What fraction of America's $4+ gallon gasoline is due to the war in Iraq?

This is a guest post by A Siegel, who blogs on a range of energy issues at Get Energy Smart! NOW!!! and works with TOD European Editor Jerome a Paris on Energize America, a blog-driven effort to develop innovative and holistic energy policy options in the face of peak oil and global warming.

What fraction of America's $4+ gallon gasoline is due to the war in Iraq?

Earlier today, someone asserted that well over half (or more than $2) of America's $4.10 gallon of gas is due to the war. Another person asked "Is that right?" And, after pulling out some hair from my head, my response was both short and then long.

The short:

Two dollars a gallon is, perhaps, as good a swag as anyone's.


I think.

And, the long? well, it's under the fold. :)

And, the long:

This is really a tough analytical (ANALyst) question, without a pure answer. How much did invading Iraq add to the price of gasoline? It really depends on who the hell you ask, what assumptions are, etc ..

1. For most, the two prime drivers are mounting demand combined with constrained supply (Peak Oil hits).

2. There is, from what I can tell, an over exaggeration of the role of speculation; this is profiting off oil prices not driving them.

3. There is, however, a major risk factor in the market due to tensions in the Persian Gulf/etc. (The war, threats to Iran, etc ...)

4. Without Operation Iraqi Freedom and with better relationships with Iran, would there be global investments in Iraq / Iran such that they would be producing more oil for the world market?

5. To what extent is the Iraq War responsible for the devaluation of the dollar over the past five years and the role this has on oil prices?

6. And, this question doesn't deal with the most interesting question: What is the true total cost of a gallon of gasoline? Because, when we add in security, infrastructure, health, pollution, and other costs, many analysts put the "price" of a gallon of gasoline well above $10 (and even >$15) per gallon. But 'the true cost of gasoline' wasn't the question and conversation.

Let's look around at some of the discussion of the issues related to the Iraq War and gasoline prices.

From EIA's gasoline price primer:

Crude oil supply and prices – Crude oil prices are determined by worldwide supply and demand. Events in crude oil markets that caused spikes in crude oil prices were a major factor in all but one of the five major run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council's study "U.S. Petroleum Supply - Inventory Dynamics." Rapid gasoline price increases occurred in response to crude oil shortages caused by the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990. The cost of crude oil has been the main contributor to recent increases in gasoline prices. World crude oil prices reached record levels in 2007 due mainly to high worldwide oil demand relative to supply. Other factors contributing to higher crude oil prices include political events and conflicts in some major oil producing regions, as well as other factors such as the declining value of the U.S. dollar (the currency at which crude oil is traded globally).

Okay, for EIA, the prime cause: supply / demand curves, but note "political events and conflicts".

Chris at Daily Liberty Research did a nice post on driving factors of oil prices with an interesting collection of articles, including the late June reporting that "OPEC President Chakib Khelil predicted that the price of oil will climb to $170 a barrel before the end of the year, citing the dollar's decline and political conflicts…" Chris comes to this key conclusion

the main reasons for high gas prices are the weak dollar/inflation (aka the Federal Reserve), the current wars we are in, and the likelihood of the U.S. starting more wars in the near future.

National Security Network took a look at the issue as well, with a focus on the risk premium. They comment that "some experts estimate" a risk premium of $30 to $40 barrel due to tensions with Iran/etc. That is what my 'off the top of the head' figure would have been for risk premium. But, guess what: even the best analysts, when pushed away from reporters, seem call this a guess, a swag or, at best, an "educated" or "informed" estimate. And, of course, the risk premium doesn't address the question of whether there would be more oil produced absent the US invasion and occupation of Iraq and sanctions against Iran. Nor does it address the question of how much of dollar's fall is due to conflict in Iraq and tension with Iran.

Back to a swag:

These, however, don't clearly answer the questions. Is the Iraq war premium $3?$2.30? $2? A buck? Twenty cents? Or, is there no premium at all? I find a $3 per gallon assertion absurd, just as I would find it absurd to assert that there is no premium at all. But, in terms of defensible analysis, in scratching my head, I return to the short answer:

Two dollars a gallon is, perhaps, as good a swag as anyone's.


I think.

But that is why this post is here. To spark a conversation. To be honest, I don't know the answers to these questions. I wonder whether anyone really does. Which is one of the reasons why I'm writing this. I don't know. I am not expert on gasoline prices and all the factors that coalesce to drive prices that are paid at the pump. Many here, however, are ... Are the questions asked above the right ones? Are there major factors missing? And, what might the answers be? What is a 'defensible' statement as to the premium American drivers pay at the pump and

This is an interesting thought experiment. I might be grasping here, but if someone could tie the defense premium being paid by the United States to support and prosecute the occupation of Iraq and the various other military establishments 'defending US interests', to the real price of gasoline at the pump in terms of taxes paid to support said budget and huge deficit incurred by exporting capital to dogdy oil producers, wouldn't that be a 'national security' debate worth having? Or should we just move those 'support the troops' magnets to cover the gas caps of those SUVs when we can and hope that makes people think?

So what's the defense budget - $530 billion? And the supplmentals every year for Iraq nearly $100 billion more. And say the US doctrine of defense is to fight 'two major wars simultaneously', so 50% of that $630 billion goes to support the 13 - 14 MBPD of oil imported into the US everyday, but we spread the cost over the whole consumption of say 22 MBPD (and I don't include gasoline imports). Let's say 20 gallons of gasoline from each barrel, so some 440,000,000 gallons...

Ooh that's a big number.... I must be wrong.

Well, that was the point of question six and raising the 'true cost' of a gallon. There are many studies on this, ranging from $10 up.

My defense budget experiment comes out at about $2 / gallon... I'd like to see the other $8 to $13 filled in by someone, though.

Couple things.

First off, total cost (fully burdened) would could pollution, infrastructure, health and other costs, not 'just' defense/security.

Some figures/sites:

Just on security http://www.evworld.com/news.cfm?newsid=11520 ' all costs are amortized over the total volume of imports, that would be equivalent to adding $5.04 to the price of a gallon of gasoline. For Persian Gulf imports, the premium would be $8.35."

http://www.hybridcars.com/news/real-cost-gallon-gas-835.html the real cost of energy dependence amounts to more than $11.35 per gallon, according to Gal Luft, executive director of the Institute for the Analysis of Global Security.

This is an interesting discussion, that seeks to calculate all costs. Numbers are pretty astounding http://www.energyandcapital.com/articles/oil-gas-crude/461

etc ...

Actually the cost of the Iraq war is thousands if not hundred of thousands of lives lots plus and additional cost of maybe a few ounces of gold to cover real electricity costs or say a ton of coal.

This is the cost of doing the electronic transfers of a fiat currency we don't even have printing costs.

As long as people keep accepting your fiat currency you can wage war forever for free.

memmel, I wouldn't say "forever."

Imperial Spain also thought it could go on forever:

Spain at its height could do anything. She could exhaust her treasury and forget her poor, her bankrupts, her devalued currency, her incompentent economy, her overvalued currency, her recessions and depressions, her debts both internal and foreign, her deficit spending, her negative trade balance, as long as she could keep herself at the head of the mission against the infidel, the Islamic threat and the Protestant threat. But eventually reality caught up and imposed the limits that imperial folly had so easily hurdled over.

(Carlos Fuentes, The Buried Mirror)

Government officials [Spain] have been shocked by the intensity of the downturn now engulfing the country. Car sales fell 31pc in June, industrial production has fallen 5.5pc over the past year and the collapsing property sector is shedding almost 100,000 jobs a month. Miguel Sebastian, the industry minister, said the economy had ground to a halt in the second quarter and was now in "virtual recession".

Virtual. Indeed.

Or how about doubling the US national debt overnight by bailing out Fannie and Freddie? And the reason they have to be bailed out to this degree? That the administration has been continually pushing them to increase leverage and exposure. This crash is intentional.

cfm in Gray, ME, Milliways

There is an element missing from the question posed here. That is, it addresses the question only from perspective of the effects of toppling Saddam.

Let's ask this question: Where would we stand if Saddam were still in power. (1) Would we still be trying to keep him in his box and, what would the cost of that be? (2) If we tired of the cost of keeping him contained, would he give up his designs to control Arab oil? Would he stop making war on his neighbors. Would he stop exterminating anyone who disagrees with him? (3) With Iran building nuclear weapons, would dear ole Saddam sit quietly by and do nothing, or would he engage in an arms race with the ayatollahs?

I would submit that Saddam would likely be an even bigger problem today than he was 7 years ago. The military cost of keeping him down probably would have been less, but it takes little imagination as to what the political cost would now be on the price of oil with both Iraq and Iran going at each other yet again.

My question still stands, trollbot.

I think that your comments on Saddam are really, really dumb.
1/ Saddam was boxed in for 12 years and not a threat to the west or Iran.
2/ Saddam was a mean S.O.B., but at least under him there was no Al-Qaida-in-Iraq.
3/ A few warships off the coast, patrol the no fly zones, fire a few cruise missiles occasionally. 6 years (2003-08) at a few billion dollars/year and no bodycount.
4/ 120,000 troops freed up that could have finished the job in Afghanistan= no resurgance of the Taliban and one dead Bin Laden.
The troll comment about you was harsh but at least a troll has a brain.

your miss is that the 440,000,000 gallons is per day, and the 650 billion is per year.

That gives us 160 billion gallons per year, which would in theory be $2/gallon. That's a big number, except that it's a total lie. Taking the military cost and laying it off against the gasoline fraction of only us oil imports is bogus. The US imports are primarily from mexico and canada, so stabilizing the ME is not really about protecting "our" oil, it's about protecting world oil. Without which, I would point out, the world economy would have collapsed decades ago. Not only that, but far less than half of the US military budget is spent on middle eastern adventures. Roughly half the military budget is spent on benefits for RETIRED soldiers, the ME represents maybe 1/4.

I like reading the Oil Drum on lunch break, but I fear this is only going to get worse and worse until the election passes.

Ceterus paribus assumption taken too far: No accounting for increased demand from other parts of the world.

It doesn't matter who much of it is due to the current wars (Afghanistan and Iraq) or the planned ones (Iran and Venezuela.)

They're making anyone with an ounce of brain abandon the US currency in favor of the Euro.

Bush's minions (or is it his bosses,) estimate that unpegging the Yuan will fix everything by making Chinese goods more expensive, easing the trade imbalance, is right.

That will single handedly ruin Wal*Mart.

But by being able to go to the Euro, (in New York at the trendiest shops, you pay for imported goods in Euros. The dollar is too unstable!) means that the Yuan is going to take the hit, dump the dollars and be able to continue with Euros.

The dollar will freefall to the value Mexican Peso unless the US shores up the dollar by selling lots of land.

And that will be all she wrote for the experiment in democracy.

History always has a tendency to repeat itself - sooner or later.
The best comparative empire in history analogous to America would have to be Rome.

The originator of Democracy - Greece, was not able to have the influential power of Rome after their fractionization when Alexander the Great died - followed by Selucus and Ptolemy and their descendants vying for supremacy.
Once the rivalry began the Grecian Empire lacked cohesion and faded into history.

Rome, however, gives us a better case example of the deterioration within a republic.
As the Roman Republic maturated it developed into a democracy.
Within the Roman Democracy a metastazing corruption was unavoidable.
This depredation was caused by a lack of leadership due to the competetive drive of the elite within its populace; which consequently caused the government to become dysfunctional.
Elite control of the government created an extreme gap between the wealthy and the proletariat.
This atmosphere within Rome created civil unrest among the majority and division among the populace on whom they should give their allegiance to.

It was within this confusion Julius Caesar and those who would follow him came to power through deception and propaganda.He was the first Roman leader to claim to be divine, and therefore, had the right to rule the people with complete authority.
All those who would follow on the Roman throne would claim to be Jupiter incarnate (if memory serves me correctly) and would consequently carry the title 'Emperor of Rome'.
Much in the same way the Pharaohs of Egypt carried the appellative 'Horus in the flesh' the son of Amon Ra.
The end result of absolute power.

Ostensibly Rome retained the cognomen 'democracy', but in reality, Rome turned into a dictatorship by 21st century definition.
As history shows us, it was at the time of the rise of the Emperors that Rome became exponentially more violent and bloody; and the brutality of Rome became legend.

With a careful perusal of Romes history, it becomes axiomatic that America is following the same path, i.e.: the elite within America having inordinate influence - creating a growing gap between the rich and the poor - and causing the proletariat to become agitated with dishelved confusion among the majority.This conflagration will become incalculably more exacerbated by the current economic problems due to the plateau in oil production and the contraction of the economy.

I find it quite sad most are willing to believe the nonsense that all of the geo-political problems we are having can be directed towards one individual (that being the current President), when in fact, there is no possible way in this current system government one person can be the root cause of all of our failures.This only makes it painfully obvious how uninformed the majority are, and showcases the maladroit actions of the corporate media. All of us to one degree or another share the blame, but hardly any are willing to accept that responsibility.
This type of ignorance will bring a change that most would be shocked by if they only knew the consequences.
Revolution in the 21st Century is a very bad idea.

I'm afraid msbpodcast is right when predicating the days are numbered for democracy.

History may indeed repeat itself.

Graeco Roman civilisation was pretty bloody before the Emperors, with cheerful hobbies like decimating armies to maintain discipline and live dissection of slaves to improve medical knowledge.

That quibble aside, most of what you say I would agree with, with the exceptions that inevitable is usually best determined in hindsight - how do you prove that greater understanding of what was occurring could not have altered the outcome? - And also I don't think that individuals should escape all responsibility - the group around Bush is still a criminal clique intent on subverting the country in their own interests, even if the tide of history is that which empowers them to do so.

