[OPE] Cyrus B, "Oil, war, lies and bulls**t" (2/4)

Asia Times Online :: Asian news and current affairs

Oct 9, 2008

Page 2 of 4
Oil, war, lies and
bulls**t'
By Cyrus Bina

which the anachronistic view of
oil - which requires direct control - is both the point of departure and
the point of arrival, at the same time.

For instance,
journalists like Thomas Friedman and Ted Koppel tend to fall into this
same trap, by peddling oil as the cause of war, in headlines, the Op-Ed
page of the print media, and on radio and television airwaves, without a
hint of understanding about the circularity of their pronouncements; sadly
enough, economists, international relations specialists, and other social
scientists fare no better.

On a more professional terrain,
former Federal Reserve chairman Alan Greenspan had already implied that
the US invasion of Iraq was for oil. The question here is not whether oil
was not on the uppermost part of the vice president Dick Cheney's mind
when the

George W Bush administration's invasion
of Iraq was under way. But that Greenspan is habitually captivated by the
ancient idea that the world oil is partitioned between us and the Arabs,
and that the United States (after the invasion) and Saddam Hussein - who
fought the proxy US war with Iran in the 1980s - (before the invasion),
have been able to control it.

Greenspan, in his own words,
favored the US invasion of Iraq on the presumption that today's oil does
immutably operate in the same manner as in the colonial and cartelized
era, and that the physical access and cartelized pricing are still the
determining parameters of today's oil. Aside from his callous attitude, if
not his reactionary mentality, Greenspan's apparent delusion may have to
do with his unshakable conviction in romanticized (neoclassical)
competition, together with his sheer ignorance of the concrete reality of
oil, a combination of which is quite consistent with his narrow political
worldview.

In the same vein, when it comes to questions of
oil, power and hegemony, even progressive international relations
specialists, such as Simon Bromley (author of American Hegemony and World
Oil) have not been entirely immune from circular reasoning. And when it
comes to concrete historical facts, they too pretend as if, for instance,
the cartelized oil and/or the American hegemony have not yet been
relegated rather objectively to the junkyard of world history.

As for "hegemony" alone, it appears that, today, is the most
misused and abused word in the English language. The casual use of
hegemony, by the left and the right, to mean control and domination, is
literally one the terrible idiosyncrasies of our time.

As I
have pointed out elsewhere, hegemony in its original and proper
connotation exhibits four interwoven characteristics. It is: (1) mutually
consensual, (2) internally driven, (3) historically specific, and (4)
institutionally mediating. And more importantly, hegemony is a feature of
whole (that is, the Pax Americana), not an attribute of part (that is, the
United States). This, I believe, is an authentic interpretation and
precise extension of Antonio Gramsci's hegemony to the sphere of
international relations.

Hence, it's silly and circular to
define the existence of American hegemony in terms of the readily assumed
American hegemony. Nevertheless, the majority of political scientists (and
economists) still speak of the American hegemony, despite the absence of
the long defunct Pax Americana. Today's oil price, both in magnitude and
volatility, proves vociferously the fallacy of arguments that are
stubbornly geared toward the "hegemonic control" of oil,
notwithstanding the transformation of oil from cartelization to
decartelization (and globalization), since the early 1970s.

How does the oil price relate to the falling value of dollar and the
gravitational force of macro-economy as a whole? In order to answer this
question, we need a concise distinction between the long-run and short-run
price of oil at the present stage of globalization.

Globalization of oil reflects the formation of global prices in which
the highest-cost and lowest-cost oil regions tend to operate, side by
side, competitively and in a unified manner. And, in this global pool,
short-run market prices are not likely to form in isolation within each
locality, but rather emerge universally and in a unified manner. The
formation of the long-run price of oil, too, is achieved through global
competition.

What is governing the magnitude of the long-run
price is the "production price" (costs, plus average profit) of
costliest (least productive) oilfields within the least productive oil
region of the world, namely, the United States. These fields are located
beneath the continental shelf of the United States, known as the lower 48
states.

Both the conservative and liberal media blame OPEC
(the usual suspects are the Arabs, Iranians and Venezuelans) for the oil
price hike and accordingly concoct a reason for military conflict, such as
the US invasion of Iraq. A bit more sophisticated version brings in
additional issues - supposedly beyond oil - and speaks rather
panoramically of the US /China, dollar/euro or other arbitrary binary
pairs in the mix, without admitting first that the American century, under
the Pax Americana, has long been over, and that the epoch of globalization
is not the same as "Americanization" and America's purported
hegemony.

The left-wing media, while staying away from the
blame-game and showing a bit of human compassion, nevertheless concur with
the same conclusion. A notorious case in point is Michael Klare of The
Nation, who - as the darling of the liberal left - has successfully made
an industry out of this unauthentic and unbecoming trick in respect to war
and oil. Klare's proposition is indeed a replica of what James
Schlesinger, a Chicago School economist - (and formerly a CIA director and
a one-time US secretary of energy) - had already pontificated on oil and
war, in 1991, following the earlier US war against Saddam Hussein. Aside
from strict copycatting, Klare and his likeminded liberal/radical
colleagues are in reality acting as strange bedfellows in concert with the
Bush administration's war policy, simply by obscuring the cause of war and
perpetuating a campaign of misinformation on the side of this
administration.

