Crude Oil As A Political Weapon

Soaring fuel price five fold causing the crackdown triggered anti-government protests led by Buddhist monks in Myanmar and President Bush says it’s time for American to end its addiction to oil, have shown clearly that the fuel producing nations appear to be ready to use oil as a political weapon and the seriousness key problem of the world.

Soaring energy spiraling out of control pushed oil country tubular goods prices up. Arguably, higher energy prices are unavoidable, and are needed to bring about the shift to conservation, higher efficiency and replacing by alternative energies. However, the sharp increase in oil prices over those years causes very serious immediate negative effects, not only for businesses with high production cost, but for low income families too.

People can take the bus or drive less in response to higher gas prices. It is interesting to note that household spending on private transportation tends to rise as a percentage of total spending as income increases, while spending on household energy costs tends to fall, and low-income households tend to rely more on public transit as well as household energy.

No one knows exactly what will happen to the consequences but fuel oil and natural gas prices are non stop soaring. Let's not forget that higher energy prices have already pushed the inflation rate to close to 5% causing the cost of factories and transportation increases.

The fundamental problem that some believe causes the large jump in price to rise are the remaining fuel will be more difficult to extract technically and therefore more expensive. The political turmoil and other reasons of instability in the countries of discovery are believed contribute to soaring energy price up.

Most of all, it is the oil speculation extending into the long term on the oil market is strongly believed the root causes of the soaring price up. Speculators foresee increasing demand, decreasing supply, leading to a long term increase in the price of oil.

The American with only about 5% of the total world population and 28% of global GDP in 2006 consumes about 25% of the world’s total oil production and 40% of the world’s gasoline production.

Initially, the world enjoyed cheap fuel. Cruel oil prices rose from US $2.50 in 1948 to $3.00 per barrel in 1957 and stable till 1970. But in real terms the price declined from above US $17 to below $14 per barrel is due to the weakness of the USD.

In 1972 the price of crude oil was about $3.00 per barrel but by the end of 1974, the price quadrupled to over $12.00. It is due to Yom Kippur War where Syria and Egypt attack Israel on October 5, 1973. The American and Western countries supported Israel caused some Arab exporting countries imposed embargo on them. Arab curtailed production by 5 million barrels per day represented 7% of the free world production.

From 1974 to 1978 world cruel oil prices were between $12.21 per barrel to $13.55 per barrel. During November 1978 to June 1979, the Iranian revolution resulted in the loss of 2 to 2.5 million barrels per day. When Iran invaded by Iraq in September 1980 caused the production of both countries maintain at a million a day, which is lessen by 6.5 million barrels per day. Thus both Iranian revolution and Iraq-Iran war caused cruel oil prices increased from $14 in 1978 to $35 per barrel in 1981.

OPEC was formed in 1960 but has never been effective at controlling prices. As a cartel, OPEC does not even have enforcement mechanism. From 1982 to 1985, OPEC attempted to set production quotas low enough to stabilize prices but failed as various members produced beyond their quotas. The price was below $18 by 1987.

The price spiked in 1990 with lower production but recover when Russian reduce in production and economic booming of US and Asian Pacific region. From 1997 to 1998 the Asia economic crisis and consumption declined, but in early 1999 price move above $25 per barrel.

The loss production in Iraq and Venezuela with OPEC increase production can not overcome the interruption supply from OPEC producers, in which a million barrels per day is not enough as a spare capacity.

The increase world consumption to over 80 million per day in 2005 causes the price to soar to $50 per barrel. By August 11, 2005, the price had risen to over $60 per barrel, over $80 and reached record high of $83.93 on September 2007.

Various factors attributed to this dramatic increased, including North Korea’s missile launch, Israel and Lebanon crisis, Iranian nuclear, reports of declining cruel oil reserve and emerging of China and India in increasing consumption of cruel oil.

Continuing soaring energy creates very serious immediate difficulties, not just for businesses with high energy costs, but also for low income households. It pushed tubular goods and cost of production up, consumer cries for cuts in fuel is understandably become more insistent. Businesses and families will have to make adjustment to this no end increasing trend. To search for the ways to diversify energy using is by far needed. Alternative energies like biofuels, solar, winds, nuclear power and others need to be developed and utilized like never before. Most importantly, the fuel producing nations appear to be ready to use oil as a political weapon needs to be addressed.