Oil

Digging Deeper On Iraq

Patrick Doherty — Mon, 14 Jul 2008 15:49:00 -0400

I'm still looking for what is new and more sophisticated about Barack Obama's New York Times opinion article, My Plan For Iraq. Maybe the answer is that there is little new here, except for the news hook provided by the Maliki government.

Steve Clemons has a good overall assessment of the article at The Washington Note. I'm going to focus on a few items I think are essential that I want Senator Obama to address.

The overall problem I see with this statement of Iraq policy is that it is too focused on the troop issue, not enough on the twisted politics of the Persian Gulf. Clausewitz is still right: war is the extension of politics by other means. In order to really get the troops out of Iraq, the next president will have to fundamentally change the politics of Iraq and of the region. I just do not see Senator Obama really willing to go there, publicly. That is why his plan requires such a potentially large follow-on force.

Here's what I mean. Changing the politics of Iraq means getting a real process underway that can build a legitimate and durable political consensus in Iraq. This is not new or unknown. It is merely what was called for in the Iraq Study Group report. To get all the stakeholders to the table, however, will take a commitment from the U.S. and the international community to admit that the current government of Nuri al-Maliki is less than legitimate. This is 180 degrees from the Bush and McCain strategies for Iraq and even Obama is recognizing the Maliki government's sovereignty in today's piece in the Times. I, however, believe that government is part of the problem that we have created.

In short, we need a political surge to complement the military surge. It may not be led by the United States, as Carlos Pascual at Brookings has argued, but it must be supported by the United States. And if the Maliki government becomes just one of the political factions at the table, then we will need more than just troop withdrawal as leverage. Steve Clemons, writing this morning, called for a Bonn Conference, of the sort Amb. Dobbins put together for Afghanistan after the fall of the Taliban. That would work fine. I just don't see troop withdrawal alone getting the Maliki government to the table.

The reason is that they will have little incentive. If, as Senator Obama states, the Maliki government will be able to "provide security" by 2010, then by the time of inauguration day, it will likely have a force advantage over the competing militias, at least the non-Kurdish ones. Could it not be just as likely that the Maliki government will simply roll the dice, cast its lot with Shi'ite militias, and finish the ethnic cleansing of the oil-rich south of Iraq? Then, political accommodation will be much easier, and more lucrative.

Oil has another role to play. In addition to limiting the sovereignty of the Maliki government (which can be done under the UN's Responsibility to Protect provisions) any effort, by the U.S. or under a UN flag, will have compell the ruling Kurds and Shi'ite factions by imposing a new Iraqi oil embargo on the northern and southern fields. Oil, of course, is the real prize for the parties in Iraq and the denial of it will really hurt the oil revenue patronage that distorts Iraqi politics. It's a hardball move, but why should we be ok with our soldiers dying when we're not willing to use all the non-lethal leverage at hand?

Getting the regional politics right means getting Iran to play ball on Iraq. That would be a major reversal of the Bush policy and would recognize Iraq as the greater, more immediate strategic problem. However, Senator Obama recently said that Iran is the "greatest strategic threat in the region in a generation." I'm not so sure. While I am certain Senator Obama was speaking of threats from states and non-states, I think our current policy in Iraq is the biggest, most destabilizing threat. The next president will have to make a choice.

Because of that, I would engage Iran in conversations around a grand bargain, as my colleague Flynt Leverett has argued. Part of that bargain would be Iraq, part nuclear power, part political recognition, part ending support for regional destabilization either directly or indirectly through proxies like Hezbollah.

But to even dream of such internal and regional political moves we would need a committment from the new White House to reduce oil consumption dramatically over the next 25 years. A new oil embargo would take 2 million bpd off the global oil markets, threatening our own economy further and at the same time, Iran needs to know we are ending the massive redistribution of U.S. wealth to oil producers. Obama's 35% reduction is not enough. We can do 100% and the plan exists. That, like Obama advisor Sarah Sewall has said, would give us incredible strategic latitude to get deal with this complex region without being dependent on them at the same time.

Troop withdrawal is just not the panacea Democrats want. I'm sorry it is not so simple. To really get a viable outcome in the region, we have to change American interests around oil, we have to transform the regional politics, and we have to get the parties to the table in Baghdad. That's the only way a negotiated, durable political agreement will emerge. I think that is called "changing the mindset."

