Oil Crisis
...
is the world about to be shocked?

by Chris Cumming

 

Much has been written about the possibility of the world running out of oil. People are speculating as to why the increase in oil prices and how high the demand for oil will push the prices. Could the price of oil go over fifty dollars per barrel or even as high as eighty dollars per barrel? Perhaps such things as increased demand, terrorism, oil worker’s strikes, destructive storms and even the prospect of inadequate reserves be accountable for increases in oil prices. Ultimately fear of the future and runaway speculation in the commodities market is driving prices up. There is also the prospect that competition among the world’s superpowers could lead to world war.

 

In the past several weeks, news stories warning of an impending oil crisis have been on the increase.  Take a look at just some of the headlines published between July and September of this year:

  • 'Oil Shock' Has Some Economists Worried

  • China and Japan's oil rivalry unavoidable

  • Skids are Greased for Oil Crisis

  • China Faces 250 Million Ton Oil Shortage by 2020, Oil News Says

  • Spiking oil prices threaten U. S. economy

  • Oil's $50 psychological barrier in sight

  • Oil worries hit Euro stocks

  • Murdoch warns of oil crunch on US

The disturbing aspect of these news reports is the increasing number of factors being pointed to as definite or probable causes of the crisis.  Each analyst sees a different primary cause.  Fact is, many, if not all these factors could easily combine to bring about economic collapse around the world and even war, as military powers scramble for strategic advantage.  To show this, let us enumerate these factors and establish what each analyst is asserting.

 

Higher Demand:

German Foreign Policy: "According to estimates by the EU commission, the oil and gas reserves of the EU and Norway will last only another 25 years. Two thirds of the demand for oil and gas must currently be covered by imports. The current dependency on imports of 75% of oil from the OPEC states, could increase to 85% by the year 2020."


Stanley Reed
:
"The spurt in demand from China, the U.S., India, and elsewhere has caught just about everyone unawares."

Bloomberg: China may face a shortage of 250 million metric tons of crude oil by 2020 as local production may meet only 44 percent of demand, China Oil News said, citing a Xinhua news agency report. China's consumption of crude oil may reach 450 million tons by 2020, with local output at 200 million tons, the report said, citing Chen Geng, president of China National Petroleum Corp. The country's demand for gasoline, diesel and kerosene may total 260 million tons by 2020, the report said.

Dwindling Supply:
David Olive: "A nasty combination of political hurdles, arguably misplaced Big Oil priorities, stunted conservation efforts, and unanticipated soaring demand from China and the Indian subcontinent is conspiring to bring on a full-blown crisis.

"Without a meaningful increase in investment to develop new energy sources, the world could face a severe supply shortage by 2020, British energy consultant John Westwood of Douglas-Westwood Ltd. told the Wall Street Journal last month."
 

Brad Foss: "With so much uncertainty roiling oil markets these days, analysts say one thing is clear: The world's supply cushion is perilously thin. If world demand continues to rise, don't expect cheap prices anytime soon, analysts said."
 

Increased Costs:

Elizabeth Sullivan: "Carl Larry, a senior energy analyst for Barclays Capital Inc. in New York, thinks the days of below-$30-a-barrel oil are gone forever - and the days of $50 or $60 a barrel may be coming."

Media Corp News-Asia: " 'There is a strong possibility we could see 50 (dollars a barrel) tomorrow,' said Alaron Trading analyst Phil Flynn."
 

Michael E. Kanell: " 'The real issue is is not whether oil gets to $50 a barrel or not,' said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. 'The issue is how long it stays there.'"

Competition Among Military Powers:

Zhang Kexi:–China & Japan:  

"Rivalry for energy, especially oil, between China and Japan on a global scale is unavoidable.

"From a Japanese perspective, the emergence of a strong and prosperous China is not a pleasant thought. Although Japanese Prime Minister Junichiro Koizumi has repeatedly said that a strong China is an opportunity instead of a threat, many Japanese politicians still view China's development as a danger and the biggest obstacle to Japan's aspiration for regional dominance.

"Perhaps the biggest reason why China and Japan are competing over energy is because these big consumers are heavily dependent on other countries and regions for oil.

