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$6 or $60
The New York Times ^ | 07/31/2002 | THOMAS L. FRIEDMAN

Posted on 07/30/2002 8:25:52 PM PDT by Pokey78

Reading the papers lately, I've lost track of whether the Pentagon plans to invade Iraq from three sides or four, and whether we will be using Jordan, Kuwait or Diego Garcia as our main launching pad. But one thing I haven't seen much planning for is the impact an attack on Iraq would have on the world's oil market. Depending on how the war went, that impact could be very bad and lead to a sharp spike in oil prices, like $60-a-barrel oil. But — wait a minute — it could also be very good, and lead to $6-a-barrel oil that would weaken OPEC and, maybe, also weaken the Arab autocrats who depend on high oil prices to finance their illegitimate regimes and buy off opponents.

Raising this oil question is not an argument against taking down Saddam Hussein. He's a bad man, building dangerous weapons, who has raped the future of two generations of Iraqis. The whole region would be improved by his ouster. It is an argument, though, for thinking through all the dimensions of any attack on Iraq. We're not talking about a war in Tora Bora here. We're talking about a war in the world's main gas station.

"A proposed attack on Iraq is an extraordinarily high-risk economic adventure that could either destabilize the governments of one or more oil exporting countries by creating a prolonged period of low prices, or, if things went wrong, lead to a prolonged disruption of world oil supplies, which could be even more devastating," says Philip K. Verleger Jr., an oil expert and fellow of the Council on Foreign Relations.

Let's start with the $60-a-barrel scenario. (The price today is in the mid-$20's.) While the Pentagon keeps leaking its war plans, no one ever writes about what Saddam's war plans might be. What if Saddam responds by firing Scuds with chemical or biological warheads at Saudi Arabian and Kuwaiti oilfields? The world market could lose not only Iraq's two million barrels a day, but millions more. And what if the war drags on and we have as much trouble finding Saddam as we've had finding Osama?

Don't kid yourself: If prices skyrocket because of a war in the Persian Gulf, Venezuela, Iran, Nigeria and others will cut back their output and keep prices high to milk the moment for all it's worth.

The scenario that could produce $6-a-barrel oil goes like this: Iraq under Saddam has been pumping up to two million barrels of oil a day, under the U.N. oil-for-food program. Let's say a U.S. invasion works and in short order Saddam is ousted and replaced by an Iraqi Thomas Jefferson, or just a "nice" general ready to abandon Iraq's nuclear weapons program and rejoin the family of nations.

That would mean Iraq would be able to modernize all its oilfields, attract foreign investment and in short order ramp up its oil production to its long-sought capacity of five million barrels a day. That is at least three million barrels of oil a day more on the world market, and Iraq, which will be desperate for cash to rebuild, is not likely to restrain itself. (Now you understand why Saudi Arabia, Iran and Kuwait all have an economic interest in Saddam's staying in power and Iraq's remaining a pariah state, so it can't produce more oil.)

In addition, notes Mr. Verleger, if we invade Iraq in the late winter or spring, when world oil demand normally declines, OPEC countries will have to slash their own production even more to accommodate Iraq. This would be coming at a time when non-OPEC countries (Russia, Mexico, Norway, Oman and Angola) have been steadily boosting their output and will continue doing so. Most OPEC countries, however, can't cut back any more to make room for them. Venezuela is broke. Iran, Nigeria and Saudi Arabia need cash to deal with all their debts, their masses of unemployed and new infrastructure demands. (Watch Saudi Arabia. King Fahd is now gravely ill in a hospital in Switzerland, and the struggle to succeed him is in full swing.)

Bottom line: A quick victory that brings Iraq fully back into the oil market could lead to a sharp fall in oil incomes throughout OPEC that could seriously weaken the oil cartel and rob its many autocratic regimes of the income they need to maintain their closed political systems. In fact, give me sustained $10-a-barrel oil and I'll give you revolutions from Iran to Saudi Arabia, and throw in Venezuela.

If that scenario prevails, you could look at an invasion of Iraq as a possible two-for-one sale: destroy Saddam and destabilize OPEC at the same time. Buy one, get one free. But you better prepare for the consequences of both.


TOPICS: Business/Economy; Editorial; Foreign Affairs; News/Current Events
KEYWORDS: energylist
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1 posted on 07/30/2002 8:25:52 PM PDT by Pokey78
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To: Pokey78
In fact, give me sustained $10-a-barrel oil and I'll give you revolutions from Iran to Saudi Arabia, and throw in Venezuela.
Give us $10 a barrel oil and you also can kiss American domestic oil production goodbye.
2 posted on 07/30/2002 8:34:49 PM PDT by Looking for Diogenes
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To: Looking for Diogenes
the usa is locked into 18.75 a barrel
via the Caspean Sea,Thanks to Dubya and Pootie Poot.
Friedman is a commie pure and simple
3 posted on 07/30/2002 8:37:10 PM PDT by cactusSharp
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To: Pokey78
Six bucks a barrell would really mess up the American oil industry, wouldn't it? Getting it down to $15 would be nice, though.
4 posted on 07/30/2002 8:40:53 PM PDT by Tony in Hawaii
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To: *Energy_List; Grampa Dave; Tumbleweed_Connection; Liz; Free the USA; Dog Gone; ...
Wait a minute...Thomas Friedman is now an expert on oil? Is he starting to cut through the cast of characters in the drama posed by the standard media? And what does this say about the status of his friendship with Prince Abdullah, his cohort in proferring the ever-changing "Saudi/New York Times Peace Plan"?

Very interesting.

I doubt Nigeria, anyone would not exploit a high oil price...and scuds are very unlikely to knock out oil production...better the Iraqi plan to individually torch all the wells in Kuwait in 1991.