Don't get me wrong, I do believe the President may have nefarious reasons for his decisions.
I do recall a speach recently were he told the American public that "Americans are addicted to oil."
If I read between the lines I would interpret that as "...Hey you idiots, we're in Iraq to feed your insatiable thirst for oil. Why are you bitching about the war..?"
This is one of the many reasons why we all share the blame - out of ignorance.

It would be ideal if there was a greater understanding of our current crisis to quell a potentially devastating conflict....But how many individuals actually understand the concept of peak oil globally?

1 million, maybe 3 million?

Instead of the majority seeking knowledge by the erudition of history - so as to insure mistakes are not repeated - all I see are the majority of people clamorous for more 'bread and circus'.

Nice comment, sampson.

I too like to fit current events into a larger historical context in order to try to gain understanding. And even though I might disagree that Rome offers the "best comparative empire," I nevertheless agree that much of what we are seeing can be attributed to the "decline of empire."

I wonder though if what is transpiring is not just the decline of the American empire, but a more general decline of the Western imperial complex as a whole. For the last 500 years the baton of top global empire has been passed around, the United States carrying it for the last century or so, perhaps at times in close competition with Russia, but before that Spain, England and France all had their day in the sun. But the baton always remained within the Occident. Could it be that the time has arrived when non-Western empires will dominate, as they did after the fall of the Roman empire, and when all of Europe came within a hairbreadth of falling under Moslem domination?

Jacques Barzun has written about the cultural rise and fall of the West in From Dawn to Decadence: 1500 to the Present. He argues that the "point at which good intentions exeeded the power to fulfill them marked for the culture the outset of decadence." This sentiment is echoed by Carlos Fuentes when he wrote: "The Renaissance dream of a Christian Utopia in the New World was also destroyed by the harsh realities of colonialism: plunder, enslavement, genocide. Between the two was created the baroque of the New World rushing to fill in the void between ideals and reality." In the United States the Baroque has taken the form of our whirling, flamboyant, excessive lifestyles, every waking moment filled with movies, music, sports, entertainment and extravagance. "Nothing," as Fuentes goes on to explain, expressed "uncertainty better than the art of paradox, the art of abundance based on want and necessity, the art of proliferation based on insecurity, rapidly filling the vacuums of our personal and social history...with anything that it found at hand."

That said, I've often wondered how Peak Oil plays into this. I for one am convinced that Peak Oil in the Occident (more or less corresponding to the OECD) is upon us. Only a small portion of total global petroleum reserves reside within the borders of Western countries. Does that have anything to do with, or will it contribute to, the decline of the West?

It seems that, if the empire were functioning properly, it would not. Fuentes gives us a definition of the Bourbon concept of empire:

[T]he function of the Spanish crown was to promote the development of the Iberian Peninsula and that of the American colonies was to furnish raw materials and cheap labor for the greater prosperity of Spain.

With the advent of the 19th century, overt empire became unfashionable, or unprofitable, and a more sophisticated type of empire evolved. "Economic liberalization" was its creed. The cross and the sword were replaced by the calculator and the gunboat. Again quoting Fuentes:

In the phase immediately after independence, Britain managed Latin America's foreign trade; in the latter part of the nineteenth century, the United States came to be the principal partner. However, they employed the same instruments of economic power, namely favorable agreements for their merchants, loans and credits, investment, and the handling of the export economy of minerals, agricultural produce, and natural products required by Anglo-American expansion. A highly privileged local minority served as intermediaries, both for these exports and for the imports of manufactured European and North American goods, which were in demand among the urban population in the interior....

Saudi Arabia provides the perfect current-day example of one of the few remaining "highly privileged local minorities" serving as intermediaries for Western interests. Bin Laden has avowed to remove this privileged minority. At the same time, the United States is trying to re-establish another privileged minority, loyal to Western interests, in Iraq following the betrayal of Saddam Hussein.

I suppose two scenarios are possible as to why the non-OECD countries are no longer providing abundant and cheap oil:

1) Failure of empire, or

2) The non-OECD, as well as the OECD countries, are experiencing Peak Oil.

And perhaps these two do not operate independently of each other.

hello DownSouth,

I appreciate the philisophical points of view expressed by Mr. Fuentes, namely:

"....In the United States the Baroque has taken the form of our whirling, flamboyant, excessive lifestyles, every waking moment filled with movies, music, sports, entertainment and extravagance. "Nothing," as Fuentes goes on to explain, expressed "uncertainty better than the art of paradox, the art of abundance based on want and necessity, the art of proliferation based on insecurity, rapidly filling the vacuums of our personal and social history...with anything that it found at hand...."

How can one disagree with this perusal of Western Civilization, especially our insecurity?
It certainly should give any American pause to think.

The question of Western imperial influence among the oil producing nations and the growing Asian power block, I believe, can possibly be summerized in the following analysis:

What made me certain of the absolute certitude of American preponderance, and why the Middle East and the Asian Powers will not be able to thwart the will of America - until America's destiny is fulfilled in creating a one world government - were the writings of such political scientists as Zbigniew Brzezinski and Jim Garrison, who is the residing president of the World Forum based in San Francisco.
The thing I appreciate about Mr. Brzezinski is his undeniable candor in describing geo-politics.
One may disagree with his world view, and perhaps consider him to be somewhat callous in his conclusions; but he never seems to be overtly 'political' in his writings and basically gives an outline of future events and how they will materialize in the real world.
He is a strategist, not a politician.
In Zbigniews book 'The Grand Chessboard' he states "...Hegemony is as old as mankind.But America's current global supremacy is distictive in the rapidity of it's emergence, in it's global scope,and in the manner of it's exercise.In the course of a single century, America has transformed itself - and has also been transformed by international dynamics - from a country relatively isolated in the Western Hemisphere into a power of unprecedented worldwide reach and grasp..."
He meticulously pointed out not only America's 'peerless military hegemony', but also America's economic preponderance and worldwide cultural influence (something he stresses in his more recent books).
His conclusions are for the concatenation of global American superiority for at least another generation; that will ultimately give rise to a united global order of shared responsibility with America at the nexus of this system.
This is merely a euphemism for a World Government.

Jim Garrison, on the other hand, presents more of the esoteric side of America; and predicates in so many words "...America is Atlantis recidivus...America is the most modern expression of the most ancient quest to attain absolute power through complete knowledge..."

It is worth pointing out that these two political scientists are merely stating facts, not political hyperbole.
All one has to do is read Francis Bacon's 'The New Atlantis' to see where Jim Garrison gained his insight.
It is fascinating and somewhat maledictious that Francis Bacon, in a 16th Century book, described 'flying machines' and 'skyscrapers' many centuries before their existence. It makes one wonder just how he attained this occultic and or secret knowledge.

The descision the individual will face in the near future is whether one decides that the current ongoing paradigm is something he or she really wants to be a part of, or whether they will decide to eviscerate themselves from the onslaught of a relentlessly technocratic globalization.

Ultimately, one's freewill cannot be violated.

As someone reminded me on an earlier discussion, it's really not that complicated.

It seems we probably ought to count devaluation of the dollar caused by the invasion as part of the risk premium. To "pay" for the "war" we have just been running the electronic printing presses, and all that creation of additional dollars makes the value of each individual dollar fall. If we didn't have the war, we wouldn't have had to electronically WHOOSH so many more dollars into electronic existence, thus the dollar would be stronger, and oil would be cheaper.

Incidentally, I wonder if the neocons would be so happy increasing the money supply to "pay" for things if someone apprised them of the fact that doing so is actually equivalent to an an incredibly progressive tax increase. Just as when a publicly traded company raises money by issuing more shares, which siphons some of the ownership away from the existing shareholders in proportion to their number of shares owned, running the electronic money printing presses siphons wealth away from Americans into the pockets of the government in proportion to the amount of wealth (that's *wealth*, not income) those people already had.

So despite the rhetoric, the Bushistas have indeed raised taxes, and they have done so in one of the more progressive ways it could be done. (Shhh, don't tell them!) On the other hand, it still hits poor people as well by driving the price of everything up. This part of the equation is sure to make the neocons happy.

Utopia in Decay

Kevin Cherkauer

Well, there never were "Bush Tax Cuts", but only Tax Increases on the Unborn.

Are the neocons, per se, anti-tax? In any event, they feel protected against any 'minor' inflation. In any event, invading Iraq was supposed to lower the cost of gasoline, no?

"Are the neocons, per se, anti-tax?"

What a funny question. Breathes there a born human who does not notice that these neo-whatever (fascists) work to lower taxes on the super-rich at the expense of the hoi-polloi?

Also, where have the US factories gone, one by one? The remaining industries are heavily oriented towards Defense(???)-warmongering and such industries are mostly all that remain ......

I'm living in US & France, and gas-prices in FR, while irritating, are nowhere near the SHOCK level I perceive in the US. Remembering that our human senses ( even of money )are logarithmic, the price I pay at the pump here in FR has gone up ~1.50/1.25 (euro)(since last summer), whilst in US it's what? ~ 4.xx/2.xx ( $) ..... shocking!!!

Due to what differences? Could one difference be that the world is already quietly, subconsciously Euro-based?

Like the US tax policies ( SHHHH, just don't tell them ! )

One reason we were p---ed off at Sadam was he wanted to use Euro as base for oil mkt....no?

Sorry for lack of documentation ..... color me anecdotal.


Re your comment on world being 'euro based', see article a Steve Masterson wrote in 2006, http://www.thetruthseeker.co.uk/article.asp?ID=4657
Article is doing the rounds again (plagiarized) since Iran finally opened their oil bourse on Feb 17th 2008, although according to Wiki http://en.wikipedia.org/wiki/Iranian_Oil_Bourse it is only trading derivatives, oil trading will start later.

Conservatives are anti-tax, and anti-spend to match. Neo-con is a name liberals give to those who like to spend as much as they do, only on different things.

Factories went away due to high corp taxation (highest in the world), heavy benefit loading, high minimum wage, unfunded mandates, and heavy environmental regulation. They went to China -- thank the liberals for that, though the neocons fiddled in tune with them.

Euro-based? That'll sound hollow once Gazprom yanks the chain in a year or so. EU wins today based on efficiency, admittedly. But the US can increase eff faster than the EU can increase production. It'll be messy for us both, and both have profound weaknesses.

US deficits and loose credit are definitely a major contributor to the problems, though. Again, a neocon can scheme with a liberal to make loans that nobody should, but a paleocon would not. Let's relearn the leverage lesson of '29, shall we?

Factories went away due to high corp taxation (highest in the world), heavy benefit loading, high minimum wage, unfunded mandates, and heavy environmental regulation. They went to China -- thank the liberals for that, though the neocons fiddled in tune with them.

If only just to "feel" a little better: Rx: a dualistic blame system, denial, bravado, jingoistic posturing.... these ought surely to make things feel better for US.

Threats for tomorrow e.g. Gazprom boogeyman ..... may make the currently drowning feel better about themselves WRT the about to drown but the meaningful question is "How does it really look from here?"

There is a question, it seems, as to which societies and which status of life we should compare America to., it looks as if you wish to have the Chinese situation of polluted skies/waters/etc, near enslavement of workers, and otherwise as the US standard. Please exlain how that is not the implication of your paragraph that begins "Factories went away ..."

Now, if you were to compare to Europe, let us say, is the US tax burden the highest? Judged in what way? The overall tax burden (including the business social security/such taxes related to salaries) in Western Europe is generally far heavier on business than the US, no?

As aways, it is important to translate those terms for non-US people.

As I can tell, at US, "liberal" means socialist (or social-democrat, not communist), "conservative" means liberal and I really don't understand the meaning of "neo-conservative" yet, sometimes it looks like neo-liberal, other times like facist.

Too complicated - 'right', 'righter' and 'rightest' do the job.

Conservatives are anti-tax, and anti-spend to match.

'the conservatives' are not anti-tax and anti-spend.

If they were, then do explain 'the conservatives' votes and bill signatures that have resulted in the 50% effective tax rate and the increasing borrowing to keep government 'functioning'.

Republicans - the borrow, tax and spend party.

"... and anti-spend to match..."

that doesnt pass the smell test, for if it is so why has the "compassionate conservative(bush)" and his band of corrupt neoCONS run up the debt to the tune of oh lessee here $9.something trillion minus $ 5.something trillion ........ that's damn near $ 4 trillion ?

But England has seen about the same price changes and Euro based countries and has similar infrastructure.

But we all realize that they are basically as screwed as the US so it goes well beyond simple precentage changes and into core design if you will of the economies.

The French and a lot of the Euro based economies have been smart some dumb and some like England almost as stupid as the US. I'd say off hand that Italy and Spain are not in near as good a shape for example.

I think the idea is right but the reasoning if you will is deeper and really based on almost national desire.

The French in general care about good wine good food and F*%$ing. The finer things in life :)

Maybe if we could make really good wine in the US we would not be in crappy shape.

Given this criteria the English don't stand a chance :)

"Well, there never were "Bush Tax Cuts", but only Tax Increases on the Unborn."

i think i get your point, on balance, although bush cut taxes(for some*), the hidden inflation based tax wiped that all out.

i used to post that bush was a loan shark. he gave a $$$$ tax credit for each dependent, but added something like $$,$$$ per capita debt.

* my tax cut, having no dependents was infinitesimally small.

also, did i miss the part about how much "would have been" iraqi oil has been taken off the market as a factor in the gas price equation ? that would require another swag to evaluate.

