The Perfect Storm

The Middle East hiccups and we rush to the emergency room with oil fever. Even the thought of oil being choked off from that area of the world sends the price per barrel soaring and the stock market plummeting. For as long as I can remember, one U.S administration after another has called for a cogent energy policy that would reduce, and even eliminate, our dependence on oil from that area of the world. Instead, over the past several decades, our dependence has grown, rather than lessened. And that very dependence drives and constricts our foreign policy operations, often at the expense of our treasure and blood. The Middle East may be the tail, but it wags the alpha dog of world politics with ease. The question becomes, why have we allowed this to happen? The short answer is bad politics and bad policy. The longer answer is a bit more complex--a perfect storm of diverse interests and groups that have combined together to prevent true energy independence to emerge.

The most powerful business organizations in the world are the mega oil companies. They have invested billions of dollars in ensuring that the flow of oil from the Middle East continues. They are vertically invested, which means they have established a presence in each step of the way from the Middle East to the United States. They are heavily involved in the discovery and exploitation of the oil reserves in that area. They are heavily involved in the shipping of the oil from there to here. They own and operate the giant refineries in the United States and elsewhere. They are involved in the distribution and retail sales of the final products. At each step of the way, they make a profit. For example, a barrel of oil costing $100 will be refined into products worth $135 at the retail level. That is just at the refining and distribution end. They also charge $2.10 a barrel when they ship on their own tankers. (About 16% of the world’s tanker fleet is owned by the mega oil companies). They certainly share in some percentage of the profit at the well head, having cut deals with the Middle Eastern countries for exploration, discovery, and production. Simply put, the major oil companies have a huge vested interest in maintaining the status quo. With their billions in profits annually, they can buy influence in our government by the bag full. They also have an unwitting partner in maintaining the status quo. They are collectively known as “environmentalists.”

The environmental movement in the United States has paralyzed our ability to achieve any semblance of energy independence. They have fought successfully, tooth and nail, to prevent expansion of our nuclear energy capacity. They have prevented exploitation of our natural oil reserves both on land and on the coasts. In the name of a bogus “global warming” they are taking direct aim at our coal industry. And they are not just the Sierra Club, they have managed to infiltrate our government at the Cabinet level and are working hard to regulate the very air we exhale. Our country has vast reserves of oil that could be used to lessen our dependence on Middle Eastern oil. Huge fields of crude oil  in Alaska’s North Slope. There are vast amounts of trapped oil in the Dakotas and the western states. And as a bonus, enough natural gas to fuel our country for the next 100 years. But, in the name of environmental purity, all those resources remain locked up.

The last item of the perfect storm is inertia. Our infrastructure has been built around relatively cheap oil to fire up the industry and commerce of the United States. The internal combustion engine, running on gasoline and diesel cannot be changed overnight to allow the use of alternative sources of energy such as compressed natural gas, wind, and solar and electricity derived from those sources. For the foreseeable future, we remain dependent on oil, and lots of it, to drive our economy.

So there it is. The oil companies have a vested interest to keep things as they are. The Environmentalists have locked the gate to our reserves and thrown away the key. The infrastructure of an oil driven economy is like a super tanker—it takes a long, long time to change direction.

In the next article, I will discuss some ways to get us out of this mess. In the meantime, pray the Middle East remains relatively calm—if it boils over we are going to be looking at $5.00 gas and the shambles of economic recovery.

JP