While the demonstrators that have mobbed the streets of Amman for two weeks now are demanding the overthrown of King Abdullah — a criminal offense in Jordan — it’s not the demand for democracy that sparked their protests. Instead, thousands of Jordanians have been spurred to act by a more basic issue: the rising price of gas after the government withdrew its subsidies.
Jordanians are hardly alone in their anger. Governments across the world are attempting to wean their citizens off subsidized fossil fuels —a critical issue which environmentalists say is a big contributor to the output of carbon gases that contribute to global warming, and which have even more immediately burdened public finances the world over by an estimated total of $523 billion last year — a 30% increase over the previous year. “In a lot of emerging and developing countries you see fuel subsidies, where the government is picking up the tab,” says Helen Mountford, deputy director of the environmental directorate for the Organization of Economic Cooperation and Development, or OECD, in Paris, which represents the world’s biggest economies. “In many cases it has been put in place to help support the poor.”
For decades, the price paid at the gas pump for most of the world’s drivers has had little relationship to the true cost of fuel. Massive government subsidies have allowed millions of consumers to pay a token amount, in some places mere pennies per gallon. Jordanians, as it turns out, pay about $3.33 a gallon for gas, but in oil-rich Venezuela, the price for premium gas is just 9 cents a gallon, while in Saudi Arabia it is 61 cents, according to Bloomberg rankings. Such subsidies have long been a key prop in the political survival strategies of authoritarian governments, while even in more democratic countries fuel subsidies have become an untouchable entitlement.
But fuel subsidies are becoming increasingly untenable as governments face mounting budget deficits in a weakening global economy, amid oil prices that have remained above $100 a barrel since 2010. Jordan lifted subsidies in order to secure a $2 billion IMF loan in the face of a $3.2 billion shortfall in a budget that devotes $2.3 billion annually to subsidizing fuel and other basics.
‘We Consider Energy To Be A Human Right’: Would the Iraq war have happened if Saddam’s main export wasn’t oil?
Would the Iraq war have happened if Saddam’s main export had been broccoli instead of oil? Martin Eiermann talked to the Swiss energy expert Daniele Ganser about the Nobel Peace Prize, resource wars, and the role of private businesses in facilitating peace.
Ganser: No. I was very irritated by the decision. Alfred Nobel explicitly formulated the criteria for the prize in his last will, stating that it should be awarded to the person who has done the most in the preceding year to bring about peace. I just re-read that passage: The aim of the prize is to show that a single individual can indeed make a difference. That is important, because many people feel powerless and think that one person can’t contribute to world peace anyways. But that’s evidently wrong. Recipients like the Dalai Lama or Dag Hammarskjöld are great role models. The EU isn’t, because you cannot identify with it on a personal level: It’s a bureaucratic union, not a charismatic individual. Power is concentrated at the top, away from the citizens who lack almost any say in decisions about the transfer of billions of Euros between different countries and interest groups. It’s true that the EU contributed to peace after World War II, especially peace between Germany and France, and that’s a valuable legacy - but it’s insufficient for the Nobel Peace Prize. Because it’s also true that Great Britain invaded Iraq in 2003, that France bombed Libya in 2011, and that Germany, Italy, Denmark and other European countries deployed troops to Afghanistan. The CIA maintained secret prisons on European soil in cooperation with different European intelligence agencies. We rarely talk about those chapters of our recent history! 2009, the Nobel Peace Prize was awarded to Barack Obama, which was equally irritating, since Obama was presiding over a war in Afghanistan.
The European: Europe’s problem today seems to be the precariousness of social peace rather than inter-state peace. Can we at least deduce certain calls to action from the Nobel prize?
