Oil price and market power: my POV

[KilRemgor]

Just posting because it feels everyone forgot oil price was around 30$/barrel in 2004, and all the 'analytical' papers called this unusually high price that should lower to about 25$/barrel by 2010. You can easily google reports of: U.S. Department of Energy/Energy Information Administration (oil prices from 2000-2004, 27,72|22,01|23,69|27,74|32,30; IEA's prognoss on oil prices in 2010, 2015, 2020: 21,75|23,82|25,89 and other reports published around 2004)

Oil prce is a game between producers and clients (among clients, that's mostly USA as only it has many market leverages to alter the prices through its financial power and Saudi friendship/Iraq control). Both can influence the price by a large margin, though this influencing may be quite costly.

IMHO, just by recalling history one can guess that 'normal' oil price is about 50$/barrel. When USA started to totally win economic confrontation with USSR (it was just 'winning' since WWII because of tremendous market power it has acquired through Marshall plan and by all other competitors' economies being in debris after war), huge resources and media controlled-rumours were used to dump oil prices; that included 'let's get rid of oil and go for alternative fuels' hysteria that started in end of 80's and forced producers to dump prices for oil to become very cheap -> no need to worry about 'alternative fuels' and by doing that USSR's revenues were destroyed.

That is just market laws applied on greater perspective, when US used its naturally far greater economic capability to damage Soviet Union that was plagued by apparent economic failures since end of WWII but was never given time to recover by US constantly putting pressure (arms race, supplying anti-USSR insurgencies, attacking USSR' allies, etc. etc.) on it. When USSR collapsed, it felt like US has totally 'won' the market control ober the whole world.

But the ascent of 'new powers', namely India, China, has turned US market control into a problem.
India/China, with their far greater manpower capability and tech-copying (in case of China) normally should've overtaken US market leadership in relatively short (historically) time. However, those countries are quite weak on natural resources, hence high resource prices considerably slow down their economy and allow more time for whatever principal solution to that problem (cold fusion, fully automated production that make manpower irrelevant, space colonization, mind-controlling techs, etc. pick you favourite sci-fi scenario there) to be invented. Those countries' lack of nuclear capability to really 'destroy' US also allows more time.

But high oil prices benefit ME oil producers/Russia who are mostly (as a rightful consequence of US' selfish actions in the past) in opposition to US.

So that leads to a lose-lose situation for US market control. High oil prices? Russia/Iran/others grow and USA is removed from economic power as those countries will naturally ally with 'new powers' (India/China) and form a bloc that both has greater resources, manpower, and tech (quite fast) than US. Low oil prices? 'New powers' grow and take over US' market domination by their naturally cheaper and more numerous workforce and economic boom once resources become cheap (allowing for cheap construction and economic growth).

However, US is doing (or supporting) quite a lot of measures to solve the problem. That includes attempt to shatter all the possible alliances between 'new powers', buying and invading the oil-producing countries, thrashing the world economy to slow down everybody's advance to buy time, setting up ABM shields to be able to nuke 'new powers' without retaliation if needed (China, for example), maintaining huge army, that list is quite long.

Normally, US has no more 'hard economic backup' to be world's leading economic power. But by using all the non-economic advantages it has amassed during past economic dominance (military, political control, brand of 'beacon of democracy', whatever) it tries to keep its position even if something gets sacrificed for it. The danger of this game is, that is exactly the way USSR tried to last against far more 'backed' USA. And if that fails, it won't be peaceful decline in power; it will be collapse.

So that depends on US' leadership to understand whether it's worth the effort to go on with this game or stop it before the price of quitting gets too high.

[2Sheds_Jackson]

I'm afraid that in my view you've made a few assumptions that don't quite square with reality. Namely: the basis of US economic power, the mechanism by which oil price rises and falls, and the true driving force behind the rise of powers like China and India. As a result, I think the future scenarios you've outlined are unlikely. In addition, since the US sits on 200+ billion barrels of shale oil that are profitable to extract at only $70/barrel...were oil price to rise and actually stay there for any length of time, we already have the means to become energy independent. The only reason we haven't exploited this reserve is because oil spikes - we get all motivated for energy independence- then it crashes, and we say "who cares" and go buy an SUV.

[KilRemgor]

2Sheds_Jackson (http://www.militaryphotos.net/forums/member.php?u=2591)>
200+ billion shale reserves are not really an effective option, since those are not competitive. That means, by using those while someone else uses 10$/profitable oil, you're losing quite a lot on resources and efficiency compared to 'those', so that is hardly ok unless oil price stabilizes at arounf 140+$/barrel.

The true driving force for that powers wasn't stated in my post (so how you managed to get it as incorrect?), but it's easy to guess that this power is US itself, or, more specifically, its corporations striving for cheaper workforce.

But naturally, like with Great Britain's collonies in the past, those who were exploited for being cheaper workforce eventually start using their workforce for themselves and get an economic boom as a result of it, though it is not lasting, but it also carries an effect of crippling their previous 'owner' that got devoid of said cheaper workforce. Great Britain comes here again as an example...