Steeped in rusty knowledge of yesteryear's oil
cartel, Klare doesn't even realize (or doesn't care) that on the terrain
of reasoned cause/effect relationship the question of "resource
wars" - a proposition in need of proof - cannot be understood, let
alone falsified, by a mere description of "resource wars",
despite his rather elaborate dog-and-pony show. And the fact that our
society is hooked heavily on oil consumption has essentially nothing to do
with why our government should behave the way it does.

After
all, there is such thing as systematic explanation as to how capitalism
works and how the production and distribution of these resources are to be
utilized as guideposts for critical and objective examination of the
21st-century global capitalism. One needs not be overly voluntarist, or
for that matter crude, in respect to pricing of a resource, which is
uncontrollable in the view of its globalization, beyond the determination
of a real or an imaginary entity in today's world.

And, more
importantly, we need not change the context of oil to suit the context of
war. Yet, Klare does this with an incredible ease; he identifies oil as
the cause of war, not by investigating the specificity of oil in its
evolutionary context but by repeating the same "resource wars"
syllogism ad nauseam. This, I believe, is a notable example of panoramic
appeal and misrepresentational fakery, reminiscent of "bullshit"
- according to Frankfurt.

Oil is a commodity whose point of
origin is insignificant once it arrives in the inter-connected global
pool. Therefore, notwithstanding the differential regional cost of
production, the market price oil is universally the same. The short-run
market price of oil is determined by the spot and futures oil markets.
This means that, from the standpoint of globalized pricing, there is no
distinction between "cheap oil" and "expensive oil".

The spot market reflects the daily delivery of oil on a
competitive basis. This market leads to market-clearing prices in an
organized exchange, whose magnitude sets the short-run price of oil in all
other localities, regardless of their momentary supply-and-demand
conditions. The futures price, on the other hand, refers to the
competitive delivery of oil, sometime in the near future, hence the
possibility of speculative bubbles in the oil market. The market clearing
price of oil takes its cue from the spot/futures prices anywhere in the
world. This is also true for the determination of the price of oil in
long-term government contracts, between oil-exporting and oil-consuming
countries, anywhere in the world. OPEC too follows similar pricing rules
for its oil.

Spot markets in NYMEX (New York) and
International Petroleum Exchange (IPE) in London are the ones that for all
intent and purposes set the daily price of oil globally. The benchmark for
NYMEX is the West Texas Intermediate crude, while IPE trades in Brent -
the crude from North Sea. In turn, the OPEC oil basket itself (a composite
of spot oil prices of member countries) takes its cue from Brent (and, by
implication, from the West Texas Intermediate crude), and thus
consistently varies according to fluctuations in these competitive global
oil markets.

This concrete reality provides us with three
interrelated theoretical points in the political economy of oil: (1) that
the short-term global price of oil does not necessarily depend upon the
concrete, market-clearing (physical) equalization of oil demand and supply
at each and every single location on the globe; (2) that the converging
pattern of long-run (random) market fluctuations is neither independent
from nor a cause of the long-run "production price"; (3) that
such a pattern ordinarily reflects short-run fluctuations (of demand and
supply) around the gravitational center of the long-run price - that is to
say, the "production price" of the costliest oil deposits in the
world.

The last point depicts the necessity of the "law
of value", prior to market prices, in the contemporary global oil
industry.

The futures market (NYMEX) is a hedge market that
normally operates alongside the spot market. However, given its purpose,
this type of market is not without speculation. Hence, the question is how
much activity in this market is aimed at effective hedging and how much
geared toward speculation. This is how the issue of "selling oil that
you don't have" had transpired in the summer of 2008, hinting at
speculation in Wall Street by putting down, say, 6% of the barrel, and
turning around to sell 100% of the same barrel that is not owned. Here,
the culprit is the lack of adequate regulation, combined with
extraordinary political provocation advanced by the Bush administration
toward Iran in the same period.

This brings us to the
connection between competitive price and the corresponding production from
the various oil regions of the world, according to their individual
productivity and cost structure. Given the fact that the costliest oil
should be able to recoup the long-run price (cost, plus normal profit) in
order to stay in business, its individual production price must represent
the long-run price for the remaining oil regions of the world.

By way of digression and in anticipation of a typical question as to why
all these costly oilfields will not suddenly go out of business,
particularly in the presence of more productive oilfields, say, in Saudi
Arabia or Iran, it would be necessary to get rid of an enduring popular
illusion.

First of all, the presumption that these
least-productive oilfields have always been the least productive is
demonstrably untrue. The majority of the least productive oilfields - say,
in the United States - had not always been at the bottom of productivity
scale when they were placed under production. In other words, while these
fields were initially ("naturally") productive, they gradually
declined via the successive application of capital that eventually led to
their present declining status.

Secondly, and related to the
earlier point, differential productivity of the oilfields within and
between oil regions is not only dependent upon the accident of geography
but also to the successive capital investment and uneven accumulation of
capital vis-a-vis rent.

Thirdly, as a consequence, it is
incorrect to assume - as in the case of agriculture (his "margin of
cultivation") did David Ricardo - that capital moves in an orderly
and unidirectional manner, from a more productive oilfield to less and
lesser productive leases in search of oil. Hence, "marginal"
oilfields must not be necessarily identified with the newly invested
capital on the newly leased fields, but with the ones that are already
producing the bulk of oil from the older oilfields in the United States.

This mechanism, and not "monopoly", provides the
means for global competition among the more- and less-productive oil

Continued 

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Received on Sat Oct 11 17:00:15 2008