Ganser: I think the hope of the Nobel Committee was to maintain peace in Europe. The prize was awarded just a few days after Angela Merkel visited Athens, where it was evident that tensions run high. 7000 cops had to protect Merkel from angry protesters. Many people recognize that the power of nation-states is shrinking within the EU. The common currency means that the Greeks, for example, cannot simply devalue their currency. I’m from Switzerland, and I’m somewhat critical of the EU because it doesn’t include direct democracy and instead vests power in international bureaucrats like Mario Draghi, the head of the ECB. The fiscal union that is now under consideration would strip national parliaments of their authority over fiscal and economic policy. It would be the capitulation of national parliaments.
The European: You also warn against the danger of high oil prices. Why are you worried?
Ganser: First, we should remember that a barrel of oil used to cost much less in the 1950s and 1960s than it does today: Two dollar or less per barrel. It was almost free, and the expansion of the car industry - for example - was based on the premise of cheap oil. Now we’re facing a situation where the price of oil has fluctuated tremendously between 2000 and 2012: From ten dollars to 140 dollars, down to 40, and back up to 100. We know that a high oil price can lead to an economic recession.
The European: How can we make sense not only of the drastic rise in oil prices, but also of the fluctuations?
Ganser: Two things caused the fluctuations. First, the so-called “fundamentals”, like a shifting balance between supply and demand. The two biggest oil producers in Europe, Norway and Great Britain, have reached their peak and now drill less oil every year. The same is true for Mexico and Indonesia. In the US, annual oil production varies, but it won’t ever be as high again as it was in 1970. The supply is drying up. The newest solution is to drill from the deep ocean or from oil sand. Shell has announced to exploit oil reserves in the Arctic. The trend is clear: We must drill from sites that are harder to reach and more expensive. The second cause is the loss of value of the US dollar. When the dollar drops, oil producers for example from Saudi Arabia will demand higher dollar prices per barrel.
The European: Several recent studies about global food prices concluded that a significant percentage of the rise and fluctuation of commodity prices was driven by speculation, not by supply and demand. Does the oil market exhibit a similar trend?.
surprising is the country that increased its consumption by the second-largest increment: Saudi Arabia, which upped its oil-guzzling by 1.2m b/d. At some 2.8m b/d, it is now the world’s sixth-largest consumer, getting through more than a quarter of its 10m b/d output.
a philosopher once said “don’t get high on your own supply”, yet it seems the problem is endemic :
Saudi Arabia is not the only oil-producer that chugs its own wares. The Middle East, home to six OPEC members, saw consumption grow by 56% in the first decade of the century, four times the global growth rate and nearly double the rate in Asia (see map).
Energy use per head is also rising. According to BP, in 1970 in the Middle East it was half what it was in other emerging markets. By 2010 it was three times higher. Global oil consumption stayed at roughly 4.6 barrels a head annually between 2000 and 2010, but the average Iranian and Saudi was getting through roughly 30% more by the end of the decade. The Saudis consume 35.1 barrels each. Overall energy consumption per head, at 7.3 tonnes of oil equivalent, is roughly the same as in America (see chart), which is much richer.
the question becomes - can a country like Saudi Arabia continue to consume at the rate of much richer nations - can it be ‘ghetto wealthy’ ?
..another issue sure to arise is - what happens in the future when the inevitable march towards equality means more and more women driving on Saudi roads, consuming more and more Saudi oil that in the past would have been exported on the world market :
Saudi Arabia has the cheapest fuel in the Gulf and dirt-cheap electricity, too. This has alleviated poverty but it has also encouraged an American-style driving culture (for men) and limited public transport. Only a third as many Saudis own cars as Americans; as they get richer many more will take to the desert highways.
oil subsidies play on a larger scale than just U.S. electoral politics :
Many oil-producing countries (including Saudi Arabia) have pledged to cut subsidies. But this is hard to do when regimes are terrified of unrest (and often unelected). Violent protests greeted Nigeria’s attempts in January to raise the price of imported petrol. Only Iran, which had the most generous subsidy regime, has managed a big price hike—and it had a handy scapegoat in the form of sanctions.
every nation at some point seems to make this mistake - chasing ghosts past graveyards :
Saudi Arabia is trying to develop nuclear and solar energy…..This puts big strains on oil markets. In the short term Saudi spare capacity is an important factor in oil prices. As the year progresses seasonal Saudi demand is likely to jump. Last year the upswing between March and July was some 750,000 barrels of fuel a day, according to Barclays Capital. Much of that will be driven by air conditioners working overtime. This will put pressure on the country’s ability to maintain exports and keep oil prices stable.
