Swans Commentary » swans.com November 7, 2005  



Property, Privilege, And Oil


by Milo Clark





(Swans - November 7, 2005)  Government centers on property and privilege. In process, this focus takes many forms such as power, sex, and money. It takes many names such as aristocracy, monarchy, republic, democracy, Capitalism, Marxism, Socialism, or Communism. No matter what name or form, every inch given through one variant is ruthlessly clawed back by another.

Notice, for example, that current problems at General Motors, Delphi (its spun-off parts manufacturer) and other big American car manufacturers are being blamed on workers' greed for benefits, particularly pensions and health care. Ignored is that benefits are, in actuality, future payments taken from current wages. Ignored also are the greater billions paid out to investors in dividends, interest, and stock buybacks. As usual ask, who benefits? Follow the dollars.

In the once United States of America, a very wealthy patrician formerly governor of New York, through his New Deal policies during the Great Depression of the 1930s, successfully staved off revolution. He legislated benefits refused by property and privilege. Hated and reviled by his class, he saved property and privilege nevertheless.

Today, we see those who have been consumed by this hatred for more than 70 years ruthlessly clawing back New Deal concessions to restore property and privilege to their terms. (1)

To paraphrase novelist Ted Allbuery: There is a persistent dream that everyone can be happy. Politicians will right wrongs. Doing good will actually do good. Shaken awake, we see politicians whose only concern is power and personal privilege. We see that they run the country to ensure that privilege and property are protected. We see that capital is merciless and workers exploited. We see that we want to put things right but don't know how. We see all parties as exposed. Each as divided and corrupt as the others. We see labor and community leaders acting like propertied executives. We see workers demanding raises and benefits which will put others out of work. We see people going on being people, refusing to do what they don't want to do no matter how many times they're shown that it's better for them some other way. (2)

History abounds with apologists for property and privilege. Ayn Rand's name will likely pop to mind. Is it an accident that retiring Federal Reserve Chair Alan Greenspan cut his intellectual teeth on that lady's works?

Is it accident that good news for people is bad news for property and privilege?

A dazzling twist of history is the mythology around the collapse of the Soviet Union. We have a dramatic falling of the Berlin Wall in 1989 as only one example. Perhaps most heartening of the entire drama was the relative peace within which it happened. I still thrill at the massed clanging of keys in Prague's great square. "Let us free," clamored the key holders.

Another perspective is offered by strategic analyst and investment banker Matthew R. Simmons. (3) From his massive study of world oil business, focusing on the Mideast and keystone Saudi Arabia, Simmons adds new perspective.

The very close relationships between key Americans and the Saudi royal family led and lead, among other things, to pricing collusions of a most sophisticated sort. In the later years of the Soviet Union, oil exports had produced much of the hard currencies on which the communist state depended. At that time, according to Simmons's analyses, the Saudis were lifting a barrel of oil for considerably less than a dollar each. Then, they also had accessible reserves giving them production flexibility. For the Soviets, in contrast, lifting costs were in the $3.00-plus range.

By flooding the market, the Saudis drove prices down as low as $10/barrel leaving no operating margin for the Soviets. This price cut off hard-currency surpluses essential to the Soviet economy. Driving the Soviets down and out worked to solidify the Saudi dominance of world oil production and to further the political goals of their dearest American friends.

The vaunted Reagan arms buildup, in actuality, did little more than create profits for arms industry allies and reduce funds available to address domestic problems. Is there a pattern repeating itself?

Bared to essentials, we see that property and privilege are focused today on oil. Yet, we are warned that oil stocks may be finally working down and out. Those warnings take many forms. There are grand international conferences of talking heads posturing from myriad perspectives agreeing that there are problems needing addressing. We are exhorted to develop alternatives for which there are multitudes of advocates seeing property and privilege for themselves. The big energy companies have already bought out most alternative energy developers. Orwell's Animal Farm redux.

A form of analysis belatedly gaining favor is that of F. King Hubbert and known as the Hubbert Curve. An industry-respected geologist, Hubbert predicted in 1956 that US oil production would peak in the early 1970s. Reviled and hated for this prediction, he was nevertheless correct.

Devotees and students have applied Hubbert's formulas to world oil statistics. They conclude that world oil production is peaking now, 2005. (4)

Chevron has been running advertisements agreeing with this actuality and saying that we used the first trillion barrels of oil in 125 years. Chevron predicts that the next trillion barrels of oil will be used within 25 years. The clock is running on those 25 years. Time, according to Chevron, is of the essence.

The Bush administration in its first five years has taken minimal and grudging steps to deal with energy issues. Virtually all administration proposals are designed to benefit friends and associates in the contemporary oil and energy industry and to maintain mutual property and privilege.

Tick, tock, tick, tock, tick, tock...

The transportation equipment providers, especially automobile, light truck, and SUV manufacturers, are going full blast to design, build, and market fuel guzzlers, ever more powerful, ever more thirsty, ever more sexy in a brutish way.

The Energy Intelligence Group (EIG) is among many prestigious research organizations tracking the industry. They conclude based on the latest figures (which are from 2002) that world reserves total one trillion forty-six billion barrels of oil (1,046,000,000).

Put that estimate together with those from the Chevron advertisements. The next trillion barrels of oil will be used within 25 years. World reserves total about a trillion barrels. Therefore, within 25 years, there will be little or nothing left.

Note that Chevron also states we are already using oil about twice as fast as the industry can find new fields. And that demand is rapidly accelerating in newly developed or developing economies such as PRChina and India. It does not take a sophisticated analyst to see that accelerating demand against declining supplies has economic consequences.