Oil Prices To Keep Climbing

Ian McAllister — Mon, 07 Jul 2008 17:33:00 -0400

The unprecedented rise in oil prices from 100 dollars to almost 150 dollars a barrel over the past six months has stoked speculation over the possibility of oil hitting 200 dollars in the near future. Call options for oil at 200 dollars a barrel doubled in trading over the past month and more companies are buying long term contracts locking them into high oil prices, an indication that the market anticipates further oil price increases. Such an outcome would devastate the world economy, especially the automobile and airline industries, and would cripple American consumers.

Snapshot asks, how much of this unparalleled increase in prices is due to speculative fever as opposed to market forces?

Businessweek - What If GM Did Go Bankrupt...
Market Watch - Allianz predicts oil price of $200 barrel in next 2 years
Financial Times - Bets double on oil hitting $200
Wall Street Journal - Oil's Rapid Rise Stirs Talk of $200 a Barrel This Year

High Inflation Pushes Many to ‘Tipping Point'

Sam Sherraden — Wed, 02 Jul 2008 14:01:00 -0400

According to a report released yesterday by the IMF, high food and oil prices are having a devastating effect on import dependent, small and middle-income countries. Since January 2007, high food prices cost 33 net food importers $2.3bn or .5% of GDP, while oil cost 59 net oil importers $35.8bn or 2.2% of GDP. IMF head Strauss-Khan says many countries are at a "tipping point."

Inflation is driven by the integration of large emerging economies and is expected to continue even as the U.S. economy slows. Oil prices are expected to remain high for years due to the time needed to develop drilling and refining capacity, while food production will increase more quickly due to price incentives.

Snapshot asks, has the IMF done its part to help the world deal with high inflation?

IMF - Price Surge Driving Some Countries Close to Tipping Point
Financial Times – Trade has saved America from recession
Morgan Stanley – The Oil Shock Debate: Recession, Inflation or Both?
Oxford Energy – Why do oil price shocks, no longer shock?

The World Was Flat

Sam Sherraden — Mon, 30 Jun 2008 23:20:00 -0400

With the rising price of oil, a consensus has been building that the world is becoming less "flat" than it was in Tom Friedman's bestseller The World is Flat. With higher energy prices global supply chains will fail, countries in East Asia will re-think their export orientation and try to stimulate domestic demand, and countries such as the United States may gain a competitive edge in their domestic market. Oil makes up nearly half of total freight costs and over the past three years every one dollar rise in oil caused a 1% increase in transport costs.

Snapshot asks, will higher energy costs make U.S. manufacturing more competitive?

Business Week - Can the U.S. Bring Jobs Back from China?
Morgan Stanley - High Transport Costs to ‘Un-Flatten' the World
Wall Street Journal - China's Export Machine Threatened by Rising Costs
CIBC - Will Soaring Transport Costs Reverse Globalization?

OPEC: Who's In and Who's Out

Sam Sherraden — Fri, 30 May 2008 15:41:00 -0400

During the past year Angola joined OPEC, Ecuador rejoined, and Indonesia dropped out. Indonesia dropped its membership because it is now a net importer of crude, due to lower production and higher domestic demand. Indonesia produced 1.5-1.6 million barrels/day in the mid-1990s and now produces 800,000 barrels/day. It was the only OPEC member in Southeast Asia. It will save approximately $3.1million in membership fees per year for leaving the organization.

OPEC accounts for 30% of global oil production. Current OPEC agreements are based on maintaining production levels and not setting specific quotas. However, in a meeting at the end of 2007, Angola was given a quota of 1.9 million barrels/day.

Snapshot asks, as oil prices continue to rise, will OPEC set more quotas upon its members?