The 'how much oil would have been produced' and what impact that would have on prices certainly is a swag challenge and is one of the questions that I raise.

It seem that a lot of people on TOD do not understand the operation of the US Government.
The President of the USA can not raise, lower or alter taxes in any way. Taxes are the sole domain of the US Congress.
The Congress is responsible for ALL taxes in the USA. The congress is currently controlled by the Democrats who are in the majority, so if tax legislation isn't to someones liking they should be complaining about Nancy Pelosi for not supplying the leadership necessary to initiate and pass the legislation (tax or otherwise) to make changes.
If anyone is unhappy with any aspect of the Federal Government, at least complain about/to the Government entity that has control over that aspect. And in most cases that is not the President of the USA.
The "Bush tax cuts" may have been proposed by the executive branch of the government, but it was the Congress of the USA that passed the legislation that enabled them. If the Congress did not like them, they would not have passed them. Tax cuts or increases are Congresses tax cuts or increases, not the doing of any President of the USA.

"It seem that a lot of people on TOD do not understand the operation of the US Government."

Noone really wants to blame the entire Republican party for voting in lockstep on a great deal of the most important issues of the day (minus a few renegades). Most people don't look at voting records, but what they are right about is that it is one entity, and acts as such.

This seems to be a variation of the "we were just following orders" canard. Working of US government is one thing, but you sir, do you understand the workings of politics?

Please excuse me, I have gotten off-track on two posts within these comments. I will keep future posts more relevant to oil in the future.

I did not venture to derive cause and effect from my observation. I was just stating a fact.

I couldn't have cared less for politics before the Taguba report.

The "tax cuts" occurred when the Republican Party controlled Congress. The Democratic Party leadership has instituted "pay-go" rules, which is that you must find revenue (either new revenue or have program cuts) to pay for any need/incresed program expenditure. This is not supported by the Bush White House or the Republican Minority leadership in Congress.

In addition, the "Democratic" control of Congress is, of course, limited in many fashions, from the need to have 60 votes to get almost anything through the Senate to the White House's threat of/use of vetos.

"Incidentally, I wonder if the neocons would be so happy increasing the money supply to "pay" for things if someone apprised them of the fact that doing so is actually equivalent to an an incredibly progressive tax increase."

Great line Kev. Instead the talking point by the neocons is; "Well its still a lot less than in Europe!" When will they ever learn?

Deficit spending to pay for the war is certainly part of it, and we've had plenty of other spending boondoggles like the Medicare Part D giveaway to the pharma industry. Don't forget Greenspan inflating the housing bubble with those record low interest rates. Anyone want to guess how much of the dollar's drop can be attributed to war funding? The Euro was worth 80 cents in 2002. If we assume oil traded for the same price in Euros today, oil would cost $72/bbl at exchange rate of .80 or $90/bbl at an even exchange rate.

Effectively, the federal government must secure the funds to pay for the shortfall from tax revenues to meet current spending, so new money is loaned into existence in exchange for federal paper, and purchasing power is taken from the public as the value of money thus depreciates.

The fed and banking system are creating new money at double digit rates, so it should be no mystery why your money buys less. It is not so much that prices are going up as the value of money is being engineered down by Washington DC. for their benefit.

On top of that is whatever effect the oil supply and demand has on the price.

It is difficult to determine how much of the price change is from supply/demand and how much is from depreciation of our currency. Both are involved, but my sense is that depreciation of our currency is the bigger factor.

Maybe its more clear if you just consider Iraqi oil. The war is costing $158/bbl. ($12B/month divided by 2.5 mm bbl/day.) Existing infrastructure will support 5 mm bbl/day, so that could go down to $79/bbl. Now add the lifting costs, which I read here somewhere were estimated as low as $5/bbl, but I can't believe that, so say $15, and the best currently possible cost is $94/bbl - still more than new deepwater production.

What's the solution? Go big or go home! Double production with only 50% more expenditure to guard the rigs, camps, pipes, supply trucks etc.., or write the whole adventure off.

Of course, $18B/month would buy a lot of mirrors and windmills. At $130/bbl oil is the most expensive form of energy. It's not worth fighting for anymore.

What an interesting analytical approach. Thank you. Self-evident once you see it as a way to think about it ... but I didn't see it.

Now, I don't believe that this is 'the answer' (don't think there is a simple answer), but it is an interesting way to slice the problem.

Finally someone else who understands it.

Your wasting electrons though.

My congrats to you.


Except your last comment at $130/ barrel it is still the least expensive form of energy.


You might want to check your calculations there. It costs less to heat a home with electric space heaters than with oil now.


Energy= The ability to do mechanical work

Take a shot glass and fill it with crude... what does it represent??

Answer--The amount of work an average human man can do in an 8 hour day.

Question- What does it cost at $130/barrel

Answer - About 5 cents.

The less crude oil available to you, the more mechanical work you will do.

"I will turn your face to alabaster, Then you'll find your servant is your master, And you'll be wrapped around my finger" Sting

Also known as involuntary servitude.

With regard to energy cost

Alkaline Long Life battery = .19/watt hour or $190/Kw-hr

110 V AC delivered to the wall at my house $.075/ Kw- hr



That's almost a poem.

Human beings aren't clever enough to use the energy they think they control, that's why.

Of course, it didn't start with oil. Think of poor Prometheus. It all started there.

You do seem confused. I was giving oil an advantage by looking at the cost of oil heating compared to resistance heating. If you want to convert to mechanical work, then it cost $0.30/Wkh, which is higher than solar PV in northern Europe.

You may want to review your definition of energy as well.


Try the math for yourself. Gasoline contains 38.4 MJ/L. Wind power costs $.09/kWh. That's equivalent to paying $.87/L ($3.29/gal) for gasoline - less than the current spot wholesale price. I am not including the losses in storing/recovering the wind energy in an electric drive, nor the difference in efficiency between electric and ICE motors, The overall efficiency is roughly equal though, so comparing gas with electricity is fair.

CSP plants under proposed & under construction promise to be cheaper than wind.

Pickens is no dummy and has already figured this out. He is proposing wind/electric, which will take 10-20 years to implement, and CNG conversions as a stopgap. He understands that gas is past peak as well as anyone, but it only has to last the life of your existing car, with the $2,000 conversion.

Oil is now, and always will be, the most expensive form of energy. However, Eisenhower was completely right in his warning about the military industrial complex, and Americans are about to hand over control from a third generation oil man to a third generation navy officer, so it's not really about cost, is it?

thanks to you and mdsolar I learned something very useful without having to work (diminish energy) much.



The price of all forms of energy are going to a premium of the most expensive minus a conversion utility discount. Effectively we are going to move to paying for energy in the form of btu+format.

If one form gets significantly more expensive all other forms will rise in price as they are converted to the expensive form. This is the NG/Oil dilemma on a broader scale. In time no cheap energy source will really exist. Not even cheap electricity.

The price of electricity for example could probably be fixed at the cost of electricity plus the cost of electrolysis of hydrogen and creation of methane from C02 and thence to liquid fuels.

I'm not saying that will be the route but at some point the use of electricity in processes that generate the most expensive fuels i.e liquid fuels will determine the floor price. If its cheaper than that it will be more profitable to use in conversions to liquid chemical energy.

The key is what this conversion does is limit electricity that can be used for other purposes.
When it becomes profitable to convert then the price of electricity can never be lower than it worth in a conversion process.

This is why the simple economics of substitution fail for energy. The always result in partial substitution and conversion and eventually depletion of all resources if irreplaceable source play a large role.

I think you probably have that backwards. Electricity, especially wind which can expand rapidly right now, pretty much puts a limit on the price of oil. It won't be worth pumping oil if it can be manufactured for less.


Thats the point this concept is wrong. If abundant cheap electricity is available then you have incentive to convert it to another form. Right now cheap electricity is most often converted to aluminum via electrolysis.

In a world of expensive enough liquid fuels then conversion to liquid fuels instead of using the electricity directly would be viable and more importantly profitable.

I'm not saying we won't go to windmills but if we don't get off liquid fuels and reduce the demand these windmills will be powering some sort of liquid fuels scheme instead of direct use in transportation.

Now in a world that moved to electric transportation and did not have a large demand for liquid fuels electricity would be the top fuel and the value of everything would be controlled by electricity.
This is what your saying its the same as what I'm saying but with a different premium fuel.

Of course if electricity generation from renewables is cheaper than from oil then you won't pump the oil.
Since by definition renewables are renewables you pretty much would never reach the point of needing to pump oil. The law of receding horizons if you will but in a good way.

The key is of course to move aggressively to efficient electric transport primarily rail. A move to personal EV's would probably reduce to cost of oil initially but result in partial substitution leaving liquid fuels the primary fuel source and opening up economic conversion of electricity to liquid fuels. This forces up the price of electricity and levels the playing field so to speak.

As far as I've seen, Aluminum tries to make a seperate peace with supply. I'd expect we'd see the same for FT though I still like a "cogen" setup myself. http://mdsolar.blogspot.com/2007/12/jet-fuel.html

If we start to make fuel from electricity, it will likely look for deals like other industrial uses, demand side management, emergency load shedding etc.... That tends to reduce prices elsewhere rather than raise them since you need less backup.


Your making assumptions about bountiful cheap electricity. Thats not true.

Its a lot simpler if you make more money generating electricity and converting it to a liquid fuel then you do that. Certainly it looks for the cheapest deal but if its more profitable then the demand from conversion is competitive with other uses. What your describing although true is slightly different in this case the use is uncompetitive vs normal electric customers it only makes sense when other customers don't need extra electricity.

Consider this scenario. Somehwere in Kansas you build a large wind farm tied to a switchgrass thermal snygas diesel operation. The electricity from the wind farm is only used in the conversion plant its never even connected to the grid. This source of electricity is lost.
You could do the same say with hydroelectric sources.

If demand for liquid fuels remains high generation of electricity solely for liquid fuel conversion would be viable. And these generation stations do not contribute to the electric supply in my case they are not even connected all the generated electricity is sent to the biofuels plant.

This removes a number of cheap renewable sites that could have been used to power the grid.

In fact proposals to use nuclear energy in the tar sands already exist. These would be nuclear plants that make no contribution to the electrical supply but building them removes resources that could have been puts towards generation for the grid.

Another example is demand for NG for refining heavy sour crudes is a direct competitor for using NG in electricity generation. It would get even worse if NG is directly used extensively in transport.
This tie is happening right now.

If liquid fuel demand however becomes small relative to electric needs then the impact on the grid is small in fact you probably fall into your argument that they would use excess electricity.

In my case your generating in other cases the electric source could be purchased from the grid if prices are high enough to make it economical but in both of my cases your removing generation from the grid for other uses and this competing and driving up the price of electricity.

I've actually looked at generation of gaseous or liquid fuels using wind electricity the numbers can actually work today. Esp for electric thermal decomposition of switch grass into syngas.

This is directed at electric generation but it could easily be done as I said and target the more lucrative liquid fuel market.

As long as we remain dependent on liquid fuels they will continue to cause problems.
To get it right we need to make liquid fuels a minor component of our energy needs so that they can't compete with electric transport needs.

This implies a fast efficient and extensive electric rail and trolley system.
And innovative use of electricity in off grid use cases.

Electric motors are actually much better for heavy equipment in the first place its a matter of figuring out how to use them.

I think I see your problem now. You think renewable energy is scarce. If you devote a wind farm to making ammonia or methane or something then there won't be another wind farm for the grid. In fact, scale is still pushing costs down for renewables and we have not run out of places to put turbines or solar panels or CSP.

I think that liquid fuels don't make a lot of sense just because combustion is not so efficient and it is a hassle to control NOX and other pollutants. We would do better with electric transport because we can reduce our overall impact.

But, sourcing liquid fuels from wind or solar is not going to use up wind or solar so the effect you are arguing for, oil prices making electricity scarce and thus more expensive does not make sense. Oil is going to cost about three times electricity and electricity is going to be cheap. We should conserve heavily now to reduce the price of oil so that we can wait until we're ready to go with that kind of thing. Mainly I think we'll want that stuff for jet fuel.



I think I see your problem now. You think renewable energy is scarce. If you devote a wind farm to making ammonia or methane or something then there won't be another wind farm for the grid. In fact, scale is still pushing costs down for renewables and we have not run out of places to put turbines or solar panels or CSP.

Prove electricity will be cheap. If 90% of the wind farms and other sources of renewable electricity are devoted to synfuel and ammonia generation then it does not matter how many future sites are possible.
They will be used for whatever provides the highest returns not powering electric transport systems.

If its more lucrative to build wind farms to make liquid fuels from switchgrass then thats what we will do.
Until the price of electricity goes high enough to compete with the above conversion.
Then of course the liquid fuel premium would increase slightly directing more electricity towards liquid fuels.

Cheap electricity is not assured and simply stating that it will be cheap does not make it cheap.
In fact its fairly expensive in a lot of the world.

I've looked at electric transportation starting with the NG generation issue and looking at other issues like demands for renewable electricity for Fertilizer and syn fuels etc etc.

If we are not careful we can easily create this partial substitution tangle between electricity and synfuels.
Just converting to renewable source for electricity is not good enough.

This is why I'm saying we need to make a deep and serious conversion to electricity trying to keep a significant amount of our transport using liquid fuels leaves open the chance that transformations which impact the supply and cost of electricity will entangle it with ever spiraling liquid fuel prices.

Given that the numbers already work for wind powered syngas and in fact your site is promoting exactly this this danger of entanglement and partial substitution is real. Demand for liquid fuels must be dramatically reduced and limited exactly like your saying for critical uses such as jet fuel that don't have a sensible substitute.