Simmons tells us that Saudi Arabia's oil is about to pay out and the probability that replacements can or will be found is not attractive. Saudi Arabia's payout will take the world oil industry down with it. Whether house of cards, stacks of dominoes or Humpty Dumpty falling off the wall, all the king's men and all the king's horses will prove inadequate to the task.

Globalization apologist Thomas L. Friedman (5) sees some of these problem areas and suggests that America should set examples. "We have to be the best global citizens we can be. We cannot retreat from the world. We have to make sure that we get the best of our own imaginations and never let our imaginations get the best of us. . . . deep down the rest of the world envies that American optimism and naïveté, it needs it. It is one of the things that helps the world keep spinning on its axis. If we go dark as a society, . . . we will make the world not only a darker place but also a poorer place."

Friedman, to his credit, severely castigates Bush for making the world a darker and poorer place. Still, Friedman neither sees nor acknowledges that Bush spearheads the ruthless and relentless clawing of property and privilege to regain any crumbs scattered to the unwashed and underwashed.

Friedman adds, "There is no mother of invention like necessity, and only when falling oil prices force the leaders of the Middle East to change their contexts will they reform. People don't change when you tell them they should. They change when they tell themselves they must. . . . . Give me $10-a-barrel oil, (6) and I will give you political and economic reform from Moscow to Riyadh to Iran. If America and its allies will not collaborate in bringing down the price of crude oil, their aspirations for reform. . . .will be stillborn."

Sure, start more wars to take over Mideast oil and install democratic regimes. Since the March 2003 invasion, Iraqi oil production has declined despite $3,000,000,000 American tax dollars devoted to reconstruction, says The New York Times on October 27th.

Matthew R. Simmons has made his money by being an oil optimist working within the American and world oil industry establishments. In his epiphany, he burrowed deeply into data produced from within.

Members of the Society of Petroleum Engineers (SPE) routinely crank out prestigious papers published in SPE journals and presented at industry conferences. Simmons and his staff meticulously tore apart over 200 SPE papers focused on Saudi Arabia from 1960 to 2004.

Mixed against a foundation of other industry data and opinion, Simmons concludes that Saudi Arabia cannot meet the Aramco production expectations which essentially more than double current production from less than 9 million barrels per day (b/d) to more than 20 million. As it stands, the world's economies depend on meeting those goals.

He says, "A new reality is now taking hold. The industry is beginning to appreciate that advanced technologies, particularly extended reach, multilateral horizontal wells and hydraulic fracturing, are essentially turbo-charged straws designed to suck out the recoverable faster. . . . not miracle drugs that prolong field life and recover far higher percentages of the original oil-in-place. The concept of reserves appreciation resulting from technological advances may not be a myth, but it would seem to have narrower application than the industry has assumed." (P. 279)

". . . it now seems almost sure that Saudi Arabia could not grow its production by any significant amount. Yet every serious long term energy supply forecast still assumes that Saudi Arabia can boost its oil output to almost any level the world will need." (P. 284)

"Amidst these uncertainties, the only sure fact is that when Saudi Arabia's oil production peaks and begins to decline, it will take energy forecasters and policy-makers by total surprise. . . . While ignorance is bliss, ignoring the consequences of a peaking of Saudi Arabian oil will be far more dangerous than the scorn of many experts directed at the notion that U. S. Oil would peak in the 1970s." (P. 285)

Aramco, the Saudi royal family's personal oil company, of course, hates and reviles Simmons for this work. (7)

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1.  "House Panel Approves Medicaid Cuts:" October 25, 2005

WASHINGTON (AP) - A key House committee late Thursday approved a proposal to curb Medicaid spending by about $9.5 billion by the end of the decade, advancing a plan to slow spending on the federal government's health care program for the poor and disabled. The Energy and Commerce Committee voted a party-line 28-22 for the measure, over protests from panel Democrats who said Republicans were trying to cut the deficit on the backs of poor. . . .  (back)

2.  Ted Allbeury (1917-) wrote many novels classed within the espionage genre. See, for example, The Other Side of Silence, Ted Allbeury, Charles Scribner's Sons, New York, 1981, ISBN 0-684-17309-3.  (back)

3.  Twilight in the Desert, The Coming Saudi Oil Shock and the World Economy, Matthew R. Simmons, Wiley, Hoboken NJ, 2005, ISBN-13: 978-0-471-73876-3.  (back)

4.  See, for example: Beyond Oil, The View from Hubbert's Peak, Kenneth S. Deffeyes, Hill and Wang, New York, 2005, ISBN-13: 978-0-8090-2956-3.  (back)

5.  See, for example: The World is Flat, A Brief History of the Twenty-First Century, Thomas L. Friedman, Farrar, Straus and Giroux, New York, 2005, ISBN- 13: 978-0-374-29288-1. And his columns seen often in The New York Times.  (back)

6.  Quoted "September 2005 HBS Alumni Bulletin, p. 46" Simmons comments, "The price of oil and gas is going to have to go way up. Sixty dollars a barrel for crude oil is preposterously cheap for a scarce, invaluable, irreplaceable natural resource." He does not, however, believe that higher priced oil will bring down the world economies. Politicians, the handmaidens of property and privilege, will do it.  (back)

7.  Simmons notes, (p. xvi): "Saudi Arabia and other major oil-producing nations have refused for over two decades to provide data to verify and substantiate either their reserve claims or their production levels."  (back)


Internal Resources

Patterns which Connect

America the 'beautiful'


About the Author

Milo Clark on Swans (with bio).



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Published November 7, 2005