(the fact that sovereign energy concerns still focus on energy production and not energy efficiency is exactly why we cant come to a global energy consensus)
the story remains the same, but the consequences are looming:
The longer-term picture is equally worrying. Global demand for oil is projected to rise to over 100m b/d by 2030. The Gulf states of Saudi Arabia, Iran and Iraq, which have vast and easily accessible reserves, are regarded as the obvious sources of new supply. But Iranian oil production will decline as sanctions bite and the country loses access to equipment and expertise. Iraq, currently producing 3m b/d, has the reserves to increase production significantly. But fragile politics, dodgy security and a battered oil infrastructure are deterring the investment required to boost supplies. And Saudi Arabia’s thirst for its own oil shows little sign of abating. The Gulf is usually seen as the answer to the world’s oil problems, but it looks ever more like a question-mark instead.
The culture of Alaska tends toward optimism. If this has something to do with the people who live there—now as ever a conglomeration of migrants, idealists, last-chancers, and get-rich-quick schemers—it also owes much to the state’s modern history. Alaska achieved statehood in 1959 in a kind of noble but dubious experiment: hobbled by geographic isolation, a near-absence of development, and a forbidding climate and landscape, the Last Frontier had no serious economic prospects to speak of. Then, nine years later, geologists found the largest known oil reserves in North America on the state’s North Slope, at Prudhoe Bay. By the time the 800-mile TransAlaska Pipeline System was completed, in 1977, connecting the North Slope to the southern port of Valdez, oil prices had spiked beyond all modern precedent. Alaska, only recently removed from its benighted territorial past, had become one of the richest states in the union.
But Alaskan optimism has its limits, and one morning in July, I went looking for them, driving out of downtown Valdez on a two-lane road that hugs the forested coast of Prince William Sound. The view was something out of a cruise-ship brochure: cottony skeins of fog caught on the tops of spruces, bald eagles picking through driftwood on the beach, a grizzly bear nosing around in the tall grass near the road while her cub stood on its hind legs sniffing the wind. Five miles, one background check, and one Secret Service-grade vehicle inspection later, a gate rumbled open and there it was: the end of the TransAlaska pipeline, the place where Alaska now enjoys the unique discomfort of watching its good fortune dripping away in real time, barrel by barrel.
The consortium of oil companies operating the drilling rigs off the Arctic coast has pumped some 12 billion barrels of oil from Prudhoe Bay. In 2007, a little more than 4 billion barrels were estimated to remain. Production is now a quarter of what it was in the field’s prime, when the Valdez docks received as many as 88 oil tankers a month; now they’re lucky to get one a day. The holding tanks in Valdez used to contain oil warm enough (it comes out of the earth at a steamy 110 degrees) to melt the 25 feet of snow that fall on their broad roofs each winter. But oil cools more quickly in an emptier pipeline, so in recent years, workers have had to scale the tanks with climbing harnesses and saws to carve off the snow in refrigerator-size blocks.
“Are we in a desperate position yet?” said Dave Cobb, Valdez’s mayor, when I visited him in his office earlier that morning. “No. But we need to be cognizant of what’s coming.”
“THE president holds the key to addressing the pain… at the gas pump,” said John Boehner, Republican Speaker of the House of Representatives, in early April as petrol prices approached $4 a gallon. “My question for the president”, he continued, “is: what are you waiting for?” For the right moment, perhaps. Since April petrol prices have fallen more than 50 cents, or almost 13%. The trend is expected to continue; prices could dip to near $3 a gallon this summer, the lowest level since January 2011, well before the turmoil of the Arab spring.