Saying that you think that they will only do this for jet fuel does not make it true. If it works for jet fuel at todays prices then it will work better if electricity prices stay the same and jet fuel prices double. And the economics work the same for diesel as the do for jet fuel. I'm simply saying we have to make effectively a full substitution and ensure that remaining liquid fuel demand is well constrained in critical need areas such as jet fuel or we run the risk of not removing the tie between electricity and liquid fuels but making it worse. Thinking it won't go this way is not good enough esp since its profitable today.

Electricity is going to be cheap because the cost of solar is not going to stop falling after it reaches $1/Watt in 2015. If 90% of wind farms are devoted to fuel making, just put up some more panels. There isn't a competition for resources here. But, I think this fuel thing is really only going to take off where the is a good payback in reusing infrastructure, such as gas or oil pipelines. Mostly, it will make more sense to build transmission for wind if needed because electrified transportation is going to be cheaper to build and run than fuel based transportation.


What will it be used for it its cheap ?

The partial substitution trap that has taken out all of the worlds civilizations to date seems surprisingly hard to recognize even it seems if your shown the problem.

In fact its easy to find proof that cheap electricity will be hijacked to provide valuable expensive
liquid fuels.


And I'd counter the assertion we would use electric cars.
If we really can use electricity to make organic liquid fuels and power our current technologies with no change why go electric ? EV's are dodo's.

If its as cheap as you say then I'll keep my SUV and buy my cheap synthetic gasoline thanks.
And of course this cheap synthetic fuels will drive down the price of oil.

Happy motoring is just around the corner !

Your argument has holes.

I am not aware that partial substitution, if that term even makes sense, has ever been blamed for the decline of any civilzations.

If you notice in your link, electricity is in surplus where your company is operating. If the claim of $4/barrel electricity cost is correct, then pretty clearly electricity can be generated from the oil that is produced. This siuation is not even relevant.

Again, at the current price of electricity and the current price of oil, one might make fuel from electicity and come in close to competitive. But, that is fuel that is too expensive in any case. You have not caught on yet that synthetic fuel has to be more expensive that the electricity from which it is derived. Pitt the Elder has made this clear for you. Perhaps you should review his comment.


If 90% of the wind farms and other sources of renewable electricity are devoted to synfuel and ammonia generation then it does not matter how many future sites are possible.

You're still making the assumption that renewable electricity is strongly capacity-limitted. Given the vast amount of viable solar/wind sites in the world, that's not a good assumption.

Electricity will be cheap if there is enough low-cost generation capacity to make it cheap. Whether or not other generation capacity is being used for other purposes is largely irrelevant - wind/solar sites are not scarce in any meaningful sense.

They will be used for whatever provides the highest returns not powering electric transport systems.

Electric cars are eight times as efficient as oil-powered ones. Add in the energy losses when converting electricity to liquid fuel, and electric transport is overwhelmingly cheaper.

Electric cars already exist, meaning that there's effectively no way electric transport can be crowded out by electric-to-petrol conversion plants. Why spend 8kWh to drive a mile when you can spend 0.2kWh? How will that ever make large-scale economic sense?

Then electricity will soon be to cheap to meter why change our infrastructure from far more versatile liquid fuels ?

Claiming a resource is effectively infinite then making arguments about efficient use to prove your point is nonsense.

And of course if EV's do get popular oil prices would crash and oil will be cheap again so why should I by a limited EV.

I'll stick with my SUV in fact stupid people are now selling them cheap since they don't realize that oil is going to 10 dollars a barrel any day now as EV's take the demand off.

So electricity available on the scale your suggesting ensures cheap liquid fuels in fact electricity diverted to make liquid fuels on a scale needed to replace oil can't even impact supply.


Lets shut this site down we are all idiots.

Your line of argument appears to work if electricity and EV's were both very cheap and available now.
This would indeed drive down the price of present oil, at least in current fields as it would hardly be worth developing new ones.
Cheap enough and plentiful enough electricity would also make it pointless making do with the limitations of electrical power, you would simply produce liquid fuels.

None of this relates to the actual case though, as the timescales are wrong.

Production of EV's and plug-ins can't be expected in volume until 2012 at the earliest, with 2015 more likely.
Weaker hybrids which would improve but not transform mileage are likely in the interim, basically because of difficulties ramping battery production.

Wind power whilst a good resource in the US has no chance of reducing in cost by enough to allow the production of liquid fuels as the cost of the electricity would not matter, and neither has nuclear in, for instance, France.

Solar power may have greater potential for very low costs, but by this sort of date is very unlikely to do so, and will be doing well if it is competitive with wind.

Present cost and scaling constraints do not mean that in the longer term wind, solar, nuclear and geothermal power would not be capable of providing ample power for society, even for the production of liquid fuels where essential.

For solar power if you just project cost reductions forward it is clear that they are unlikely to drop sufficiently to allow the economic production of liquid fuels before 2020 at least, for non-essential uses.

For EV's costs of solar for electricity should be fine in many areas of the world by 2015 or so, and wind is not too bad now in the US.

I am not including the losses in storing/recovering the wind energy in an electric drive, nor the difference in efficiency between electric and ICE motors, The overall efficiency is roughly equal

Not even close, actually.

I give links and math here, but the basic point is that electricity from wind is eight times more efficient at powering an electric car than gasoline is at powering an ICE car. You get eight times as many miles per kJ.

If we get $0.09/kWh from wind, it takes 0.22kWh at the turbine to drive a mile (incl. transmission losses, charging losses, etc.). Compared to an average of 20mpg, that's 4.4kWh to drive as far as a gallon of gas would take you, or about $0.40.

No emissions, no depletion, no foreign debt, no paying dictators, and all for a tenth the price of what we have now.

I'd be even less optimistic. Iraqi oil production has barely caught up to production in 2002. If your criteria is contribution to global supply to stabilize prices, Iraq has been a net minus the last five years. There may be a net positive if Iraqi oil is preferentially sold to American consumers or developed by Bush's oil cronies, but any number for that is a WAG.
And also, just like with Peak Oil, war-mongering has its logistical limits. The 30,000 troop "surge" was the most we could muster for doubling down. Military recruiting is already scraping the bottom of the barrel to meet current targets. Anyone feel a draft?

Hmmmm... this is a thorny issue.

I have a definitional problem with the notion of "risk premium"--end consumers are paying it voluntarily, making it a true market price, by the definition of that term. Market price is set by the bidding of consumers to access demanded supplies. If we could wave a magic want and permanently eliminate all "risk," but not affect the present or future geological supply or demand picture, why would the price change one penny? If consumers are willing to pay the present price, why would producers sell it to them for less just because risk of war with Iran was gone? I realize that geopolitical risk makes entering into future supply commitments more risky, and that a risk premium may be required to fulfill demand for such future instruments, but that can only be arbitraged with spot price via physical storage, and to my knowledge neither physical storage capacity nor actual oil in storage has increased sufficient to facilitate a significant risk premium in present spot/front month prices. I also agree that geopolitical events have a strong impact on trader psychology, much like technical indicators, but, like technical indicators, I don't think there's an underlying causal relationship, and that these psychological impacts tend to be short term "noise" around movement on fundamentals. Just my personal opinion, but I think most talk of "geopolitical risk" is, much as Nicholas Nassim Taleb noted, attempts after the fact to explain deep and misunderstood dynamics in the markets are often humorously wrong, and demonstrate our need to explain movements that have no discrete and easily explanatory reason. Take today's $5 surge: why the hell would oil surge $5 on a second day of Iranian firing of short-range missiles (as most MSM news headlines suggested) when the first day of missile launches had no appreciable impact?

My suspicion about geopolitical risk "premium" in oil prices needs to be separated from my conviction that geopolitics are a critical influence in oil WHEN they are currently taking supply off the table (as opposed to speculation that they may). When 300,000 bpd get shut in by an attack in Nigeria, or a pipeline bombing in Iraq or Mexico, that has very real impact on the supply/demand equilibrium. Likewise, the thousands of former special operators being employed by oil firms at $1200/day is a cost that gets passed along to customers at some point. Under this theory, if the impact of geopolitical events is determined by the amount of oil shut in, then I don't think that the Iraq War can 1) be blamed, because their production is roughly back to pre-war levels or 2) any conspiracy to shut in supplies or destroy oil fields. I worked very long and hard planning a (successful) operation to seize an protect core Iraqi oil infrastructure nodes in the al-Faw peninsula and teh MAABOT and KAABOT offshore platforms, though that's anecdotal evidence at best.

The only way I can explain how the Iraq War contributes ANY significant premium to global oil supplies is that at least $800 Billion could have been diverted to other expenditures if we hadn't invaded without emaciating the military. Imagine if we had spent $800 Billion on installing new wind power, new concentrating solar power, and upgrading our national electrical grid to connect the locally variable power from these projects. So, I guess, in that sense, the opportunity cost of the Iraq War may justify some of the price at the pump. Exactly how much? I'll stick with you SWAG.

"Take today's $5 surge: why the hell would oil surge $5 on a second day of Iranian firing of short-range missiles (as most MSM news headlines suggested) when the first day of missile launches had no appreciable impact? "

i've wondered about that myself, but the missle firing is only one of a number of events that occured during the high volitility time in question. inventory reports came out, nigerian rebels declared an end to the cease fire, and finally somewhere in there, there was some softening(briefly) of the rhetoric on iran. maybe it was the condi factor. condo* said the u.s. would defend it's allies. maybe the markets overweight condo ????? i dunno either.

* i call her condo because, metaphorically, her ass is as big as a condo.

Oil did not surge today because of anything happening in Iraq, Israel or Iran. The media exaggerates the effects of that kind of thing. Traders trade primarily based on price statistics, not current events. It surged because of Wednesday's oil inventory report, and because our next inventory report is going to be equally bad. Commercials started buying again when speculators sold the price down to $135, even though product supplies are okay. It also surged today because speculators don't like to go into weekends short. Some of these shorts will probably get put on again on Monday.

The Iraq War may have knocked 500,000 bpd out of production, which means its effect on the price of gasoline is about 35 cents.

"Traders trade primarily based on price statistics....."

chart readers, in other words ?

Iraq adds a premium of 4432 deaths on one side of the conflict. Too high a price for oil.


How many died in car wrecks? That's equally associated with our appetite for oil. Like it or not, there IS a value on human life, and for most it's a few hundred $K here in the US, else we'd have more life insurance!

The car wrecks would happen whether or not the cars were powered by oil. To suppose there would be no car wrecks if they were all electric powered, for example, is a stretch.

The value of a human life when I was in the Army 1964-66 was $10,000.
I learned then that that is the way the powers that be look at the world.

And the foolishness of Vietnam is being repeated again with the same atttitude.

Iraq is a waste. Stealing other people's oil is wrong, even if there is a gain counting life in money terms.

Rather than making oil cheaper, it has made it even more expensive by adding the uncertainty of war to the certainty of Peak Oil.


The focus here is war premium, but gov't deficits are a symptom of spending in general. Libs whine about neocon wars and neocons complain about liberal social spending. Libertarians and true conservatives cry in their beer over all of it. It's all money........

But in the end a war premium, or gas tax, or any such cost enhancer will help broaden the plateau and start the transition from oil earlier. That's a good thing. Call it a silver lining. :)

All the numbers above count various related costs but not secondary benefits of gasoline or replacement costs. In the end it is all an opportunity cost analysis versus other choices, with pros and cons, which could have been funded instead. Assuming an efficient market, the truly interesting notions are those related to gov't policies and regulations that skew the market accounting, or perhaps quasi-stable market optimizations that may have just needed a "kick" to settle into a profoundly different scenario. Such as, for example, if Ford had chosen to build electric buses instead, or 3 Mile Island hadn't happened.

I second this broad point.

If anything like $2.00 of the current pump gas price is thanks to the war in Iraq, then the war has performed a giant service in sending the high oil price signal earlier to the world's economies.

It seems to me that many of us default to the opposite view. ie: "look how much could have been achieved if we had left Iraq alone instead!" I counter this by suggesting that we would now be much further from outing the truth about oil if Saddam Hussein had been left in Iraq than we actually are.

For one thing, Saddam was a major international scapegoat for any oil-related problem. With him well out of the way, the truth about geological oil shortage is all the clearer.

I am sorry for all the lives lost in Iraq and never ever seen the invasion as a "good thing". But perhaps there is a sliver of hope that in fact less blood will ultimately be spilt?

Peter - Tamworth, England

true conservatives

Where are these things you claim exist?

So long as one group can line their private pocket with public money, no matter what branding they claim.

But do produce live, breathing examples of 'true conservatives'.

Thanks for the link Prof. Goose. $2/gallon (and counting) seems like a good estimate. Its also worth considering (as others here have noted) where we could have been as a nation had we spent the billions on developing better energy sources rather than on the war. Or even if we had just spent the money on our infrastructure. But that ignores the reality that it wasn't really our money in the first place, its all borrowed.

Its daunting to think about how deep we are in debt as a nation—and yet somehow we manage to keep spending. But war is good for the economy right? —Chris

The problem with this post is that the premise that a war premium exists is false.

You have not such thing its a figment of the popular media.

Resource wars don't cause high prices they occur because of a desire to control a strategic resource.
They a result not a cause.

Its like saying that someone shot though the heart with a rifle bullet died of heart failure.

