an organized exchange, whose
magnitude sets the short-run price of oil in all other localities, regardless
of their momentary supply-and-demand conditions. The futures price, on the
other hand, refers to the competitive delivery of oil, sometime in the near
future, hence the possibility of speculative bubbles in the oil market. The
market clearing price of oil takes its cue from the spot/futures prices
anywhere in the world. This is also true for the determination of the price of
oil in long-term government contracts, between oil-exporting and oil-consuming
countries, anywhere in the world. OPEC too follows similar pricing rules for
its oil.
Spot markets in NYMEX (New York) and International Petroleum Exchange (IPE) in
London are the ones that for all intent and purposes set the daily price of oil
globally. The benchmark for NYMEX is the West Texas Intermediate crude, while
IPE trades in Brent - the crude from North Sea. In turn, the OPEC oil basket
itself (a composite of spot oil prices of member countries) takes its cue from
Brent (and, by implication, from the West Texas Intermediate crude), and thus
consistently varies according to fluctuations in these competitive global oil
markets.
This concrete reality provides us with three interrelated theoretical points in
the political economy of oil: (1) that the short-term global price of oil does
not necessarily depend upon the concrete, market-clearing (physical)
equalization of oil demand and supply at each and every single location on the
globe; (2) that the converging pattern of long-run (random) market fluctuations
is neither independent from nor a cause of the long-run "production price"; (3)
that such a pattern ordinarily reflects short-run fluctuations (of demand and
supply) around the gravitational center of the long-run price - that is to say,
the "production price" of the costliest oil deposits in the world.
The last point depicts the necessity of the "law of value", prior to market
prices, in the contemporary global oil industry.
The futures market (NYMEX) is a hedge market that normally operates alongside
the spot market. However, given its purpose, this type of market is not without
speculation. Hence, the question is how much activity in this market is aimed
at effective hedging and how much geared toward speculation. This is how the
issue of "selling oil that you don't have" had transpired in the summer of
2008, hinting at speculation in Wall Street by putting down, say, 6% of the
barrel, and turning around to sell 100% of the same barrel that is not owned.
Here, the culprit is the lack of adequate regulation, combined with
extraordinary political provocation advanced by the Bush administration toward
Iran in the same period.
This brings us to the connection between competitive price and the
corresponding production from the various oil regions of the world, according
to their individual productivity and cost structure. Given the fact that the
costliest oil should be able to recoup the long-run price (cost, plus normal
profit) in order to stay in business, its individual production price must
represent the long-run price for the remaining oil regions of the world.
By way of digression and in anticipation of a typical question as to why all
these costly oilfields will not suddenly go out of business, particularly in
the presence of more productive oilfields, say, in Saudi Arabia or Iran, it
would be necessary to get rid of an enduring popular illusion.
First of all, the presumption that these least-productive oilfields have always
been the least productive is demonstrably untrue. The majority of the least
productive oilfields - say, in the United States - had not always been at the
bottom of productivity scale when they were placed under production. In other
words, while these fields were initially ("naturally") productive, they
gradually declined via the successive application of capital that eventually
led to their present declining status.
Secondly, and related to the earlier point, differential productivity of the
oilfields within and between oil regions is not only dependent upon the
accident of geography but also to the successive capital investment and uneven
accumulation of capital vis-a-vis rent.
Thirdly, as a consequence, it is incorrect to assume - as in the case of
agriculture (his "margin of cultivation") did David Ricardo - that capital
moves in an orderly and unidirectional manner, from a more productive oilfield
to less and lesser productive leases in search of oil. Hence, "marginal"
oilfields must not be necessarily identified with the newly invested capital on
the newly leased fields, but with the ones that are already producing the bulk
of oil from the older oilfields in the United States.
This mechanism, and not "monopoly", provides the means for global competition
among the more- and less-productive oil
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