"Our greatest responsibility is to be good ancestors."

-Jonas Salk

Monday, January 12, 2015

The Oil Price Crash is not the Saudis' Fault

The Oil Price Crash is bad news for the good guys and bad news for the bad guys - it takes the profit out of fossil fuels and takes the motivation out of developing alternatives.

In the short run it will probably stimulate other sectors of the economy. Politicians and other people whose planning horizon is on the scale of an election cycle will try to take credit for it.

People on tight budgets will enjoy it as well. I imagine it boosted the annual binge of buying useless stuff for relatives at Christmas, which economists think of as a good thing.

There are indications that the shale business is actually not a good business model even at relatively high prices. Companies will fail. The price will shoot back up. Whoever is US president at the time will take the blame. So US politicians are especially motivated to delay the day of reckoning.

People who understand that the glut is a problem seem to be blaming the Saudis for it. But it's not Saudi production that abruptly increased. It's US production. The success of "drill baby drill" is going to be short-lived, but meanwhile it is 100% destabilizing.

The only good news I can see other than a couple of merry Christmases for retailers (if you think that is good news) is that it is a huge drag on the tar sands industry and may entirely moot the Keystone pipeline issue for some time. (It's amusing how Canadian oil is considered domestic. Canada is a convenient dodge for American nationalists, considered as part of America or not, depending on circumstances).

In the end, there is only a global market for energy. American exceptionalism and paranoia has destabilized it. It is American growth addiction and shortsightedness that will prevent the healthy rise of energy prices that we desperately need. Blaming the Saudis is ridiculous.

PS - This will also destabilize a lot of countries that rely on energy revenue, most notably for our hemisphere, Venezuela, which is already no picnic. I don't know much about what is going in in Venezuela right now, but I'm sure it isn't pretty.

1 comment:

Tom said...