I've said several times the base cause for the US war was the lack of new prospects for the major oil companies and impending steep declines in US productions. World peak was not the cause Texaco peak was. This reason alone was more then enough for the US to enter Iraq. Understand that the underlying reason that the Majors where running out of new places to drill was not just political but also because of peak oil but the US did not need to understand the big picture to invade Iraq. We have invaded countries and mucked with them for far less. And you cannot dismiss simple opportunism and the Iraqi invasion reeks of this. Someone broke a window out of the store so we decided to take a few TV's. Bottom line simple basic greed is enough.

We are staying in Iraq regardless of the cost because of peak oil but this evolved after the fact and certainly after we realized that pacifying Iraq was problematic. I think Peak Oil is now playing a big role in Iraq and Iran. And the US may have considered Peak Oil in its plans originally but it did not need too.

What you really need to understand about the so called war premium is this is why the vast majority of the remaining oil thats in the ground will stay in the ground. Given that these premiums are results not causes.

One of them will cause heart failure and we will not die from natural causes.

thanks for the "reminder" ....


Arab countries are a cauldron of hate and intolerance. Arab dictators have been blaming the sorry state of peoples lives on the U.S. for decades. The only way to prevent more 9/11's is to bring democracy to Arabs. And Sadman Insane was almost screaming PICK ME! PICK ME!

But,it is true Sadman sold us lots of discounted oil. So,we basically sacrificed .99 gas by going into Iraq. But,Iraqi production was on a steep decline,and cheap oil wasn't going to last much longer anyway.

Arab countries are a cauldron of hate and intolerance.

That sounds like such a rational well thought out statement made by a loving tolerant human being.

Arab countries are a cauldron of hate and intolerance.

As opposed to the loving and tolerant people in the melting pot of America?

(Hint: Many people are hatefilled little bastards. Some are hatefilled big bastards. Do feel free to show that the state of hate/intolerance is due to a state of 'Arabness' vs just being humans.)

Don't be a Christian or a Jew in any Arab country. You would envy the lot of minorities in the US

And whatever you do, don't be an Arab in a Jewish country!

Agreed, my wife is an Egyptian Christian and the crap that happens there is bad. Your church has a broken roof, sorry but you can't fix it without a presidential degree. If your a Bahai it is even worse as they can't get birth certificates or any documentation. And if your gay you can expect to be imprisoned.
A Cairene friend of mine (Christian) had a girlfriend (muslim), got her pregnant, they tried to get asylum in Australia (denied). End result- baby killed by girls family.

Is there any sociological research? Can one quantitate "hate and intolerance?"

From what little I know of Arab countries, they don't seem to exceed the "Western" countries in this regard.

Just another case of scapegoating and blaming the "other". We have met the enemy, and he is us.

you obviously do know little of Arab countries. They do exceed Western countries in this regard by along way.

Due to the war in iraq and the under development of oil fields in both iraq and iran, maybe there are 4m barrels of oil not on the market.

On a total of, say, 85m barrels, that would be about 5%

If you assume an increase in demand for oil of 2% for the duration of the war, say 5 years, that would be an additional 10%. (The 'plateau' of peak oil)

If you assume a short term price elasticity of 0.1-0.15, that would give a total of 15%/0.1 = 150% or 15%/0.15 = 100%.

So I think:

Part due to excess demand (india, china) : $1.50
Part due to iran/iraq : $0.75

So your $2 looks a bit much to me.

But we can make this argument out to infinity.

Amount of oil not produced right now because of drilling restrictions in the US.

Nigeria problems.


Mexico not allowing in the Majors

So the argument is that if we are not pumping every last bit of oil as fast as possible then this unpumped oil is adding a premium. This is a false argument since it misses the fact that this oil is still available for later use. The less we pump now the more we have later when its really needed. Trying to calculate a premium is a stupid argument since your simply trying to figure some sort of fanciful maximum capacity that has no bearing on real oil production. If you play the game of subtracting various premiums I think you will quickly find that you should be paid 100 dollars a gallon to use gasoline. Thousands of potential premiums exist assigning a finite value that makes any sense across all of them quickly takes the price of gasoline negative. Again the whole concept of a "premium" thats quantifiable is nonsense since its measured from some sort of perfect world view that itself is fantasy and cannot even be calculated and it completely ignores future value. If a few ships get delayed US stocks go down the oil price goes up and we pay a premium because of some trivial events. Since this perfect world does not exist in our universe the concept of a premium does not make a lot of sense. What your really saying is that in some alternate universe which does not have problems the price of gasoline would be x. Well we live in the real world.

If you want to look at it this way then this war has been fantastically successful the US is in control of arguably the largest remaining reserves of oil on the planet. Since future projection have prices rising beyond 500 a barrel and then basically not available at any cost.

Trying to value the oil in Iraq is like putting a value on St. Peters in Rome.

For the group that controls it its worth its weight in blood. Since the country that controls Iraq and Afghanistan is capable of controlling not only the resources in Iraq but all the oil in the ME if they are willing to kill for it. Control Iraq if if your willing you rule the world. How much is that worth ?
A million lives is cheap we have no shortage of people we have a shortage of oil.

Memmel: One of the flaws in the theory that these actions are undertaken to promote USA dominance is the actual track record of the last 45 years. The USA went from something like 60% of the global economy to today approx 19%. Along this slide, no actions were taken to preserve the dominant position of the USA, in fact many have argued that the USA government itself promoted the slide.


I would argue that the Iraq war was the neo-con's response to that decline. It was a play to re-gain world dominance, to restore the United States to its glory days.

That is what everybody argues, especially on TOD. The overwhelming evidence against this belief is conveniently ignored. IMHO if you have not directly made money off the Iraq invasion then you have lost money (if you are paying US taxes). The premise is that eventually the benefits will trickle down to Joe Sixpack, after countless billions have been siphoned off into a relatively few pockets. If only we could get those damn Moozlem Iraqi smugglers everything would be peachy.

If we didn't invade Iraq for reasons of realpolitik, then why?

It is 2008. If you have not figured this one out yet, why bother? What does it matter? If you still have interest, try Google (or not).

It's a simple question, BrianT.

If you can't provide an answer, other than to throw some little puerile temper tantrum, then I would suggest that, whatever the argument is that you are trying to make, it is without merit.

Okay-big money has been made off the Iraq invasion by a relatively small number of humans. I am surprised you have not noticed this. Actually billions of dollars are unaccounted for-I would hope we can agree this money did not end up in the pockets of American enlisted men or local Iraqi thugs. The whole operation has been a great success for some, it has cost the USA taxpayer quite a bit of money. Does it take a lot of energy to look away?

OK, BrianT, thank you for your expanation.

I am in complete agreement with your observation that the ones paying the price for this war in blood (the soldiers) and in treasure (the American taxpayer) are not the intended beneficiaries. I suppose where we might disagree is that I would cite this as one of the reasons why the American imperial enterprise has become dysfunctional.

Let's narrow the discussion down to soldiers. I believe that an empire, in order to be successful, must motivate its wariors. And warriors, in order to perform well, have historically required two things: glorification from the society of which they are a part and generous financial rewards.

A good example of this would be the soldiers coming home from WWII. Not only were they hailed as heroes, but they also enjoyed significant monetary rewards: the GI Bill, life-time healthcare, life-time PX privileges, pensions, special VA housing loans, etc. Our war President and his followers, however, have gutted many of these benefits. Our society is also conflicted about the entire imperial enterprise, perhaps withholding exaltarion of the soldiers, but certainly not willing to join the warrior class themselves.

Our mercenary forces in Iraq lack the other critical ingredient. Although those such as the Blackwater warriors may be paid exceedingly well, they lack hero worship from their society.

To conclude, I would just like to cite a couple of historical tidbits to support my theory about what is required to successfully motivate soldiers:

Unlike the Romans, who relied for their military strength on a professional army, freeborn Germanic males looked on fighting as a duty, a mark of status, and, perhaps, even a pleasure. As a result, large numbers of them were practised in warfare--a very much higher proportion of the population than amongst the Romans. Within reach of the Rhine and Danube frontiers lived tens of thousands of men who had been brought up to think of war as a glorious and manly pursuit, and who had the physique and basic training to put these ideals into practice.

(Bryan Ward-Perkins, The Fall of Rome and the End of Civilization)


These men were dedicated fighters--tough, determined, contemptuous of danger, arrogant and touchy, extravagant and impossible; examples, perhaps a little larger than life size, of the kind of man produced by the nomadic, warrior society which inhabited the dry tableland of medieval Castile.

The dedication, however, required a cause, and the sacrifice a recompense. Both were described with disarming frankness by Cortes's devoted companion, the historian Bernal Diaz del Castillo: 'We came here to serve God and the king, and also to get rich.' The conquistadores came to the New Word in pursuit of riches, honour, and glory. It was greed, cupidity, the thirst for power and fame that drove forward a Pizarro or a Cortes. But their ambition deserves to be set into the context of their background. They came from poor families and a poor land, members of a society acclimatized to the winning of wealth by the waging of war. Rank and social distinction were achieved in this society by the possession of land and of riches, both of them the fruits of valour in battle.

(J. H. Elliott, Imperial Spain: 1469-1716)

If we didn't invade Iraq for reasons of realpolitik, then why?

Occam's Razor suggests we look for the reason that requires the fewest assumptions. The simplest answer to that question is, and I know this will be difficult, to take Bush at his word.

The US government said they believed Iraq was an imminent threat. If they believed what they said, then nothing more is needed to explain an invasion - they wanted to prevent another 9/11 (or worse) from happening. Based on conversations I had at the time with Republicans, this was a very real fear.

It was also, of course, an irrational fear with no support in the real world. But how often do you see highly-politicized people change their deeply-held beliefs because of a lack of evidence? More likely, I find, is that people act as the US administration did, rejecting "bad" evidence (which didn't agree with their beliefs; e.g., reports there were no WMDs, the State Department) and accepting "good" evidence (which did agree with them, no matter how flimsy it was; e.g., Curveball).

It's more exciting to imagine all kinds of dastardly conspiracies, of course, but a simple "they let their prejudices blind them to the facts" is probably more realistic.

Not that I expect to change any minds about this. Like I said, how often do you see highly-politicized people change their deeply-held beliefs because of a lack of evidence?

I don't take you at your word, much less Bush. The likelihood you believe this pile of crap you just wrote is extremely slim, IMO.

Pitt the Elder,

The "security" argument would have probably held if WMD were to have been found. But when it was not, and when the full extent of the Bush administration's distortions and outright lies became known, people began thrashing around looking for other reasons.

Some of the principal reasons that were then postulated were:

1) We invaded to spread peace and democracy
2) We invaded for the oil
3) We invaded to create a play box for the war profiteers--the "Military-industrial complex"
4) We invaded to help out the administration's Jewish friends the Likudites

Your argument also ignores the historical stage upon which the runup to the Iraq invasion played out. As I pointed out in a comment the other day:

"U.S. National Security is a global strategic doctrine, relative to maintaining economic, political and military supremacy in its zone of influence" is how Mexican politilogue Adolfo Anguilar Zinser defines these same policies.

U.S. "National Security" is a Cold War concept codified in the 1947 National Security Act, which also created the National Security Council, to combat Communist penetration of U.S. spheres of influence. In the name of its hallowed "national security," the United States has mounted military invasions and suppressed internal dissent in Latin America, encouraged political assasination, civil wars and military coups, winked at torture, applauded fraudulent elections and ignored genocide. In the process, the U.S. has also transformed itself into what Daniel Yergin labels "a national security state--a nation in which internal and national security concerns become dominant and domestic concerns are subordinated..."

"Never ascribe to malice, that which can be explained by incompetence." Napoleon

US GDP in the past 7 years was a blunder. Everyone I know who is older than me (30) believes that we, as Americans, are somehow entitled to our previous wealth. That W. will leave office and that it will all gravitate back towards our Americannous. Everyone younger than me thinks their POV is colored by their self-interest (read: the American Dream), and denial and shame.

"Never trust anyone over 30"?? I suppose I have about 8 or 9 months left of being a rational human being. bummer.

A great deal of that 60%-19% drop has been in the past 6 years (proportionately. 60-33%, 33-19% ish?), but my numbers may be off. I think we are lucky that, even while our country is being squandered at lightning speed, we are still positioned so.

Strav: You cannot be serious. Malice? Blunder? Try turning away from the MSM and take a glance at what you might see. Has it not occurred to you that wealthy, powerful humans might have more important individual goals that supercede taking care of you and Joe Sixpack? Sorry-maybe 30 is too young to think about such troubling thoughts.

Of course it has. And of course, distributed wealth is much safer than localized wealth. And the earlier the power is entrenched, the harder it is to fight, generally. Which are both strong arguments for the ultra-rich liquidating America to strengthen foreign markets.

However, without proof, I would much rather call the great squanderer an idiot than a traitor. And there are good statistical reasons for doing so, imo.

As the economies of Asia take off, a rather huge amount of middle-class folks are created, limiting, rather than increasing, the resources available to those who already had wealth. Education in Asia, combined particularly with the aggressive industrialization of China, combined with a general worldwide distrust of the US, and of course the overextension of credit to consumer-minded citizens within the US are causing the markets themselves to destroy US GDP.

There are varied interests out there. And a lot of money and power to go around. I find it hard to swallow the idea of TPTB controlling a vast stake of the real power out there. Everything is constantly dithered. Every generation, even within the same family, creates a new person.

The rich of America are already well-represented by the US government. I find GDP decline to be of very limited utility to them.

Please, keep in mind I am not saying you are wrong. I am only saying what I think to be likely.

I have never said that the US Government is undertaking these actions for the benefit of its citizens.
I don't think many people have made this argument.

