Re: oil crises.

[DMS <dmschanoes@xxxxxxxxxxxxx>]

Guess what?  I miscounted.  Only used 4, so I have one more, you lucky stiffs..

>From JD:


Accumulation pulls up demand for energy and thus oil prices, as in the 1970s. This
is not due to OPEC, etc., except to the extent that OPEC and the like take advantage
of high demand conditions to try to grab a bigger chunk of the scarcity rents. This
is not due to long-term "natural" scarcity of oil as much as due to the
short-term inability to expand the quantity of oil supplied, given existing wells,
pipelines, etc. and the short-term inability to conserve on oil use. (In jargon,
both supply and demand are inelastic.)
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DMS:  But this is not what actually took place in 1973, 1979, 1990, 1999.  In 1973 the
price rise engineered after the Yom Kippur war also occurred after the absolute expansion
of the productive apparatus with the subsequent decline in the rate of return on investment
in the oil industry.  There was no shortage of extractable supplies.  On the contrary, it was
exactly the development of the means of extraction, depressing the rate of return, that created
the basis for the price rise.  Similarly in 1979, the price rise followed hard upon a period
of growth of  fixed assets, and the price rise triggered the drastic, draconian,
liquidation of those assets, across the board in oil, steel, etc.   The price jump in 1999 comes directly
after the price collapse brought forth by increased production and the drop in production costs
below the historic low of 1949.  The jump likewise occurs after the rate of return in the oil industry
returned to low single digits.  If OPEC didn't exist, the US would have invented it.  OPEC did exist
and the US still invented it, 3 times.
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JD:

All else constant, an oil crisis hurts the
profits of manufacturing and similar industries, which are largely based in the
richest capitalist countries. The division between oil-producing and oil-using countries
encourages the main reactions to the crisis.
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DMS:  Oil prices rearrange profits and price increases have strengthened the US at the
expense of Japan and Europe.  In addition, significant portions of developing country debt are
secured with oil revenues.  Citibank hit some big skids when oil prices declined after 1986 (but
not for that reason alone, the lost decade in Latin America had finally taken a little toll on
the bankers who destroyed the decade to begin with).
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JD

This crisis doesn't simply encourage longer-term exploration of new oil fields and
a move toward greater conservation (as in neoclassical stories). It also encourages
recession and other attacks on the working class in order to restore profitability.
The problem with the latter is that it prevents full adjustment of the oil market,
i.e. adjustment of supply and demand. The defense of old wasteful ways of using
oil -- as personified by the Bush administration -- also prevents demand-side adjustment
(conservation).
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DMS:  Actually, conservation had occurred.  The amount of energy, the amount of oil required
for each dollar of GDP had declined by approximately 30% from the 1973 mark (I think, don't
have my notes with me right now).  The proportion of IMPORTED oil used in that total energy
reduction INCREASED  dramatically.

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JD

In the period after an oil crisis, the various reactions combine to create over-production
of oil, of the sort that encouraged the oil "un-crisis" of 1986 (rapid
fall in the real price of energy). This is encouraged by the coming on-line of oil
that was discovered and/or exploited starting during the "crisis" period.
(There's a bit of a corn/hogs cycle here.)  As noted, low oil prices discourage
conservation (as with the renaissance of gas-guzzling cars in the US). It also encourages
the high-cost producers of oil to seek ways of restoring their fortunes (e.g, Iraq's
invasion of Kuwait). It also encourages the eventual recovery of accumulation, which
sends the system into another "energy crisis."
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DMS:  But Iraq is not a high cost producer of oil, having a cost of production approximately
equal to Saudi Arabia, the low-cost producer.  Iraq's costs are well below Russia's, offshore
deep and shallow water, North Sea, Brunei, etc.    Iraq's invasion of Kuwait was based primarily
on Kuwait's refusal to abide by its quota, and other actions taken regarding transportation that
damaged Iraqi revenues.
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BTW, I don't believe in a long-term "oil crisis" as a result of natural
limits. Instead, the natural limit comes from the pollution associated with the
use of oil and other hydrocarbons. Capitalism has a strong tendency to encourage
the dumping of costs on the environment and the avoidance of conservation. This
is encouraged by the cyclical crisis theory sketched above.

Jim Devine
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DMS: Agreed