Lately, there have been widespread reports of lower-than-expected gas prices this summer and it might be tempting to conclude that the the analysis was misplaced. However, as is well known, petroleum is a fungible commodity with a global market and a common international trading value. Lower upward pressure on price is the result of depressed demand from the world-wide economic slump and more supply coming on line in the US from newly-open oil fields and large-scale natural gas fracking.
So the original argument still holds. At whatever global price of a barrel of oil, it will be higher than otherwise if Iranian petroleum is kept off the market or traded at a higher cost necessary to evade US-imposed sanctions. There is also likely to be a general "risk premium" from the elevated chance of regional war that adds to the market price of Middle East oil.
Below is the article as it appeared in CounterPunch (March 2-4, 2012). Other versions appeared in the Bay State Banner (March 1, 2012), and the Dorchester Reporter (March 8, 2012); a letter making the same point was published in the Boston Globe (March 21, 2012).
Sanctions, Threats and Speculators
War Tax at the Gas Pump
by JEFF KLEIN
It’s hard to miss the higher cost of gas every time we fill up our cars these days, but the News Media doesn’t do a very good job of explaining why. There isn’t any mystery, though, if you read the financial press and oil industry sources: We’re paying extra for gas because of rising tensions in the Middle East and especially the scare over a possible US or Israeli attack on Iran. In effect, we’re paying a “war tax” at the gas pump, and the cost will only get higher unless we put aside the talk of war and get down to serious diplomacy to settle the differences in the region.
Here’s what the Wall Street Journal had to say recently, under the headline Oil Rise Imperils Budding Recovery:
Rising oil prices are emerging once again as a threat to the U.S. economic recovery just as it appears to be gaining momentum. Oil prices have climbed sharply in recent weeks as mounting tension with Iran has raised the threat of a disruption in global supplies. On Wednesday, oil futures on the New York Mercantile Exchange rose $1.06 to $101.80 a barrel on reports that Iran had cut off sales to six European countries in response to the European Union’s newly stepped-up sanctions.
The world market price for oil is headed upward of $110 a barrel, which could translate into $4 gasoline before too long. If an actual war breaks out, we could soon be remembering the current price at the pump as “cheap gas”.
But what about “Drill Baby Drill” to lower the price of gas – as the Republicans demand? Political rhetoric aside, the reality is that there is a world market price for petroleum which cannot be significantly lowered by marginal increases in US supply. International oil prices are rising even as US oil production has increased during the past decade. Do you think US suppliers are going to sell us domestically-produced oil at a discount lower than the world market price? Keep dreaming. That’s just not the way the oil companies do business.
For example, after the US Arctic oil fields were developed and the TransAlaska pipeline came into service – despite serious environmental objections – large amounts of Alaskan oil were exported rather than sold in the lower 48 states. Between 1996 and 2004 almost a 100 million barrels of Alaska crude were shipped to Japan, Taiwan, Korea and China. Direct export of North Slope oil was eventually banned by Congress, but refined petroleum products – gasoline, heating oil, jet fuel – continue to be shipped abroad from refineries in Alaska and the lower 48. Today Gulf Coast refineries find it more profitable to sell gasoline to Latin America instead of shipping it to the East Coast, where the law would require them to use US-flagged tankers with American crews. The US is now a net exporter of refined petroleum products, even as the rising price of gas continues to put a strain on struggling families with no alternative means of transportation.
But an even higher war tax on gas is not inevitable. Diplomacy with Iran could still diffuse the conflict before the unthinkable happens. Despite all the alarmist and warmongering rhetoric, especially from Republican presidential candidates, we are not facing an imminent nuclear threat from Iran. US intelligence agencies are unanimous in judging that Iran does not have an active nuclear weapons program at this time. In fact, the Iranians – like all the other countries in the Middle East except Israel – have signed the Nuclear Non-Proliferation Treaty and they have the right under its safeguards to produce low-enriched uranium for power plants and medical research. All of Iran’s nuclear materials are under real-time inspection by the International Atomic Energy Agency. The only nuclear weapons in the Middle East right now are the hundreds of warheads belonging to the US and Israel.
Despite this reality – and in the face of opinion polls showing Americans prefer a diplomatic solution to the Iran issue rather than a military conflict – some politicians seem determined to drive us into yet another Middle East war. Ironically, the very same politicians who are trying to make a partisan issue out of the price of gas are the ones who are pressing for policies to sharpen the regional tensions that have caused them to rise.
After the bitter experience of Iraq and Afghanistan, we should have learned enough to demand a peaceful way out of this conflict. If we fail, a new war could have unpredictable and catastrophic results throughout the region. Of course, in that case, $5 gas might be the least of our problems.
Jeff Klein is a retired local union president active with Dorchester People for Peace (email@example.com)