Oil shortages; neo-Mahdism

Louis Proyect lnp3 at panix.com
Sun Dec 2 20:07:46 MST 2001


(More from Niall Ferguson's extraordinary NY Times Magazine article.
The following passage essentially brings together the two themes that
Mark Jones and I have been hammering away at since 9/11.)

The second trend that Sept. 11 did nothing to change is the economic
downturn. The asset bubble of the late 1990's peaked a year and a
half before the terrorists struck. And despite their proximity to
Wall Street, the real crashes of Sept. 11 did not cause a
metaphorical crash on the stock market -- just its temporary closure.

Admittedly, in the immediate aftermath of the attacks, investors had
to grit their teeth as prices threatened to go into free fall. Yet so
far, the deflation of the late 1990's asset price bubble has been a
gentle affair compared with the cataclysmic meltdown that followed
the bubble of the 1920's. To give some orders of magnitude, a crash
on the 1929-32 scale would take the Dow down from over 11,723 --
where it stood at its peak in January last year -- to about 1,266 by
November next year. On Nov. 15, it stood at 9,872, less than 3
percent down from Sept. 10. When Alan Greenspan coined the phrase
''irrational exuberance,'' the index was 6,473. In this light, the
most striking thing about the economic consequences of Sept. 11 would
seem to be their insignificance. A 3 percent drop in the Dow is
nothing. Oil prices, too, have continued their yearlong decline. And
there has been virtually no movement in long-term interest rates,
which might have been expected at a time of increased political risk.

Nevertheless, the world economy has two serious economic weaknesses
-- also predating Sept. 11 -- that cannot be ignored.

The first is the nonglobal nature of globalization. Far from being
perfectly integrated, the world's markets for goods, capital and
labor appear to have become remarkably segmented. Thus, the
overwhelming bulk of American, Canadian and Mexican trade now takes
place within the North American Free Trade Area, just as most
European trade takes place within Europe. Back in 1913, international
capital was truly international: about 63 percent of foreign direct
investment in 1913 went to developing countries. But in 1996, the
proportion was just 28 percent. Labor mobility is also distorted,
with the United States able to cherry-pick the best-qualified and
most-talented workers from European and Asian economies under its
various visa programs while letting in many more unskilled (and
untaxed) Latino workers through the Mexican back door.

This is one key reason that the process we call globalization has
tended to result in widening inequality between nations. In the
1960's, the richest fifth of the world's population had a total
income 30 times as great as the poorest fifth's; in 1998, the ratio
was 74:1. In 1965, real gross domestic product per capita in Chad was
one-fifteenth of the U.S.'s ; in 1990, one-fiftieth. If there was a
substantial measure of convergence of incomes during the first age of
globalization, in this age there is a pronounced divergence. And such
inequality seems likely to increase the resentment felt in poorer
countries toward the super-rich United States. (That said, we should
not make the mistake of assuming that this poverty is the principal
cause of support for organizations like Al Qaeda, most of whose
recruits come from relatively prosperous backgrounds.)

Even more worrying is the medium-term outlook for global energy
supplies. The rise of the S.U.V. as a status symbol shows how
complacent Americans are about their supply of oil and petroleum.
They should not be. True, oil prices are low right now: a barrel of
West Texas crude sells for about $20, less than half the price (in
real terms) as at the peak of the oil crisis in 1982. But what made
prices go through the roof in the 1970's and early 1980's was
political instability in the Middle East: the anti-Israel Arab oil
embargo, the Iranian revolution and the Iran-Iraq war. It's no great
stretch to imagine something similar happening again. (Even the
demand-side shock of the recent U.S. boom trebled the oil price
between December 1998 and October 2000's $33 peak.)

The realities are stark. The Middle East accounts for 31 percent of
world oil production but just 6 percent of consumption. North America
accounts for about 18 percent of world oil production but consumes 30
percent. Even more sobering, however, are the figures for world oil
reserves: North America has just 6 percent of them; the Middle East
65 percent.

Feeling comfortable? Total U.S. energy consumption -- of which
petroleum accounts for about two-fifths -- has risen about 27 percent
since 1972, while oil reserves have fallen by about 30 percent. Right
now, the United States depends on the Persian Gulf -- mainly Saudi
Arabia -- for about 12 percent of its oil imports, but that figure is
bound to rise as OPEC countries account for an ever-increasing share
of the world's available oil.

The time frame may be much tighter than S.U.V. manufacturers realize.
Kenneth S. Deffeyes of Princeton University predicts that global oil
production will start to decline from 2004. At a conference at the
Royal United Services Institute in London in October, experts warned
that from 2008 supplies of non-OPEC oil will fall steeply -- reaching
close to zero in 2040 -- and that, barring some major technological
breakthroughs, there will be an effective world shortage from 2010.

Yet even that estimate could prove to be overoptimistic if there is a
regime change in Saudi Arabia. Like ''the coming oil crisis,'' the
fall of the Saudi monarchy has been prophesied so often that many
people have stopped believing it could ever happen. Don't be so sure.
The position of the ruling dynasty increasingly resembles that of the
shah of Iran in the late 1970's. Low oil prices may have been good
for the West, but they have produced a significant fall in per capita
income in Saudi Arabia, creating a reserve army of disenchanted young
men who are the natural recruits of Al Qaeda.

Make no mistake: radical Islam -- especially the Wahhabist strain
found in Saudi Arabia -- is a revolutionary movement that has set the
Middle East ablaze before now (in the 1880's for example, when a
Sudanese holy man calling himself the ''Mahdi,'' or ''expected
guide,'' emerged as the Victorian Osama bin Laden). A revolution in
Saudi Arabia would be as traumatic a blow to the world economy as the
Iranian revolution of 1979.

The days of the S.U.V. -- perhaps even the days of the
internal-combustion engine -- are therefore numbered. American car
manufacturers have less than a decade to come up with an alternative
and affordable energy source to gasoline. If they fail, the world
economy could well find itself reliving the stagflation of the
1970's.

--
Louis Proyect, lnp3 at panix.com on 12/02/2001

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