If you look at the concentration of wealth in the US then I'd argue that its actions over the last 45 years have been wildly successful. The rich are poised to effectively own the entire country dispersion of wealth into the middle class has been practically eliminated. One of the largest bastions of wealth not controlled by the rich middle class homes have been rendered worthless ready to be bought in bulk and converted to cash flow postive slums.

Your argument would have merit if the goal was to enrich Americans in general but I don't think anyone has ever argued that this was the reason.

In fact if you read what I've posted I've said that ensuring the future profits of Texaco and other Majors was more than sufficient justification for the war.

I think that if you look at the profits made by companies deeply involved in US politics that you will find things have gone very well.

Plus as I've said in other posts the supply of oil is fairly chaotic allowing significant quantities of hot oil or stolen oil to enter the market from Nigeria, Iraq etc.

These thief's did not create the network to handle stolen oil thus its sensible that a certain amount of oil profits are skimmed off the top by insiders.

This represents billions if not trillions in wealth that can be used to purchase any politician on the planet. Look at the accounts of Nigerian leaders after there death billions are found. You seriously think the top leadership of the oil companies are clear law abiding citizens ?

The amount of hidden wealth flowing through the world from the oil industry makes the illegal drug trade look like a mom and pop operation.

As the Majors lose access to oil this source of power and control of governments dries up.
So now you can see why I'm saying that the US government was quite willing to invade Iraq to protect the Majors it was to protect the flow of bribe money used to control the politics of countries around the world including of course in the US.

What could you do if you had 1 trillion dollars in untraced money and all the governments where willing to look the other way ?

This at the end is the real power of oil it provides a almost infinite source of funds capable of corrupting every government on the planet.

Speaking of Nigerian Problems.

There is no bad situation that our beloved leader cannot make worse:

>>Brown blunders in pledge to secure Nigeria oil

PM's offer of military aid to Nigeria provokes collapse of ceasefire amid angry claims that UK has 'declared war' on rebel army

Gordon Brown is being accused of preparing for a military adventure in Africa after he pledged to provide backing to the Nigerian security forces. His announcement prompted the collapse of a ceasefire in the oil-rich Niger Delta and helped to drive up crude oil prices on world markets<<


It will keep those squaddies from idling around in Iraq and Afghanistan then!

It is just so weird and co-incidental that all the places we are intervening in have oil or are strategically placed to influence the flow of oil, whereas nothing happens in Zimbabwe no matter how murderous the dictator.

It makes me suspicious that those darn troublemakers in the Niger delta may have some weapons of mass destruction around there!

Trying to value the oil in Iraq is like putting a value on St. Peters in Rome.

I love it, memmel!

I was thinking along the same lines the other day.

Oil is not the equivalent of houses, which can be constructed at any time. It's more like Van Goghs. They ain't maikin' any more of 'em!

They ain't maikin' any more of 'em!

I'd say that analysis is wrong too.

Oil is a chain of H and C, and we humans DO know how to knit C and H together. We can take plants and animal bits to make oil.

We just can't do it for the artifically low economic value that has been placed on rock oil is all

Useful approach.

Couple things. First a quibble. I wouldn't call India/China "excess demand" as opposed to increased or new. What is "excess" about it? To me that implies illegitimate and it is hard to say that, somehow, their demand is wrong while US use is acceptable. Just a reaction (maybe a total misread) to the one word.

Second, also a quibble: $2 wasn't "mine" but something asked of me. And, this post is because I simply wasn't / am not sure. I think that one can make a decent "case" on this in many ways. A shallow approach might suggest over $2.50 / gallon. After all, gasoline was $1.42 / gallon in January 2003. (And there was already a risk premium in place in Jan 03 with tensions over a potential conflict.)
It has gone up $2.68 since then. Voila, problem solved.

But, as per my questions and this discussion, there a wide range of other issues. Perhaps the 75 cents you suggest is right ... but what if there were 2 million barrels/day additional from Iraq and a million+ from Iran available for the market, without speculative concerns that Iranian missiles won't be 'testing' but 'hitting' targets at any moment? Again, I don't "know" the answer, but have my thoughts being sparked by the thoughtful comments (including yours) here.


Sorry for the confusion. 'excess demand' is actually a technical term. In real life, there can be no excess demand, since supply and demand are always in balance. Oil does not appear out of thin air.

Excess demand means: How much higher would demand be if the price would not have increased? (leaving aside inflation)

Demand is not a function of Supply, but of Price. If the price goes up, demand goes down. If the price of oil is 140$, demand is about 85m barrels a day, short term and dropping with a few percentage points every year because people adjust. If it is 200$, demand would be somewhere around 75m barrels (short term) and probably around 60m, longer term.

So how much is demand? There is no correct answer to that question.

Thank you ... and apology, with the response late at night. I wrote that gas is far from my expertise, but wanted to spark a conversation. Thus, thanks for explanation of term and for additional thoughts.


I'm not an expert, but I can give you my observations.

It has gone up $2.68 since then.

I say that 2/3 of that is due to increased demand from india and china and 1/3 is due to the iran/iraq situation. So I don't agree with you to put it all on iraq.

without speculative concerns that Iranian missiles won't be 'testing' but 'hitting' targets at any moment

About the current tensions: That would have influence on the longer term price only if people would actually be stockpiling oil. I included in my calculations that the situation in iran+iraq has taken effectively 4m barrels of the market.

I cannot explain short term price changes (such as over a period of say 6 months) but the price of oil has been going up pretty straight the last 5 years. So my conclusion is that 'the trouble with iran' etc does not have much of an impact above my earlier $0.75.

Things change ofcoarse when bombs fall. In that case, people will stockpile oil in large quantities and a large amount of oil will be taken off the market additionally. Think about the Hormuz straight being blocked: That would take out about all middle east oil, including KSA 10m barrels/day

what if there were 2 million barrels/day additional from Iraq and a million+ from Iran available for the market

I say: if there are 4m barrels on the market, the price of gas would be around $0.75 lower, see my previous post. So 3m barrels would be around $0.55

what if there were 2 million barrels/day additional from Iraq and a million+ from Iran available for the market

And what if the 13 year old ceasefire were an 18 year ceasefire and Iraq was making 2.5 MMBOPD with Saddam's hand on the breaker??

And 10 thousand Iraqi children under 7 were dying a month as a result of the sanctions?? Unicefs number not mine.


deleted by author

Thank you for the thoughts and additional info/analysis.

To clarify, the "voila, problem solved" was meant as sarcasm, an overly simplified and almost certainly false 'truthiness' response to the challenge.

Thinking about this, the opportunity cost challenge is really a huge one. What might have been if the resources used in Iraq had been spent on, at least in part, fostering a US (and global) move away from oil?


What might have been if the resources used in Iraq had been spent on, at least in part, fostering a US (and global) move away from oil?

This is not a new question, I have been wondering about this also. However, I am not so sure that it would have mattered.

Do you remember the CAFE standards? Congress has been discussing it for ages and I thing the latest deal is that by 2020, cars should do 35mpg on average.

I think that oil prices of $140+ per barrel will make this happen in a blink of an eye and all it took was 4m barrels of oil per day on hold and a bit of peak oil plateau.

I don't think that a US-government program of a trillion dollars could do this.

One small side-note: PO aware people usually do not really like free markets. They prefer to rely on government intervention. Manhattan projects etc. However, $140+ oil will show (again) that markets react much, much quicker than any government program could ever do.

Matt Simmons and Jeff Rubin aren't exactly Trotsky and Lenin.

I'd go for $0.00 on the price at the pump, on average.
This can swing around a bit, with maybe $10/barrel on top when things look grim, and the converse.
This all is froth on top though, balances out over relatively short periods and does not affect the overall price which is set by supply and demand.
Of course, the true price of oil is a different question to the price at the pumps, and includes billions in war costs, hundreds of thousands of deaths, the probable ruin of the world economy, and so on......

There's nothing like looking at past predictions....

Back in 2003 the Pew Center for Climate Change produced some US Energy scenarios for the 21st Century.

One of their scenarios was called Turbulent World in which all kind of messy things happen in the Middle East and with Russia (see page 19).

Strangely, these are only predicted to raise the oil price from $27/bbl to $58/bbl in 2010 before dropping back to around $40/bbl in 2035. Naively, at the time I thought that even $58/bbl seemed rather high.

It then goes on to analyse the effects on US energy consumption, GDP and carbon emissions, promotion of technologies, etc - well worth a read.

There is no mention of the phrase 'peak oil' in this document. If 'turbulence' is only worth an increase of $58-$27=$31/bbl, maybe the remaining $80/bbl rise is more 'peakist'.


Interesting. Thoughtful. Thank you.

I agree that most of it is due to the war, but because I think the run up in prices is part of a counteroffensive. The higher gas prices, the worse the economy here gets, and the more people here will want to bail out of Iraq. I am sure neither Iran or Saudi Arabia want a free, democratic country right next door making their own pathetic despotic regimes look more pathetic. In addition, Iraq has the reserves to compete with the Saudis in controlling oil prices.

I am sure neither Iran or Saudi Arabia want a free, democratic country right next door making their own pathetic despotic regimes look more pathetic.

As opposed to an aggressive murderous tyrant like Saddam? Really?

yes, Saddam made them look good. And before, he was contained. Now, they fear they will lose power themselves.

And just how much of the high 'murkan price of oil is due to the trashing of the dollar?

Admittedly, the dissolution of the the dollar is not due solely to the war, but if they are spending something like $5,000 per second in Iraq that they don't even have, what can the result be on the solvency of the US currency?

If the 'murkans managed their currency the same way the Swiss did, then oil prob would be a dollar less per gallon.

We've been talking about inflation and war premiums, but the true wealth loss in America this past year is in house equity and stock equity. That number is close to $5T, which is a decent fraction of our GDP.

To what do we assign this loss? A cost of inflation (loose monetary policy integrated over time) coming home to roost, or of excess personal borrowing rotting the foundation from the core, or a lop-sided trade ratio sucking the durable value out while filling in with consumable products of little intrinsic value?

It seems to me that one aspect of the globalized financial system is unclean connections, and the result is a house of cards. This works to the advantage of major investment houses that create instruments that add to the confusion while in essence creating Ponzi schemes on the world stage based on the notion of eternal, unlimited growth. It is likely impossible to detail the causes and costs, but certainly a shift from manufacture of goods and durable infrastructure to a service economy played a key role, and a failure to plan for a shift from continuing growth to stasis is another.

Up-thread comparisons to Greece and Rome have some validity, but I think the key isn't the power of the oligarchy but the reliance on slave labor and growth of a de facto welfare state that killed those nations, and it's crippling us too. Rome imported slaves and wealth from conquered lands while pandering to the masses with bread, baths, and circus stadiums. Once the armies became over-extended and the outlands began to revolt that model failed spectacularly. Our slave labor force is oil, and we've spent it on fast food, cars, chronic medical care, and suburbs.

When the many contribute to a limited set of common goals a gov't can do amazing things, witness the space race. When the gov't contributes to an unlimited range of distributed expenses a gov't can waste without bound, like the Medicaid bureaucracy. It's past time to refocus on durable infrastructure, and that means power generation (which with maintenance can raise the standard of living for generations) instead of rebate checks and handouts.

On Greece and Rome I disagree, though I don't think the American 'empire' is anything like those two--the US is probably more similar to the British Empire which lasted 2 or 3 centuries.

What is an empire? It is a state produced by military power which is why they rarely last (usually until the next Big Battle). It rarely gives happiness of its inhabitants.

The Athenian 'empire' began when Athens turned a defensive alliance--the Delian League, into a small defacto empire which was soon ended by Sparta.

The Macedonia empire(s) became family dynasties established by Alexander's generals like Cassander, Seleucus and Ptolemy and those actually did last for a couple of centuries.

The Roman empire was a series of mini-dynasties 'elected' by the military. The huge army was needed to control the barbarians of Germany and Parthia but that same army continually produced rival emperors and coup plots. Out of 400 years of rule in the unified Roman Empire only about 50 were considered 'blessed' by Roman historians.

The alleged welfare state(the penniless Roman mob was given an allotment of bread, sometimes pork, and some got to see a few shows) caused none of the endemic problems that brought down those empires. I can't think of a single emperor (of the 100 or so) who was installed by a Roman mob, most being installed by troops. Mobs were only occasionally influential under the republic when strongmen competed for power. Poor Romans were impressed for 30 years service in the legions (the reward was settlement in colonies assuming they survived) with cheap barbarian auxiliaries.

(innarestin’ question and speculations.) I’m surprised nobody mentioned the energy used by the US Military, which while one of those “unknown unknowns”, is for sure an absolutely staggering amount. Moving on in this direction, one would have to add to the occupation of Iraq, the semi-occupation of Afghanistan, and portion in some UK/NATO etc. use. Seen in this way, the Iraq ‘war’ is not a cause of high energy prices, but an ongoing, concurrent, correlated state of affairs. Some might call it a ‘contributing factor’ - anyway, one element amongst a great number, such as Indian chappies buying motorcycles, the Chinese digging, transporting, more coal, etc. etc. (Funny how it’s always the Chinese and the Indians and not the Swedes or the Swiss.)

I have difficulty seeing why ‘higher demand’ - coupled of course with dwindling, or arguably, lowered extraction, with perhaps other bottlenecks to market added on - are not sufficient to explain the high(er) prices. In a definitional sense, it’s good enough, as it is ‘proximate’ (close in time, in supposed effects, etc.) and ‘conventional’ (thus blanket) explanation. One can reach back into the past and try to analyse the more distant causes that lead up to the ‘high’ prices ..such as what if Glass-Steagall had not been repealed? What if Iraq had immediately bowed down to the democratic-free-market-mantra that was offered? What if...? (see also memmel above for a different handling of causes/effects)

Are we to say food riots are due to global warming? Or that drought (plus possible other factors) led to diminished yields and thus higher wheat prices? While ignoring population growth?