Despite angry Republican rhetoric, the president has little control over prices at the pump. Credit for the surprising recent turnaround in petrol costs rests mostly with the market for crude oil. American petrol prices closely track trends in the benchmark cost of Brent crude, which sank from nearly $130 a barrel in March to just over $90 a barrel now, a 28% decline. Oil prices feed through to petrol costs, with a lag. Continued falls in crude prices in recent weeks explain why further drops in petrol prices are expected.
Cheaper oil, too, is the result of factors far beyond Mr Obama’s reach. A small share of the recent tumble—about five percentage points’ worth—is domestic in nature, but even so it is not a result of government action. In May, Enbridge, a Canadian company, reversed the flow of a big North American oil pipeline, sending a glut of oil from America’s northern plains southward to coastal refineries. Yet the lion’s share of oil-price weakness is a by-product of an increasingly shaky global economy. With the euro zone in recession and growth flagging in America and China, the world’s three largest consumers of oil are buying less of it than expected in early 2012
IT WAS clear a couple of years ago that the world’s big container-shipping lines were sailing into a storm too big to steer around. Back in the mid-2000s, when world trade was booming, they had ordered fleets of huge new boxships, only to take delivery of them during a downturn. This led to overcapacity, and an all-out price war in 2011, as container lines sought to fill their new ships and defend their market share.
To make things worse, oil prices were soaring despite the weak world economy, adding greatly to the shippers’ running costs. Having made combined profits of around $7 billion in 2010, the container lines slumped to losses of about $5 billion in 2011. So, faced with the prospect of sinking further under water this year, the shipping lines began idling or scrapping older vessels. They also ordered their captains to begin “slow steaming”: cutting their speeds to save fuel.
Then, in December, several new alliances were announced. Rival lines agreed to share space on board their vessels, allowing them to idle more of their surplus ships. Two of the biggest lines, MSC of Switzerland and France’s CMA CGM, bunked up together. Two earlier tie-ups, each involving three lines, were spliced into a new group, G6, bringing together firms from Japan, South Korea, Hong Kong, Singapore and Germany. And Taiwan’s Evergreen line said it would co-operate more closely with CKYH, an East Asian alliance that includes China’s state giant, COSCO.
President Obama called Tuesday for stepped-up oversight of oil markets, plus tougher penalties on trading firms caught trying to manipulate energy prices.
He asked Congress to provide more funds for regulators to monitor commodities trading and pursue rogue activities by investors. He also called for a tenfold increase in penalties when violations are found, and for those penalties to be levied for each day that manipulation persists, rather than for each general instance of manipulation.
The president also said Congress should grant new authority to the Commodity Futures Trading Commission (CFTC) to raise margin requirements on traders, in a bid to reduce market volatility and to ensure that investors can make good on their trades.
His appeal comes with US gasoline prices edging toward $4 a gallon, and with many voters citing high gas prices as a top pocketbook concern ahead of November’s presidential election. Currently the price of regular gas is $3.90 per gallon, according to AAA’s Daily Fuel Gauge Report.
s U.S. sanctions on Iran tighten and gas prices reach record levels, it is becoming more likely that a release of oil from the U.S. Strategic Petroleum Reserve is in the works. Yet analysts aren’t convinced tapping the SPR is a good idea.
Administration officials said Friday that reserves from the SPR were taken into account when they determined that oil markets could handle the loss of Iranian oil.
Even before the tighter sanctions were announced, there was talk the administration was working with European countries on a plan to tap oil reserves in both the United States and Europe. The rumors have already pushed global oil prices down slightly, although they remain over $120 a barrel.
Still, analysts are skeptical about what impact tapping the SPR would have on prices.