"For resource-poor Japan, increasingly tight international energy markets coupled with soaring oil prices because of increased consumption is a nightmare.

"Therefore, at least on the issue of energy, the national interests of China clash with Japan's, so the latter looks at China as a competitor. Inevitably, Japan will compete with China for oil around the globe.

"When it comes to the issue of energy, Japan's media have shown a remarkable insight into the fierce competition for oil between the pair.  In the Asahi Shimbun on July 7, Funabashi Yoichi, a famed Japanese political analyst, said that by working closely with Russia and the Middle East to secure it crude supplies, China had adopted the opposite approach to Japan's passive energy development attitude.  An era of real oil rivalry between Japan and China is just around the corner, he said."

 

German Foreign Policy:–US and Europe:  "Generally, the energy policy advisers to Berlin's government assume that, in the future, Germany and the EU will have to assert themselves in a more intense competition for such strategic resources as oil and gas. They say that, in view of the potential increase of the EU's dependency on larger oil and gas imports from the Middle East and the Persian Golf, its own interests are already in ,,some conflict with American energy policies." 

Instability in the Middle East:

Geoff Elliott: "The danger is in the Middle East exploding - such as a revolution in Saudi Arabia or somewhere like that - and then you've got oil going $US80 a barrel."

David Olive: "If a collapse of the Saudi regime removed the country's supply from world markets, even temporarily, 10 per cent of global output would vanish." (Martin Wolf of U.K.'s Financial Times)
 

"The political uncertainties radiate outward from Riyadh. In Iraq's botched occupation, saboteurs have prevented the world's No. 2 nation in oil reserves from returning even to its prewar output of 2.5 million barrels per day, with the White House's promise of a quick ramp-up to 6 million barrels per day now regarded as a distant dream."
 

Market Speculation:

Nell Henderson and Justin Blum: "Benchmark U.S. crude oil for September delivery closed at $48.70 on the New York Mercantile Exchange yesterday (19 August) -- a record since trading began in 1983 -- after surpassing $47 per barrel the day before and exceeding $46 per barrel for the first time on Friday. 'The speculators have totally, totally run away with this market,' said Fadel Gheit, senior energy analyst with Oppenheimer & Co. 'It is no longer driven by any resemblance to sanity or fundamentals.'"

Low Production Capacity:

Elizabeth Sullivan: "A number of major oil-producing nations have lost capacity or face instability threatening output, including Indonesia, Venezuela and Nigeria."

Reserves Drying Up:

David Olive: "We're running out of oil and natural gas; they're non-renewable resources, and the rate of discovery of so-called 'elephants' has been on the decline for decades since the halcyon days of Alaska's Prudhoe Bay and the North Sea. Worse, the more recent discoveries have been made in some of the world's most remote and politically unstable places — among them, Nigeria, Sudan, Russia, Indonesia and the former Soviet republics of central Asia.

"The critical issue is how soon will the oil run out? It's estimated that we've already exhausted about half of the original 2 trillion barrels of oil on Earth, which is a bit alarming given the relatively primitive state of global industrialization in the early decades of oil exploration. We're sure to run through the remaining half of the Earth's oil endowment much faster, especially with the emergence of China, India and other developing world nations as dynamic, oil-hungry economies."

Terrorism:

Elizabeth Sullivan: "The potential for Middle East terrorists bent on bringing the West to its knees is sobering."
 

Sankar Sen: "Well-known security experts like James Woolsey (a former head of CIA) is of the view that a well coordinated attack by terrorists, some of whom may have infiltrated into the Saudi oil infrastructure, may cripple the system and substantially reduce the flow of oil. This will create a terrible oil shock with unforeseen consequences."

Nell Henderson and Justin Blum: "Oil prices have been climbing for months because of rising global demand and fears that supplies could be disrupted by terrorist acts in the Middle East."

Destructive Storms:

Media Corp News-Asia: "World crude prices rose, supported by concerns over Hurricane Ivan's potential impact on Gulf of Mexico oil operations and disappointing US inventory data."
 

Pending Threat for the US?