And as for basic of economic power...
Just imagine the highly unlikely scenario that say, atomic bombs were invented in 30's and both Nazi Germany, USSR, Japan and US got those, rendering war a suicide option, so there were no WWII.

And now... do you think US would've become the main economic force in that case? When others can develop as well and no war to cripple their economies?
I don't think so.

US was a very strong economy pre-WWII, but it was still just one of the competitors for domination along with declining Great Britain, communistic USSR, reforming Japan and war-driven Nazi Germany. It was WWII that allowed USA, being the lone power to make a profit (credits, lend-lease, Marshall plan, etc.) during the war and have no damage inflicted to its territory, industry and infrastructure, to become the prime economy power since all the competitors got ruined.

That what I was meaning in my post by recalling WWII.

[sinophile]

"...and allow more time for whatever principal solution to that problem (cold fusion, fully automated production that make manpower irrelevant, space colonization, mind-controlling techs, etc. pick you favourite sci-fi scenario there) to be invented. Those countries' lack of nuclear capability to really 'destroy' US also allows more time."

Thanks for your point of view. I didn't know they had internet access at the asylum.

http://tbn0.google.com/images?q=tbn:nuTTLC6BGfEJ::bp2.blogger.com/_UMJPRMUyTLA/RqexgqVPTTI/AAAAAAAAAAs/PufHzLAIvG4/s400/n522306244_197290_3718.jpg

[KilRemgor]

As for 'sci-fi' things... Well all the bluff to USSR aside, taking sci-fi scenarios as at least 'possible' future tech seems quite a trend in US, at least historically, and some of those really got in use.

In the ol' Cold War, nearly everybody laughed at 'StarWars-ish' ideas of satellites shooting down Soviet missiles. And in the last years, US is going for ABM interception and Airborne laser.
The same 'starwars-ish' label was used by general public for concept of possible unmanned war, and now, Predators and Reapers are quite common.
And for example now, there're projects for microwave pain ray (working), railgun (working), ultrasound 'tourniquets' (status unknown), cybernetic exoskeletons (Future Warrior mockups) etc.

It doesn't mean US gov. is planning based on sci-fi, just in my post I meant something we would think as sci-fi could be considered in distant perspective; and Russians/Europeans may have similar ideas. At least ITER and LHC (two random examples) are quite big projects.

So the sci-fi line refers to a technological solution to the problem that may be not yet apparent on current tech level.
However, the 'theoretical hunger' is an problem plaguing about 30+ years of scientific research (not development, but research and understanding), but this is another large topic.

[wildcat]

I'm afraid that in my view you've made a few assumptions that don't quite square with reality. Namely: the basis of US economic power, the mechanism by which oil price rises and falls, and the true driving force behind the rise of powers like China and India. As a result, I think the future scenarios you've outlined are unlikely. In addition, since the US sits on 200+ billion barrels of shale oil that are profitable to extract at only $70/barrel...were oil price to rise and actually stay there for any length of time, we already have the means to become energy independent. The only reason we haven't exploited this reserve is because oil spikes - we get all motivated for energy independence- then it crashes, and we say "who cares" and go buy an SUV.
I read somewhere that shale Oil was break even around $30 USD per barrel

[KilRemgor]

Until production starts, it is just a guess... Those values have been shown as either being overestimated (rare case, unless new techs got available) or underestimated (more frequently).

That's like F-35 unit cost beat its expected value by quite a large margin.

[Kilgor]

You will find this article interesting...

http://www.aei.org/publications/pubID.25991,filter.all/pub_detail.asp

[KilRemgor]

Well this article isn't really something new, as it again tells about oil pricing and starvation when the oil influx is gone for oil-dependent economy.
But if considering USSR/Russia, IMO, author misses one important point.

What was oil/gas export alternative for USSR?

There was none.

The problem is, standard of living and salaries in USSR were relatively high. There was no 'cheap numerous workforce' like in China or India. And using planned economy meant no competition and that nearly all the consumer products were absolutely not competitive with ones manufactures in the West (that were the result of effective quality control, striving for ergonomics, design efficiency, effective spending of materials etc. everything what gets lost if no competition is available to promote effective products and eliminate ineffective ones) or in China (very cheap. numerous, and yet 'ergonomic' in a sense).

So basically, USSR lived too well and wasn't that large by population to turn into China-like cheap goods producer, and economy/ideology prevented its mid/high-tech consumer products to compete with the West. It wasn't possible to get cash on selling military hardware alone, and again, the ideology prevented USSR from getting some cash of its allies - so billions were pumped into Soviet bloc countries with no monetary reward back.

So in its time, with its ideology and planned economy... there was no other options than that reliance on oil that was a critical weakness leading to collapse.

I somewhat feel the whole post-WWII Soviet existence was prolonged downfall. And the primary reason was nuclear weaponry.
USSR had the only chance to get its system to work, that is, go on with actively propagating communism and crushing capitalist economies. Communism could've got significant popularity in many countries, esp. among workers/low classes, and if Soviet world-strongest land army could've been put in use, the 'revoultion' could've taken a significant chunk of world, if not all eventually.

But presence of nukes cornered USSR into attempting to 'peacefully' compete with capitalist nations where it was doomed to lose as nothing in USSR except for raw materials was competitive.