Guest Post

Oil and Economics

By Paul Rendine

We’ve been focusing on the political turmoil in the Middle East and North Africa almost to the exclusion of what that situation has done and will do to the U. S. and European economies.   After it was widely reported in just the past 10 days that there was now credible evidence that the al Qaeda/worldwide Jihadist and Muslim network – using their own computer and nefarious cyber skills – may have begun and made worse at almost every turn the financial crisis of just over two years ago that came very close to bringing the economies of the West almost to their knees.

While it may be too soon to postulate that now, there is a growing perception that this same type of network may also be behind much of the unrest across the Mediterranean, North Africa, and the Middle East crescent, with unrest now focusing in Libya, a major supplier of oil to Europe.  The goals of that “unrest” appear to be lulling the west into a false sense of security with the belief that those factions that come out on top will be more “moderate” relative to the way that they relate to them, while pushing the price of oil up in another attempt at negatively impacting the west’s economies, who are slowly recovering from the financial crises of the recent past and are now still quite fragile.  While I’m not one to see a conspiracy theory behind every tree, I am one who does believe that, “Where there’s smoke, there’s fire.”

For too long, we have significantly underestimated the educational, intellectual, and organizational skills of the extremist Muslim network, preferring instead to view those extremists in the ways that the world’s (and our own) media want us to; i. e., poor, uneducated, uninformed, easily manipulated by their own “leaders,” who almost always only move in easily fomented mobs.   It would do us all well to understand who our enemy’s leaders are.  Most have advanced degrees in engineering, the computer sciences, economics, the sciences and mathematics, medicine, etc.  In particular, there seems to be a cultural knack for dealing with, manipulating, managing, and using computers and cyber-systems to their advantage.

In particular, nowadays, if you have a hardware, software, or other computer question, the toll free customer service number you are given to call will almost always go to a “tech” in India, Pakistan, and now the Philippines.  Surprisingly, at least to me, I’ve read in some of the latest cutting-edge computer periodicals that most of the really bad computer “viruses” actually originated in Pakistan, with more now coming from the Philippines.   As corroboration, we already know how ahead-of-the-curve the Japanese have been in the development of “good” consumer electronics.  We Americans no longer have – or had – the big lead we thought we had in computers, digital technology, etc.

Now, looking at the economics of the Mediterranean, North Africa, and Middle Eastern crescent states – while adding those issues to the politics at work – we see the following:

1.   The price of oil on the world markets has now risen to well above $100 per barrel, with the price of a gallon of gasoline in the U. S. rising to well above $3.42 per gallon in many locales to almost $4.00 per gallon in Southern California, for example.

2.   Any number of forecasters is now suggesting that $140 per barrel for oil in the short term, with $4.30 to $4.50 per gallon for gasoline, may be what to expect over the near term.

3.   In Libya, Barclays Capital estimates that as much as 1 million barrels per day of production has been shut down so far. In January, Libya produced almost 1.7 million barrels per day of oil and natural gas liquids, with most of those production losses being felt mostly in Europe.

4.   Most economists today are suggesting that the U. S. economy can probably absorb the price of oil over $100 (but not by that much) and still keep expanding.  The problem arises when the price of a gallon of gasoline – now expected to rise to about $3.75 later this spring – begins to raise prices for everything from food, production costs, etc., while clearly affecting those who work in lower-paid jobs.

5.   Rising oil prices have pushed jet fuel to just over $3 a gallon. Fuel accounts for roughly one-third of the budget for U.S. airlines, up from less than one-fifth a decade ago. Most analysts suggest that, if jet fuel rises above $3.20 a gallon, the whole industry will be challenged to stay profitable.

6.   Sustained oil prices above $100 a barrel will threaten European economies, many of which are net importers of oil and gas, and haven’t fully recovered from the financial crisis and face heavy debt loads. Spain and Italy, for example, where gas at the pump already goes for well above $8 a gallon, face years of a slow, grinding recovery. Another spike in the price of oil and gasoline would deal their economies a significant setback.

7.   Pricier oil and gasoline will also push up inflation in Europe, where it already exceeds official targets, and in countries with surging food prices, like China, Brazil and India. Those countries would then have to raise interest rates to cool inflation.  In turn, this would also slow growth in Latin America and Asia.  Can you spell WORLD recession?

On the bright side, an ensuing domestic and worldwide devastating recession, made worse by rampant inflation, gas lines, odd/even days, high food prices, $7.00 a gallon for gasoline, etc. might actually refocus our real attention away from the continuing Charlie Sheen saga and more toward: opening up our own well known and substantial oil and natural gas reserves; REALLY cutting REAL U. S. government spending NOW; having the “greens,” tree huggers, and Sierra Clubbers, etc. wake up to allow the U. S. to exploit our energy reserves for the good of all of us, not just their selfish and narrow-minded desires; and all of us might even start to work together as AMERICANS, not labor, management, liberal, conservative, black, white, young, old, man, woman, and even politicians, etc. etc. etc. etc.

If we can’t, we might all just as well call Rosetta Stone and learn how to speak Mandarin Chinese.  By then, the mainland Chinese will have probably bought us anyway, and for cents on the dollar, too.