Some of the other candidate causes for the ‘high’ prices have to do with the market - speculation and risk, - both deal with the anticipation of future prices (“will rise anyway”, “are bound to sink because of demand destruction”, etc.), and the factors that may affect that price (“if the Straits are closed oil will go through the roof”..)

On these topics, really, nobody understands how the ‘market’ works..we are prisoners of our own incomprehensible device. That is weird and unsettling. I reckon speculation, for example, might actually smooth out prices, thus creating a landscape that most ppl and even Gvmts. prefer - stability, makes planning possible, etc. But that is a question for the dismal scientists..

Heh, 2 dollars sounds like a good bet. I'll wager on it.

US military (in its direct, not indirect) uses about 330,000 barrels/oil/day. This places it as about 1.6% of US demand and about .4% of global demand. And, of course, only a fraction of that is directly due to OIF. Certainly not inconsiderable in terms of usage levels, but I tend to think that this is not a major driver in the cost of gasoline at the pump.

But this shows the fallacy of the concept of premiums. Whats the indirect usage. A huge military industrial complex supports the military. Further more you have to include past oil used by the miltrary and its support industries. A big part of our current prices are because oil was depleted for stupid reasons like maintaining a large military industrial complex. If you sum ALL of the oil used directly and indirectly in support of military actions to control or manager oil and do it for all countries not just the US its not a small number.

But why try to split it out ? Your answer is obviously wrong. The real answer is in a sense much larger but the concept is senseless its flawed. Throwing out flawed numbers like 330,000 is not correct.

The real answer is that military expenditure has been a critical part of creating our current society and economy you can no sooner split out military use then you can split out oil usage for any other endevour and assume that this amount of oil would be saved.

A world that did not need to spend money and oil on the military is not our world its on some alternate universe the society would be radically different and certainly the oil usage pattern would be different.

Think of it as calculating how much energy is saved if you only put two tires on a car instead of fore it makes no sense since the car does not function without all four tires. Our society does not function without significant and continuous use of military power as part of the control of the worlds governments and oil supplies.

The question posed here looks at only one side of events, the war.

Let's ask this question: Where would we stand if Saddam were still in power. (1) Would we still be trying to keep him in his box and, what would the cost of that be? (2) If we tired of the cost of keeping him contained, would he give up his designs to control Arab oil? Would he stop making war on his neighbors. Would he stop exterminating anyone who disagrees with him? (3) With Iran building nuclear weapons, would dear ole Saddam sit quietly by and do nothing, or would he engage in an arms race with the ayatollahs?

I would submit that Saddam would likely be an even bigger problem today than he was 7 years ago. The military cost of keeping him down probably would have been less, but it takes little imagination what the political cost would have been on the price of oil with both Iraq and Iran

Exactly what evidence or events would make you change your opinion? (or is it impossible to alter no matter what occurs).

These are a reasonable set of questions to discuss.

But, let us look at it somewhat differently, "knowing then what we know now" of no WMD, massive (MASSIVE) cost to the US in blood and other treasure, opportunity costs, destabilized region, cost to US in terms of goodwill around the world, etc, do you seriously think that the American people (and their representatives, the Congress) would have supported invading Iraq?

The what ifs are huge, I just think that your 'what ifs' have a much higher hill to climb than dealing the realities of the catastrophe that Iraq has proven to be in so many ways. NOTE: This isn't getting into 'is the surge working' or 'will it work'. I would love to have Iraq transform into a Jeffersonian democracy of citizen-farmers and high-quality/high-producing oil engineers, a bastion of stability in the region, exporting a new vision for a 21st century and beyond Islamic/pluralistic democratic state/society. I would 'love' to see this, I just don't see the path from here to there. And, looking back, the costs have been very high to have created a society requiring such a large and at-risk US military presence 5+ years in.

"knowing then what we know now" of no WMD, massive (MASSIVE) cost to the US in blood and other treasure, opportunity costs, destabilized region, cost to US in terms of goodwill around the world, etc, do you seriously think that the American people (and their representatives, the Congress) would have supported invading Iraq?

Dude- have you looked at the DOW and the price of oil today??

You didn't include that in what we know now that we didn't know then.

Things may get bad enough that goodwill and all those warm and fuzzy things and a buck buys you a cup of joe.


Thank you. Massive oversight, especially considering subject of this post and today's events ...

"Let's ask this question: Where would we stand if Saddam were still in power."

People rarely look at the benefits acheived by invading Iraq. The biggest benefit imo,is that Libya and Iran shut down their WMD programs within a few weeks of the invasion. That was no coincidence. Iran is at it again,but at least their ambitions were delayed a few years. Several people replied to my comment that "Arab countries are a cauldron of hate and intolerance" as if I were making racist assumptions or something. I'm more of the opinion that dictatorial regimes with a stranglehold on the media have demonized the U.S. in order to explain the sorry results of their mismanagement. Another of the benefits of democracy in Iraq is the free flow of information. Iraq sits smack dab in the middle of the Arab world. It's citizens now have access to something other than Saddam's vision of the world. It's only a matter of time before Iraq's neighbors demand the same.

The biggest benefit imo,is that Libya and Iran shut down their WMD programs within a few weeks of the invasion.

So you have opinion that Libia/Iran shut down WMD programs?

Or do you have access to internal documents of Libia/Iran showing proof of shutdown?

Or do you just remember what someone told you?

The question of assigning a fractional cost is too hard to me, BUT if you step back from "The War" (And I accept keeping Iraqi oil off the market adds a premium to everyone's oil prices), the irresponsible U.S. economic policy of "borrow and spend" is the real failing, measured now in terms of the falling value of the U.S. dollar, BUT we you consider FUTURE costs of this irresponsibility (when the world finally wakes up to recognize and stops buying up dollars), I have to imagine the costs to our future prosperity far outweigh ANY price for gasoline now. And sadly, until that day, others seem to be foolishly paying our bills, and will share our fall.

The current high oil price is providing an incentive to find and produce alternative energy sources. The oil that has not been extracted because of war or rumors of war is still in place. Sometime in the future that oil will be extracted unless by some miracle, alternatives prove it to be too costly to extract.

If however it is extracted at some future time it may reduce the price of oil at that time from 500 to 450 Euros per barrel. Use less today it will reduce the price, what you don’t use today will reduce the price tomorrow.

Humanity will continue the wars until the last barrel is burned. The wars will not end with the demise of GWB or the USA. Such is the history and the future of Man, he is a carnivore first, and a vegetarian only in the final stages of survival.

Thanks A Siegel for this post and the opportunity to consider all the comments that I have not yet read.

Humanity will continue the wars until the last barrel is burned.

This is taking gloom and doom to a really irrational extreme.
There probably be a collapse in global trade, certainly a collapse in global trade in oil, long before the last barrel. Using policy wonk parlance, there will be stranded oil in many places. People in other places will have to find alternatives. In desert areas like Arabia, they will really need their oil to run desalination plants, etc. But in the long run, they don't have much of a future. In other places, some people will be able to get by on wood for fuel and feed stock to biochemical industry. In other places people will cluster around local nuclear power plants, etc. The world will change drastically. Few of us will think of it as a better life.

Look this is a easy problem to understand. Consider Westexas export land model. And consider the populations of all the worlds oil producing and esp exporting nations. If these nations had maintained a lifestyle for their citizens at the level the US enjoys the amount of oil exported would have been a fraction of the current amounts. Most nations would never be oil exporters.

Only a very small number have the demographics to support significant oil exports if you assume everyone has the same standard of living.

This means of course that to support the current American way of life has resulted in millions if not billions of direct and indirect deaths and lives of squalor and despair.

The war premium if you will is the fact that we are not having to expend a few thousand "Citizen" deaths and the cost of the war is impacting the American way of life.

Americans have their feathers ruffled we don't want to know about all the people that die to support us. And the failure of the Bush administration is the sick underpinnings and real cost of supporting our way of life is becoming painfully obvious.

What we really want is for this to go away in the back ground so we can go back and assume we are wealthy because of open markets and working hard and because God has blessed us.

In a sense I'm glad that this propaganda statement of a war premium has come to light since it shows once you look at it that America has directly and indirectly killed more people then any other nation on the planet.

My best guess is that every McMansion/SUV costs between 100 and a 1000 wasted lives and senseless deaths.
The war premium if there is one is but a small increase on top this. The problem is not the additional deaths but that the Government was unable to hide it.

Instead of a war premium on oil and gas, there is really a war discount.
How so? You say?
None of us can say for sure what would have happened if we had not gone to war in Iraq.
But, here are a few examples of what might have happened:

1. Saddam Hussein achieved nuclear capability.
2. Iraq then used weapons to take over the middle east.
3. Iraq (including Saudi, Iran, Kuwait, and UAE) controls 50% of worlds remaining oil.
4. Iraq cuts all oil exports to the US.
5. Iraq waits for our military to run out of oil.
6. Iraq nukes the US, or simply watches us die from starvation.

The price of oil and gas for the US would be much higher with no imports.
WE would have to adjust to our usage level back in 1949 when our consumption was equal to our production here in the US.

It is really the threat of future wars that drive up the price. Iraq produces more oil today than before the war started.
If we went ahead and finished the job, then there would not be any future threats from Iran, or anybody else! They now think we are a push over because of all the whimps in congress.
In this world, the strongest will survive! Or maybe the smartest, if we could just get off of oil now, then Iran would pose no threat to us.

Your illustrating why the concept of a War premium is purely a propaganda concept.
As your example illustrates its done using some alternate universe as its basis.

It makes no sense. But as you can see various alternative universe theories can be used to
create any answer you desire.

The sad part is otherwise intelligent people often cannot see the fallacy of these sorts of arguments.

You create the world you live in if you want to change to a different sort of civilization its a tough process.

What are you smoking?

Nothing just showing how you can calculate a ware premium or discount to be any value you want depending on the alternative universe scenario you use.

If we all let dictators run wild....Then we would have had Hitler ruling Europe.
There is a cost to freedom - just ask anyone who remembers WWII.
If we don't stop these guys, we will be part of Iran someday.

But, here are a few examples of what might have happened:

And yet your list is answerable by the policy of MAD - Mutually Assured Destruction.

Are you next going to say MAD is bogus idea?

But, here are a few examples of what might have happened:

1. Saddam Hussein achieved nuclear capability.

"Saddam Husayn ended the nuclear program in 1991 following the Gulf war. ISG found no evidence to suggest concerted efforts to restart the program."

Your fantasy is just as credible as Hussein taking over the Middle East with a legion of Tooth Fairies.

Well put memmel,

I feel most Americans would rather not know the degree of true suppression we've inflicted on the world by just our buying power alone. You heard my stories about the severe poverty in Equatorial Guinea despite having one of the highest per capita incomes in the world. Just yesterday one of the mercenaries involved in the effort to overthrow the dictator in 2004 was convicted in EG court. As you seem to imply, the debate over the reasons/oil premium for Iraq can go on endlessly. Regardless of which motives one ascribes to, we just don't seem to do it very well. Many a times I sat off the coast of EG and imagined the US invasion. Not one shot would have to be fired (the dictator has very strict limits on the amount of ammo the army has access to). All we would have to do is provide the dictator and his followers safe passage and EG would be ours. Life for the 500,000 EG citizens would have advanced 100 years over night. And we would have access to about $100 billion of oil a year (and would really p/o the EU since most goes there.)

I'm certainly not smarter than the DC think tanks so the question remains: why Iraq and not EG too? Perhaps the only way Americans can accept using the power is with a sense of self defense.

For me at least my eyes where opened when I visited computer hardware plants in Shanghai China.
I suddenly realized that a pyramid of sorrow that supports the American Dream.

I think Americans are worried now about the propaganda concept of a war premium because they instinctively realize that once they are broke and no longer useful in the role of consumer in the game of concentration of wealth that they will become cannon fodder. Although in general the collective is stupid its sensing finally that the walk through the pretty meadow ends at a slaughter house. The game of charades is rapidly closing and the ugly reality of the world cannot be ignored.

Think about Reagan's trickle down economics few questioned the need for a flood of wealth to the top so that a small amount could trickle back down. Americans bought it hook line and sinker because they got a slice of the pie. Most of the proposal's presented for painlessly moving off of oil make the implicit assumption that we can and will be able to keep the ponzi scheme going. This implicit support for what we have done is disgusting to me and the fact that people that propose them think they are doing something good show how deluded we have become. The reality is personal electric cars are figuratively powered from a steam generator at Auschwitz. Only if we can do them without damaging the rest of the world should they be done.
In my opinion there is no way we can maintain the current lifestyle and allow the rest of the world to develop in a equitable manner.

Renewable electric powered rail and a general renewable economy with sensible efficient living with trade between economic peers is the only answer all the others implicitly keep the pyramid going.

Plausable denial ability

This assumes that this is not just the way human society works.
The additional cost might be nil is the alternative would be that another society other than America would take over, with similar costs and results.
I hope this is not so, but cannot discount the possibility.

Memmel, I agree with everything that you wrote-BUT-
100 to 1000 deaths/SUV equals billions to tens of billions dead.
MAYBE 1 hummer= 1 life.
But of course even that sort of level is immoral.