Bloomberg - Indonesia to Pull Out of OPEC as Oil Output Drops
International Energy Agency - Oil Market Report
Jadwa Investments - Oil's Surge: what's behind it and what it means for Saudi Arabia
Financial Times - Opec Meeting: Angola faces curbs on production

ASP in the News | April 23 – 28

Faith Smith — Mon, 28 Apr 2008 17:08:00 -0400

Financial Express (4/27) speaks with Parag Khanna about the decline of US influence
The Boston Globe (4/27) quotes Flynt Leverett on the dangerous alliances oil producers and despots.
The Tory Conservative (4/27) features Afshin Molavi's book, Persian Pilgrimages.
MWC News (4/25) discusses prospects for a Palestinian state with Ghaith al-Omari.
The Jewish Week (4/23) asks Daniel Levy about the Presidential candidates' Middle East Policies.

From Our Foreign Bureaus: Bar Codes in Ghana

Joe Mathews — Wed, 26 Mar 2008 12:53:00 -0400

BAR CODES: Ghana considers adding bar codes to its ballots to protect against errors and fraud.

TAIWAN REFERENDUM DIDN'T MEASURE UP: Foreign observers took a hard look at procedures in the Taiwanese referenda on joining the U.N., and didn't like what they saw.

NO VOTE ON OIL PIPELINE: The Bulgarian opposition has blocked an effort to let Bulgarians vote on whether to establish an oil pipeline. The pipeline has been passed by Parliament. The winner? Vladimir Putin. Russia can use the pipeline to send its oil from the Black Sea to the Aegean.

JOINING THE IRISH? Czech communists are proposing a national referendum of the Lisbon Treaty.

MONKS BARRED FROM BALLOT: Burmese monks won't be able to vote in their country's constitutional referendum, an election that clearly won't meet any common sense standard of fairness.

$110 Crude Goodbye for Man Who Said Gas Costs $10.07 a Gallon

Lisa Margonelli — Thu, 13 Mar 2008 18:37:00 -0400

Crude oil hit $110 today and it was an ironic farewell to Milton Copulos, late of the National Defense Council Foundation, who led a campaign to promote the "true" costs of gasoline over the past few years. I spoke with Milt in January and he gave me his latest estimate: We pay an extra $10.07 for every gallon we buy.

First, let me say that I never quite knew whether to trust his numbers -- after all, there really aren't any good numbers for the externalities of gas. But I found his background -- in defense, the Heritage Foundation, and then alternative fuels -- intriguing, provocative and a good starting place for trying to figure out how much a gallon of gas really costs us. (Milt also offered a heck of an interview, ranging through housing stock in China to military plans to turn garbage into fuel, to his children, his wife, with time for a short primer on flash pyrolosis.)

Here's how he broke it the cost of of a gallon of gas:

Asthma treatment: $.51 per gallon
Environmental pollution: $1.21
Oil supply disruptions: $1.34
Defense: $1.39
Total economic costs including employment and investment: $5.19
Government revenues: $.43

According to his numbers, oil's total cost to the American economy was around $300 billion in 2003, rising to $825 billion by 2006 and $995 billion by last year. He said he was working on another paper, "which pinpoints when the situation becomes critical." I wish I'd gotten to read it -- and I'll miss the visceral shock of seeing Milt's next set of numbers.

WEDNESDAY ROUND-UP: There Will Be Blood

Joe Mathews — Wed, 12 Mar 2008 15:57:00 -0400

PAGING DANIEL PLAINVIEW: In California, Assembly Democrats are moving forward with a plan to establish a state severance tax on oil to fund education. It might not pass the legislature -- the Golden State requires a two-thirds vote to raise taxes but it could end up on the ballot. And the proposal demonstrates where, with oil companies reporting record profits and states struggling to balance their budgets, legislators will look for new revenues.

The best evidence of this is in Arkansas, where politicians of both parties are competing to raise the severance tax. Gov. Mike Beebe is using the threat of a ballot initiative -- his aides say he is drafting one -- to demand that the severance tax on natural gas be raised. He wants the funds used to fix state highways. (Under severance taxes, states typically tax the market value of natural gas or oil at the time of extraction).

The governor's initiative could compete with a similar measure that former Republican gubernatorial candidate Sheffield Nelson hopes to put before voters this November. Nelson's proposal would increase the state's severance tax to 7 percent of natural gas's market value at the time of extraction. In Nelson's proposal, the money would go to highways, county and city aid and higher education.