But many points recognized, for example, the sanctions benefit facts. Coming from a media poohbah, quite surprising.

A free(r) Iraq would boost production. They may play the OPEC game a little, but they'll want all their quotas back that the Saudis have usurped for 10 years. They may also ask for 10 years of extra benefits to make up for it all. Or they could just open the pumps. Interesting to see.

Brings to mind ... just how does the US payback or "fight a war" against Saudi Arabia? Indirectly, this could be one way...

5 posted on 07/30/2002 8:46:56 PM PDT by Shermy
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To: zip
Ping.
6 posted on 07/30/2002 8:50:59 PM PDT by Shermy
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To: Shermy
"Brings to mind ... just how does the US payback or "fight a war" against Saudi Arabia? Indirectly, this could be one way..."

Sounds delicious to me.

Nam Vet

7 posted on 07/30/2002 8:53:13 PM PDT by Nam Vet
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To: Pokey78
If the decision to go to war is based on whether or not you can afford it, then you should not be going to war.
8 posted on 07/30/2002 8:54:24 PM PDT by gcruse
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To: Nam Vet
Hear hear! How else to hit the Saudis upside the head? I like his descriptive phrases, too.
9 posted on 07/30/2002 8:57:22 PM PDT by frodolives
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To: Pokey78
The goal is FREE Iraq oil. For USA to use as long as it takes to pay for this WAR, the WTC, etal SEVERAL times over. Betcha
10 posted on 07/30/2002 9:13:26 PM PDT by Waco
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To: Shermy; aculeus
Wait a minute...Thomas Friedman is now an expert on oil?

He writes for the NY Times, therefore he's an expert on everything.

11 posted on 07/30/2002 9:18:26 PM PDT by dighton
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To: Pokey78
The title should read $15 or $30. The prices aren't going to fluctuate to the degree that Friedman states, because the non-OPEC nations have a stake at making some money and landing new markets, and the OPEC crowd has never let politics get in the way of making money. So either way oil production will self-adjust. President Bush has negotiated hard with non-OPEC nations in the last year.

Does Friedman want to cause panic or is the libral freak just trying to change the wide spread support of President Bush and the Republicans to make way for his Democratic friends running for office?

12 posted on 07/30/2002 9:23:37 PM PDT by WellsFargo94
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To: WellsFargo94
Does Friedman want to cause panic...

Tom is probably self-impressed enough to think this piece will be the talk of the oil trading pits on Wednesday.
13 posted on 07/30/2002 9:52:29 PM PDT by Lee_Atwater
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To: WellsFargo94
"Does Friedman want to cause panic or is the libral freak just trying to change the wide spread support of President Bush and the Republicans to make way for his Democratic friends running for office?"

The New York Times is embarked on a major campaign to "Save Iraq". It has, in fact, undertaken this task in order to "Save The Democrat Party".

The liberals have concluded that the Democrat Party cannot effectively attack either President Bush nor the GOP if the country is at war with Iraq. Ergo, the liberals will do whatever it takes to keep such a war from happening.

If that means trying to convince the public that such a war would be ill-advised, so be it.

If that means trying to convince the administration that such a war would be politically costly, so be it.

If that means betraying the U.S. war plans to Saddam Hussein, so be it.

In the mind of the New York Times and the mainstream media, if there is a war with Iraq, the biggest losers will be the Democrats. Therefore, the war cannot be allowed to happen -- and the Times has set about trying to thwart it.

Friedman's column is simply the "flavor of the day" in what will be an ongoing effort to "Save Iraq".

14 posted on 07/30/2002 10:03:16 PM PDT by okie01
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To: Pokey78
in short order ramp up its oil production to its long-sought capacity of five million barrels a day

Not likely, they have screwed up the oil fields.

15 posted on 07/31/2002 1:58:51 AM PDT by razorback-bert
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To: Shermy
A freer Iraq would please Putin no end. They owe Russia billions.......and this would be a way for them to collect the debt.
16 posted on 07/31/2002 4:36:38 AM PDT by OldFriend
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To: Shermy
If prices skyrocket because of a war in the Persian Gulf, Venezuela, Iran, Nigeria and others will cut back their output and keep prices high to milk the moment for all it's worth.

This is utter nonsense. Past history shows us that when prices soar, nations try to sell as much as they possibly can. Higher prices ALWAYS create more supply, whether we're talking oil or anything else.

While an attack on Iraq will definitely cause a short-term spike in prices as traders worry about possible oil disruptions, Friedman is probably right that in the long term, it would be bearish.

But when it gets down to the specifics of his scenarios, he doesn't have the foggiest idea what he's talking about.

17 posted on 07/31/2002 5:27:25 AM PDT by Dog Gone
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To: dighton
He writes for the NY Times, therefore he's an expert on everything.

The NotWalterLippman. I can't stand his smugness when he's on TV. Don't these people understand that the days when America had a tiny elite and the masses were unwashed and uneducated ended decades ago?

18 posted on 07/31/2002 5:47:09 AM PDT by aculeus
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To: okie01
In the mind of the New York Times and the mainstream media, if there is a war with Iraq, the biggest losers will be the Democrats. Therefore, the war cannot be allowed to happen -- and the Times has set about trying to thwart it. Friedman's column is simply the "flavor of the day" in what will be an ongoing effort to "Save Iraq".

Thank you for your well written and informative reply. I sensed something of the sort, but your concise explanation really brought the pieces together.

19 posted on 07/31/2002 9:37:29 AM PDT by WellsFargo94
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To: Dog Gone
"But when it gets down to the specifics of his scenarios, [Friedman] doesn't have the foggiest idea what he's talking about."

So, what else is new?

20 posted on 07/31/2002 10:05:14 AM PDT by okie01
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