What will it mean for the US should any of these elements actually unfold?  Again we can go to our analysts:

 

Nell Henderson and Justin Blum: "Rapidly escalating oil prices will trigger a self-reinforcing spiral of falling demand in the U.S. economy and among its trading partners. 'The economy is near its tipping point,' Stephen S. Roach, chief economist for Morgan Stanley, said yesterday. He said the nation would likely fall back into recession if oil prices hover near $50 a barrel for three to six months. 'This is an oil shock, absolutely,' Roach said, noting that yesterday's closing price was 68 percent higher than the roughly $29 per barrel average that had prevailed since early 2000. 'The oil price is high enough to make a real difference to a vulnerable US and global economy.'"

 

Geoff Elliott: "Rupert Murdoch, chairman and chief executive of The News Corporation Limited, has sounded a warning about the effect of oil prices on the world economy and said that if they go much higher it would 'crunch' the US economy."

 

Add to this Garner Ted Armstrong's prediction of economic collapse for the US if OPEC switches from the Dollar to the Euro.  If this happens, it will spell disaster for the US economy. In fact, this has already become a reality.  I will cover this in some detail in my next Word from commentary, "The Euro...The New World Currency?"

 

As we go to press with this commentary, a breaking news article has come to our attention:

 

Oil's slippery slope
By Pepe Escobar

"Many factors explain the current rise in the price of oil toward US$50 a barrel - and counting: incapacity - or unwillingness - of the Organization of Petroleum Exporting Countries (OPEC) to respond to growing global demand; maximum terrorist risk in Saudi Arabia; the Yukos saga in Russia; the recent referendum in Venezuela; ethnic trouble in Nigeria; China's unquenchable oil thirst; widespread speculation frenzy propelled by pension funds; and serial pipeline bombing in Iraq."

Later in the article we read:

"In euros, please
"From an American perspective, the need to control Iraq's oil is deeply intertwined with the defense of the dollar. The strength of the dollar is guaranteed above all by a secret agreement signed between the US and Saudi Arabia in the 1970s that all OPEC oil sales be denominated in dollars. Saddam Hussein started selling Iraqi oil in euros (and making a handsome profit) in November 2000 - and that's another crucial reason for the Iraqi invasion. Many OPEC countries, not to mention Russia (President Vladimir Putin already referred to it on the record), flirt with the idea of trading their oil in euros. (OPEC is made up of Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.)

"A recent analysis published by Goldmoney states that OPEC has already switched, in fact, to trading oil in euros - as oil-exporting countries fight to offset the weak dollar, 'It seems clear that OPEC and the other oil exporters are already pricing crude oil in terms of euros, at least tacitly. Whether they start invoicing their crude oil sales in terms of euros remains to be seen.'"

 

Remains to be seen, indeed!!  If oil goes over $50 a barrel AND oil-producing countries begin "Euro invoicing" or demanding payment in Euros, we could easily see the utter destruction of the US economy, which would result in our losing Superpower status literally overnight!
 

Our "Word from" staff will continue to monitor these many elements as they unfold.

 

Breaking News Stories
Go here for the latest news stories on this subject. –news story added 6 January 2016

Resources: OPEC member states 

Further reading:
See Word From, "Iranian Oil Exchange ...Declaration of War?
See Word From, It’s All About Oil

See Word From, "Will OPEC Bankrupt The US?"  
See Word From,
"Is A GLOBAL ECONOMIC MELTDOWN UNDERWAY?"

See Word From, "Global Financial Meltdown...Now Near?"

See Booklet, "Long-Term Economic, Political, And Religious Impact Of War With Iraq"

Books:
The Party's Over: Oil, war, and the fate of industrial societies » By Richard Heinberg. 2003.
Hubbert's Peak: The impending world oil shortage » Kenneth S. Deffeyes, 2003.
The Coming Oil Crisis » Colin Campbell, 2004.
Out of Gas: The end of the age of oil » David Goodstein, 2004.
High Noon for Natural Gas » Julian Darley, 2004.
The End of Oil: On the Edge of a Perilous New World » Paul Roberts, 2004.

 

News Stories used in this commentary - click here

 

Mark Armstrong contributed to this commentary.       
 

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