A TOUGH JOB FOR A SHERIFF: Marijuana legalization is a cause that has been advanced by ballot measures, mostly in local communities. Perhaps the most far reaching such initiative came in 2000, when voters in Mendocino County, Calif, adopted a measure legitimizing pot posession for personal use. This has made the county a magnet for marijuana growers and users. Now there's a measure to repeal the earlier measure. The local sheriff has the difficult job of staying neutral in the fight.

DO INITIATIVES OPPOSING SAME SEX MARRIAGE AND CIVIL UNIONS DRIVE PEOPLE TO THE POLLS?

Some studies suggest that the tactic, credited with giving President Bush a turnout boost in 2004, doesn't really work. GLAAD puts it together here.

FROM OUR FOREIGN BUREAS: Venezuela's president Hugo Chavez lost his constitutional referendum last year. Now his ally, Bolivian president Evo Morales, is attempting something similar. He wants a referendum on a new constitution May 4, but the courts have stepped in to stop him. Here's the Reuters story. is trying something similar.

ANOTHER PENNSYLVANIA VOTE: As the country focuses on the Democratic primary in Pennsylvania, voters in Erie are debating a local measure banning so-called "bottle clubs" from the township. The target: a club called Velvet, which may or may not be a bottle club, but definitely has scantily clad women. Those who ran a petition drive to get the question on the ballot call Velvet a bottle club, but the club's attorney disagrees.

$100 for the Oil/How Much for the Frustration?

Lisa Margonelli — Thu, 06 Mar 2008 00:06:00 -0500

Everyone's trying to forecast how Americans will react to oil at $104 a barrel. Yeah, yeah, cutting back on gas use, worried financial markets... But the overall mood is a defiant shrug, typified by the president, who told a renewable energy conference today that Americans have to “get off oil,” right after mentioning that he’d shown up in a motorcade of twenty cars. It’s fair to say that with neither a plan nor collective will to change, Americans will stay in oil’s motorcade.

However, while we’re watching ourselves, another possibly very significant conflict is forming in two of the most important oil-producing countries. After years of rising oil prices and escalating nationalist rhetoric, the poor in Venezuela and Iran are not getting what they were promised -- according to two separate but strikingly similar reports. Their reaction to rising prices, and increasing sense of disenfranchisement and disappointment, may ultimately force Americans out of the motorcade.

In Foreign Affairs, Francisco Rodriguez writes a fascinating and thoughtful article about Chavez’s failure to deliver oil money to the poor, despite years of talking and spending.

Rodriguez writes:

[Chavez's] mismanagement of the economy and failure to live up to his pro-poor rhetoric have finally started to catch up with him. With inflation accelerating, basic foodstuffs increasingly scarce, and pervasive chronic failures in the provision of basic public services, Venezuelans are starting to glimpse the consequences of Chávez's economic policies -- and they do not like what they see.

And Jahangir Amuzegar, writing in the Middle Eastern Economic Review, delivers a similar critique of Iran.

The president has failed to deliver oil to the tables of the poor, he writes. “In fact, the unexpected oil bonanza has gone hand-in-hand with virulent and rising inflation, stubborn double-digit unemployment, further recession in the country’s industrial sector, and reportedly larger gaps in domestic income distribution. More troubling still, while oil prices are expected to remain at current high levels, the mid-term economic outlook for Iran presented by international organizations (eg, the IMF) and foreign private sources (eg, the Economist Intelligence Unit) -- show slower GDP growth, higher inflation, and larger unemployment in the next few years.”

Now here’s my question: If rising oil prices are not delivering benefits to people in these countries, what will their reaction be? In the past, both Chavez and Ahmenijhad have delivered nationalism when they couldn’t get their hands on the money. But these articles suggest even that is falling flat, and there’s nothing in the oil market that suggests that prices will start spiraling downward. So what will it be? Will leaders ramp up nationalist rhetoric further, trying to force a U.S. reaction? Will the rhetoric simply push prices higher? Will other power centers in Venezuela and Iran push their presidents toward another strategy, or push them off the stage altogether? Will other producers change their behavior? What is the cost of built-up frustration?

The only certainty is that we’ll pay if we don’t "get off" the angry shrug and come up with short-term and long-term plans to reduce oil consumption.