They note that in the past it has been small and short lived. They also say that the reserves are intended to cover events that produce actual shortages of gasoline at U.S. service stations, like what could happen in a full-blown conflict with Iran. Reserves were not designed to bring down prices in a jittery market.
“Only physical supply interruptions merit a draw,” said Kevin Book, managing director of research at ClearView Energy Partners. Rising oil prices over the last couple of months are a sign that things with Iran could get really bad, and that “we shouldn’t be burning our safety net in our gas tanks.”
The crisis in Iran is remaking the global energy landscape. Instead of relying on oil from the Middle East, China has embraced Russia as its new supplier of fossil fuels - and has propelled the government in Moscow into a position of strategic importance.
In the oil industry people seldom talk about oil prices: there is oil and oil. Some oil is better; better to treat, better to refine, better to make costly products, like kerosene. Other oils generate lots of by-products and are costly to handle and refine. In general, one could say that the “Brent” oil blend, the one that is normally produced in Europe and in some parts of the Middle East, belongs to the first category. The “Urals” blend is more likely to belong to the second category. One could also expect that the Brent is priced more expensively than the Urals, and indeed it has always been so. But lately it has been different; for the first time, the pricing of the Ural blend was higher than other, better blends. Why is that?
We can use oil barrels as a thermometer of international relations: China has decided to buy up more Oil from Moscow, and cut the supply from Iran. Somehow, this is a realization of what the analysis in this column suggested on February 15th: The solution for the atomic standoff with Iran had to be found in the East.
So China seems to have agreed to turn its back to Iran.
This decision has global consequences: Beijing used to be the top buyer of the Revolutionary Guards’ Oil, soaking up some 20% of Iran’s total oil exports. That money now goes to the Kremlin. In addition to Russia, the Saudis are also enjoying the new Chinese shopping spree: Riyad increased its production by 200,000 barrels per day, with much of the additional oil being shipped to Asia. The scenario is clear: In order to convince China to reduce its support of Iran, there has been an international agreement to supply the Asian giant with additional shipments of hydrocarbons from somewhere else.
This new arrangement also rehabilitates Russia as a supplier of energy security. We can take issue with the country’s domestic democratic record; and much has been said about Moscow’s passion for choking up European gas pipelines now and then. But recent events indicate that some of the energy-related criticism might have been undeserved. The increased oil sales to China are an example of Russia’s role as a guarantor of global energy security.
The most important news out of the Middle East is not the Hamas-PA Agreement 4.0 (or 5.0 or 6.0, who can remember?). For various reasons, it doesn’t seem likely to work (you can read Robert Danin here on some of the difficulties). Nor is it the “very productive meeting” Russia’s foreign minister held in Damascus with the blood-soakwd Assad regime. Nor is it even news that the World International Zionist Organization is apparently promoting pornographic Purim costumes (hey, I aggregate — you decide). It is, instead, this announcement from Prince Alwaleed bin Talal, that Saudi Arabia will not allow the price of oil to rise about $100 a barrel:
“We can use our leverage, our excess capacity to be sure to pump more [oil] if needed so it will not impact the consumer countries while they’re getting out of their recessions slowly but surely,” the prince said.
As for Iran, he said it is important for the U.S. and other nations to put sanctions on the “renegade country” to force its government to negotiate. Issuing an ultimatum of war would push Iran to the “desperate move” of blocking the vital oil shipment waterway.
Why is this so important? Because it clears the way for an Israeli attack on Iran’s nuclear facilities. I’m not suggesting coordination between Israel and Saudi Arabia on this, any more than I would ever suggest that Superpacs coordinate with presidential campaign staffs. I’m merely noting that one factor that inhibits Israel from striking at Iran is fear that an attack will cause Iran to retaliate against Persian Gulf shipping (among other things), which would cause oil prices to skyrocket, which would, of course, generate a fair amount of anger directed against Israel.