Waging war causes inflation. Even waging the cold war with the Soviet Union caused inflation. Deficit spending for war is simply an unavoidable neccesity. Deficit spending either drives up interest rates or causes inflation. Governments want low interest rates for their debt and unlike individuals they can create money from nothing via their central banks and the printing of paper currency. So they always choose the inflation option. So the question becomes is how much inflation have the wars America has waged since 2001 caused. This would be the component of oil's price rise is due to war. My SWAG? 50 cents per gallon. The overwhelming force in the price rise is the demand from China and a few other countries including India. If 9/11 hadn't happened the average gas price in the US would still have been around $3.50/gal.

If 9/11 hadn't happened, the country wouldn't have been scared out of its wits by boogymen. Our entire foreign policy was hijacked, and the economy was derailed. The media was only too happy to spread the boogyman meme.

Without 9/11, we'd be spending half a trillion less on defense... money which just goes into a black hole. The borrowing, or "creation out of thin air", of that money is what has devalued our currency and caused commodities to skyrocket. It all points to 9/11. Congress is still ensnared by whatever boogeymen brought us 9/11. This week they passed yet another bill eviscerating the constitution and causing Jefferson to turn over in his grave. The entire police state is being built not to combat terrorism, but to control and dispose of the civilian population once it realizes its government has gone completely rogue. The embryo of the 4th Reich is rapidly growing right in front of us, and most are too blind to see it.

Without 9/11, the political discourse would most likely be a bit more evolved than it is now. Most of the best and brightest minds in this country know that 9/11 was a false flag. Whether you agree with that "conspiracy theory" or not is beside the point. The point is that far far too much mental energy and political capital has been spent just trying to figure out what happened on 9/11 and why this administration went so far out of its way with its avalanche of lies and cover-ups. That is what has allowed all these other crimes to happen. The true watchers and sentinels and guardsmen of the country... the true patriots... the unspoken heroes that keep the wheels of democracy well oiled by exposing corruption wherever they see it... too many of them had their sights set on 9/11. 9/11 was like a honeypot. This is precisely why they use false flags over and over and over again. Even to this day, it has worked like a charm. The entire country will fall apart if it does not wise up.

What fraction of America's $4+ gallon gasoline is due to the war in Iraq?

I respond with a question: What would you do with the answer, if you had it? Or what would the person who actually asked the question do with the answer?

The difference between the real price now and the 'woulda coulda shoulda' price, had there not been a war, tells us nothing about what will happen to gas price once we manage to end the war in Iraq.

Discussion of the 'fraction' question appears to generate endless discussion/argument. Maybe the world doesn't need a good answer to the question. Maybe a 'good' answer would just lead to more heated discussion. Maybe we could run a Carnot heat engine on this heat.

Well here is a thread that is an exercise in mental masturbation. Let's see if we can quantify the actual temperature, actual products of combustion, and exact constituents of the exhaust gases of the fire that's burning our house down.

Treeman, you're right.

We might as well ask "how much of the price of oil is due to the failure of space aliens to provide us with unlimited energy".

"what if's" don't buy much.

My guess is 30%

I would agree that much of the rise in price of oil is due to currency devaluation caused by the US federal deficit. And most of that is due to increased deficit spending due to the Iraq war.

It would help to envision what the world would be like if we had responded "properly" to the events of 9/11.

What was the proper response? You can debate it till you're blue in the teeth, but it is best to go with the simplest response: investigate the incident, including the Bush administration, and more importantly, seal the cockpit doors! That's it. Dont spend 5 trillion dollars running around the world blowing up Iraqi infrastructure and guarding Afghani poppy fields.

Ok, so imagine we're in a country where we didnt try to invade the whole world. The first most obvious thing to notice is that we'd have a much more balanced budget. Without the fearmongering and stampeding caused by 9/11, our economy would be in much better shape. (GM and Fannie and Freddie might even possibly be solvent. lol. Actually that's not very funny...)

However, without the political backdrop of 9/11, there would be much more attention focused on other issues of importance. Global warming is the first thing that comes to mind.

I can almost envision an Al Gore parallel reality where the whole country mobilizes to fight off the demon of Carbon Dioxide. (oh my god the evil carbon dioxide monster is coming, surrender all your money! Accept a tax on breathing, and the boogyman might spare you!) But global warming simply is not a serious enough threat to mask the bigger threat of peak oil. I do think there would be much more public awareness of peak oil. I believe solar and wind investments would be 50 to 500 times what they are now, in this significantly more hellish parallel reality we happen to exist in at the moment. In the Al Gore parallel reality, I think the US would still have a huge deficit, but at least we would be borrowing that money to build out an alternative energy infrastructure, rather than simply wasting it as we are doing now. Also, the world would have much more confidence in the dollar without the grandson of a nazi as president. But we would still have currency issues because no one in washington is too terribly interested in abolishing the federal reserve. So yes, in the Al Gore parallel reality we'd still have high gas prices, primarily because of both our deficit spending and more significantly, a much higher global awareness of peak oil. In fact it is possible that a global awareness of peak oil could push the price of gasoline well past $10 a gallon! Who knows... But the key point is that without Bush and his Iraq war, we'd be much better positioned with alternatives to oil. They might be expensive but at least they would have been there to allow the global economy to continue expanding. The stability brought about by steady economic expansion would also help to keep prices down.

The price of gas "is what it is"......
IF there were not a war in Iraq, then there would be something else to blame it on.
The real question is "What are we going to do about it?"
My answer is get off of gas now! Or reduce consumption to what we have here in the US and stop imports. The countries that we import from own us now....

GLobal Warming is the least of our concerns.
We have to be alive to care how hot this place becomes....

I think we have to reduce oil use to zero. If we were to cut 70% and use our domestic supplies, not only would we have to pay at least $60/barrel just to get a steady supply, but there would be huge pressures to export if the world price were much higher than the domestic price. Oil can be cheap for the next fifteen years or so if we and others commit to ensuring that world consumption is well below the decline rate for existing fields. But, we can't expect to avoid expensive oil unless we really do plan to end our use of oil completely. http://mdsolar.blogspot.com/2008/06/oil-is-too-expensive.html


I was not referring to price. I am talking about availability.
When all other countries cease to export to the US, we will have to live on what we have here.
So, we should learn to live on what we have ASAP, or face economic crisis.
There will come a day when no country can export because they will need it for their own use just to survive...

I guess I don't think we need oil to survive. I would say cut consumption now by 25% in the US to bring the price down and keep on cutting to keep it down. Stopping when we get to a 70% reduction just because that is the level of domestic supply does not help with the problem that that supply is declining unless we invest too much. So, really, we should head towards zero oil consumption.


The war in Iraq, and events surrounding that war, can certainly affect the day to day swings in the market. That is, it can make the price swing, for a day or so, either above or below the fair price. But as far as the long term price trend goes, the war has zero affect on the market, other than in ways it actually affects supply.

The same goes for the so-called "fear premium". If fear affects the actual supply then it affects the price of oil but in no other way. In the long run, or even the medium run of a few days, the price always comes up or down to meet demand. If high prices, due to any reason other than a short supply, create demand destruction, then a glut will result because supply has not been affected. If there is chronic fear or a raging war, causing the price of oil to rise even though supply is plentiful, then the resulting glut will have the reverse effect, regardless of the fear or war.

Fear and war and other rumors cause wild and crazy swings in the market price of oil. But those swings are always above or below the fair price as determined by supply and demand. And that fair price can be determined by simply averaging out those swings.

Ron Patterson

I think the "war premium" is exactly zero by now.

At the outset, I think any fear that supplies will have one of two effects:
1) Those who need oil can rush out and buy extra, thus pulling forward purchases, and pushing up price. This is temporary, unless they buyer actually uses the oil, makes some money, and buys some more....then this is simply "growth".
2) Those who produce oil can choose to hold some oil, hoping for a price surge, and/or can choose to ready add'l production in case the war comes to pass. Again, either they sell or they don't, and that drives supply.

News can drive prices up and down short-term based on emotional surges, but over any reasonable time frame of months and years supply and demand must still rule. The only way prices can be driven up artificially is through collusion, and perhaps that happens to some extent, but that's no different than Saudi saying "we could produce more, but nobody wants to buy it" while Pakistan has shortages. The real truth is that nobody will or even CAN buy it at the offered price, and they choose not to lower the price to sell more. Saudi might as accurately say "we could lower our prices, but then we might have to produce more".

To me the interesting question is how much oil can be offered, and by whom, at each price rung, say $200, $250, $350, and $500 per barrel. I think the answer is that the market is betting on 1% per week oil price growth, and every aspect of exploration, drill rig planning, equipment manufacturing, and production is ramping based on that. If a big field miraculously appears some will lose money as prices drop, and if Ghawar crashes the price will soar, but otherwise it's a slowly ramping price curve where new supply lags new demand based on the increasing effort expended. The rest of us would do well to plan out our next year or two based on this curve as well.

Basically, I agree with Darwinian with the modification that short term can be much longer than days. However, for the sake of argument and because it may be the odds on bet, I wish to argue the Iraq war has reduced the price of crude oil as a result of the war risk premium. Assuming the Iraq war has made the Middle East more violent and unpredicatable and increased this risk premium, then for a period of time the price of oil was increased (above market fundamentals – whatever they are). This aided increased new oil production and decreased demand – the former not visibly and the later only recently.

If this war risk premium had been large, it would have resulted in large increases in stocks of crude oil. Instead oil stocks fell for almost a year until the last couple months when they have stabilized (? developed countries, could not find the IEA source). The point is, even with war fears we have not built stocks despite increased price and we have on hand only the same amount of crude oil as 6 years ago, when Saudi’s had 3 million barrels a day of surplus light crude capacity.

In addition, only a belief in long term oil price increases would induce an exporting country to hold back production. The Iraq war should have been viewed as a short term disruption probably resulting in a future price drop. This holds for the risk premium as well, strongly suggesting neither have induced exporting nations to hold back production.

If Iraqi production has been curtailed, then the real change in supply would affect this analysis – but that is a difficult claim to make given Bush would have chosen some other avenue of violence.

My bet for the point when crude prices start to drop is when stocks (oops, "supplies" was a mistype) start to build significantly, finally reflecting the increased risk of minimal spare crude capacity.

So, I got to thinking about this.

The price of oil in march 2000 (before the war, before even 9-11) was 1.52/gallon. So saying that the war premium is $2.00 is to say that all other factors amounted to only a $0.60 increase. Pardon me for EXTREME skepticism.

That is to say that "the war" accounted for 3.33 times as large a premium as an 8% increase in overall demand (@1%/year), a 3% reduction in world net oil exports, the elimination of effectively all world excess production capacity, massive declines in many mature fields, and even basic inflation. I really cannot see that there is much conversation between this "swag" and the realities of the situation. Frankly, you're doing what Matt Simmons was railing against; you're on a witch hunt, you want this to be Bush's fault so badly that you've forgotten what draws many of us here, which is the sober analysis.

Accepting the 1 trillion dollars spent on the war to have been applied directly to inflation on a total money supply of 8 trillion (m3) gives us a 12% increase ($0.18 on top of the $1.52).

Iraq is currently producing oil at a rate at or near pre-war peak levels, so there's no "premium" to be had there.

Iranian actions you really can't count as a war premium unless you have a crystal ball that would allow you to determine what president Ahmamadman would be doing in the absence of a US occupation of the sworn enemy of his nation.

The falling dollar is primarily an effect of trade imbalances, banking debacles, and high energy prices :) So you really can't count much of that against the war (other than the 12% mentioned above).

So.... I would say that you've got it roughly backwards, the "war premium" must be somewhere in the $0.60 range, and the supply/demand numbers somewhere in the $2.00 range. But that's just my swag :).

Let's ask the Energy Economists of United States (I've posted this before, so my apologies for redundancy):

The Oil “Price Rise” Factor in the Iraq War: A Macroeconomic Assessment

I start with the premise that the war on Iraq was undoubtedly about oil.
Since the Iraq war began, oil prices have gone from about $25/barrel at the outset to more than $130/barrel by May 2008.
We conclude, accordingly, that a significant proportion of the increase in the price of oil resulted from the war.
By adding all the macroeconomic costs to the oil costs above, we can get a full tally of the costs of the war so far. The numbers are staggering. The numbers that best capture the US costs of the Iraq war, even without adding interest, are more than $6.5 trillion
In global terms, the jump in oil prices since the start of the war dwarfs all other economic costs. The higher oil prices represent a direct cost to the global economy of $6.3 trillion [in addition to the US cost of $6.5 trillion], taking into account the macroeconomic repercussions.
The Iraq war is the 21st century’s first oil war. It is unarguably the single most important factor contributing to the soaring price of oil and accounting for some 63% of the rise since 2003. Had the war not taken place, the oil prices could have been expected to settle around $40-$50/barrel range even with growing demand from China, India and other Asia-Pacific countries.

Discuss. I'm just the messenger, etc.

If fear of an Israeli attack on Iran was driving up oil prices we would expect to see rising inventories in response. But we are not seeing that.

Again, if some factor was pushing the price of oil above the point that makes today's demand and supply equal then supply would excfeed demand and inventories of oil would accumulate. Not happening.

Good point. Same reason that the problem isn't "speculators".

The more I think about this one, the more irritated I get about it. The fact that prof goose has posted that 4/5 of the ru-nup in prices is "war premium" implies that Prof. Goose *doesn't really believe* that this is peak oil related. If that is to be the case, then much of what he has written in the past is called into question. This was a classic case of political bias interfering with sober analysis. I can totally understand the impulse to bash bush, but things are generally better when the bashing is related to reality, it improves the credibility of the basher.