US Oil Conservation Strategic, Not Ecologic?


This article was published by Financial Sense, 2008-04-11, as a feature article.

When everyone is dead the Great Game is finished. Not before.
-Rudyard Kipling, Kim

It has been said that love makes the world go 'round. But to anyone cognizant of how our modern consumer economies operate — from the manufacture of goods to their transportation — it might seem as if the world instead goes 'round on oil. Americans are reluctantly but inexorably learning how dependent they are upon the "black gold", especially when they experience the "pain at the pump" when gassing up their SUVs. Despite these unwelcome lessons, many of them still appear to be unaware of what it takes to create plastic products and ship them from the other side of the planet, ending up on the shelves at Wal-Mart.

Aside from those living a completely agrarian lifestyle, Americans have a huge interest in keeping the oil flowing, as well as the other fuels refined from it. Our society would collapse without those energy sources. American leaders, political and military, have an even deeper interest, because without oil they would be without work. Yet the majority of elected officials still do not seem to understand that oil and gas prices are not increasing as a result of predatory US oil companies, but instead from the same three factors at play for decades now: US dollar depreciation, increasing global demand, and declining supply.

That third factor is the one least under human control. The world's oil may be vast, but it is still limited, and already most of the largest fields are in decline. Of the 64 major oil-producing countries, more than 54 are apparently past peak production. The contiguous 48 United States peaked in 1970, and the north slopes of Alaska peaked in 1989. The Gulf of Mexico, one of America's primary sources, has most likely already peaked. On a worldwide basis, evidence suggests that production of conventional oil peaked in mid-1995. Oil substitutes are simply postponing the day of reckoning.

Critics of the Peak Oil thesis point to the supposedly massive reserves in California and Alaska, as well as those offshore. If this is true, then why are they not being tapped? (The reserves, that is — not the critics.) The primary rationale given as to why we are leaving our reserves in the ground and under the oceans, is to protect the environment.

In turn, pundits of the energy industry openly wonder why the United States government is leaning on OPEC countries and other suppliers to increase their output, even when it is becoming quite evident that they are incapable of doing so — should they even want to do so, in order to capture the increased profits from the higher prices. Many analysts of the energy industry are baffled by this.

But they shouldn't be, if they were to look at it from a more strategic — nay, Machiavellian — perspective. They may be assuming that the United States government is more interested in preserving the unspoiled lands and unpolluted oceans than in preserving the oil underneath them. But such thinking would be naive. Absent from these analyses is the possibility of motives far less politically correct.

Perhaps these pundits could improve the accuracy of their forecasts if they were to spend less time reading Kiplinger's and more time reading Kipling. More specifically, they would do well to learn of the global resource wars of the past, and spend less time reading their own myopic opinions in financial magazines. In his classic novel Kim, Rudyard Kipling presents the story of a clever Irish orphan boy who travels with a Tibetan lama, delivering messages for the British intelligence service. The story is played out against a backdrop of international conflict known as the "Great Game", in which two of the major world powers of that time — England and Russia — competed for oil and other resources in central Asia.

That same competition for dwindling oil supplies is still being played throughout the modern world, but has largely taken the form of cold warfare (aside from key battles during World War II, for instance), largely because major suppliers such as OPEC have figuratively flooded the world with cheap oil. But that is changing, as we enter a new era of declining production and increasing demand — especially demand from emerging markets flush with depreciating US dollars.

Consider this possibility: Perhaps the main strategic principle driving the decisions to keep those American reserves off the market, is to preserve our limited supplies as long as possible, so we can have the upper hand in the oil endgame. In the meantime, we demand that other countries give up their oil first, by exchanging their barrels for our dollars.

It would be a mistake to conclude that the bulk of the US government's foreign and energy policy is made by the fools in Congress, who roast American oil industry executives, and squander US taxpayer wealth on corn-based ethanol, for the benefit of the agricultural lobby. That may be the "face" of the Leviathan, but it certainly cannot be the brain. Surely there must be wiser thinkers, behind the scenes, with planning horizons that extend beyond the next election. It must be clear to them that it will take decades for our country to largely replace conventional hydrocarbon-based energy sources with renewables, clean coal, and atomic power. In that case, those planners most likely would much prefer that other countries use up all of their supplies of oil — selling them to the United States and our allies — before we dip into our own reserves, which have been put off-limits to our international oil companies, ostensibly for environmental reasons.

Kipling had it right. As long as we are alive and struggling for supremacy, if not survival, the global chess game will continue.

Copyright © 2008 Michael J. Ross. All rights reserved.

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