Ed.: Oil hit $108 a barrel today.
The $100-plus Barrel of Oil and What It Means
By Michael T. Klare
On Monday March 3, the price of crude oil reached $103.95 per barrel on the New York Mercantile Exchange, surpassing the record set nearly 30 years ago during another moment of chaos in the Middle East. Will that new mark prove distinctive in the annals of world history or will it be forgotten as energy prices drop, just as they did following their April 1980 peak?
When oil costs are plotted over time, the 1980 oil crisis — prompted by Ayatollah Khomeini’s Iranian revolution — stands out as a sharp spike on that price curve. Both before and after that moment, however, oil supplies proved largely sufficient to meet rising global demand, in part because the Saudis and other major producers were capable of compensating for declining Iranian production. They simply increased their output substantially, dumping a surplus of oil onto the global market. Aided by the development of new fields in Alaska and the North Sea, prices dropped precipitously and stayed low through the 1990s (except for a brief spike following the Iraqi invasion of Kuwait in August 1990).
Nothing similar is likely to happen now. For the present surge in prices — crude oil costs have risen by 74% over the past year — no such easy solution is in sight. To begin with, we face not a sudden spike, but the results of a steady, relentless climb that began in 2002 and shows no signs of abating; nor can this rise be attributed to a single, chaos-causing factor in the energy business or in global politics. It is instead the product of multiple factors endemic to energy production and characteristic of the current era. There is no prospect of their vanishing any time soon.
Three factors, in particular, are responsible for the current surge: intensifying competition for oil between the older industrial powers and rising economic dynamos like China and India; the inability of the global energy industry to expand supplies to keep pace with growing demand; and intensifying instability in the major oil-producing areas.
A Tsunami of Energy Needs
The crucial role of the developing economic dynamos in Asia on the global energy market was already evident as this century dawned. With their phenomenal rates of growth, these countries must have more oil (and other forms of energy) to power their expanding industries, fuel their new cars and trucks, and satisfy the aspirations of their burgeoning middle classes. According to the U.S. Department of Energy (DoE), combined oil demand from China and India, already at 8.9 million barrels per day in 2004, is expected to hit 12.1 million barrels by 2010 and 15.5 million barrels by 2020. These are staggering rises. If you include anticipated consumption by Brazil, Mexico, South Korea, and other rapidly industrializing nations, demand from the developing world is truly expected to soar.
[For the rest of the article, go here to TomDispatch.com.]
Michael T. Klare, the author of Resource Wars (2001) and Blood and Oil (2004), is a professor of Peace and World Security Studies at Hampshire College in Amherst, Mass.
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After reading this entire article, I was amazed that there was not one mention of the extraordinarily high record oil company profits being made these days. This disappointed me and detracted from the otherwise poignant piece.