Any Profit in a Storm

Stormy weather allows big oil to practice a crude sort of blackmail

Like every other president, Bush promises to reduce our dependence on foreign oil, especially oil from the Middle East. Instead, we seem set to have a growing dependence on the Middle East and Central Asia.

This can't last for long. Over the summer, American petroleum experts knowledgeable about Saudi resources—supposedly the biggest in the world—say the Saudis have faked their reserve figures in an effort to inflate them. The war in Iraq has brought to a virtual standstill any exports from that oil-rich country and wrecked its antiquated energy infrastructure. We are counting on imports from the Caspian Basin, but here again, the Chinese have been busily planning a long pipeline all the way back to Shanghai for natural gas. They need the gas to slow the pollution from their booming industries. We could increase oil and gas shipments from the Caspian by routing the fuel in pipelines down through Iran. But we don't do business with Iran. Hence it appears that instead of going to the U.S., Caspian energy supplies will increasingly go by pipeline and ship to China—and to India, as that country's energy market grows. In short, our foreign policy is walking us into a trap.

The U.S. looks to make up part of its growing energy deficit by importing natural gas in the form of enormously expensive liquefied natural gas (LNG). Bush, like Bill Clinton, looks to free enterprise as the mechanism to adjust supply and demand. No government—Democrat or Republican—has ever seriously suggested investing in clean alternative-energy resources. It is safe to say there was more interest in the early 20th century in solar energy than there is today.

There is no free market in oil and gas. It is a business dominated by a handful of companies that have managed to regulate themselves through various joint ventures and other deals. During the 20th century they worked openly through cartels, theoretically against the law in the U.S. When times got rough, they persuaded the government to apply various forms of regulation, such as oil depletion allowance, low or nonexistent royalties for oil produced in the public domain on the outer continental shelf. If the situation gets out of hand, there will doubtless be a call for price controls to help the industry keep its head above water, while its executives laugh all the way to the bank.

Additional reporting: Isabel Huacuja and Ali Syed

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