they are hurting most of us nonetheless, and we have to do something
about it. The biggest change in the oil market over the last 20 years or so
is a steady shift to a seller’s market.
Demand is outpacing supply and sellers dictate prices. Those sellers are
producers such as Saudi Arabia, Iran, and Libya, among others. We in the
United States are the buyers—meaning the oil market is skewed against us.
We have to pay more to get a barrel of oil from the Middle East, for example,
and that additional expense translates into a cutback on our other budgets
or savings. You would think that a simple solution to that problem would
be for us to start using natural gas, say, to power our electric generators.
However, natural gas prices also spiked nearly three times in the past
decade and they will continue to soar. The reason is that natural gas now
accounts for 22 percent of U.S. energy use, but its supply is limited—
mostly from domestic production, with no imports. Natural gas is a difficult
commodity to import, unless you liquefy it first.
None other than Alan Greenspan, the recently retired chairman of the
Federal Reserve Board, has expressed concerns that continued high
prices are a “very serious problem” that could hurt the economy, singling
out natural gas for his worries.
There is no easy answer for all these problems right now. All major
systems that depend on oil here and abroad are expected to be destabilized
a little. In fact, that process may already have begun, as oil price and
demand data appear to have become incongruent in recent years.
The oil industry depends on reliable data on expectations and actual demand
and supply and on reliable prices as well. But because the world is
headed down the path of oil supply tightness, geopolitical fights and culture
wars are frequently going to interrupt fuel supply in the coming years.
Eventually, economic growth as we know it will stall. We can push back
these problems for a while by militarily taking control of oil producing
Middle East and West Africa, but I wonder whether we can afford to do
that. It will require a lot of financial and military capital, something the
United States doesn’t have enough of right now.
As everyone knows, the Middle East is a geopolitical minefield, as the
Iraq war shows. In fact, some believe the Iraq war was part of a struggle to
ensure we have access to one of the world’s largest oil reserves, currently
estimated at 112.5 billion barrels, or about 11 percent of the world’s total.
With time Iraqi reserves, when fully developed, may actually rival Saudi
Arabia’s. What’s more, Iraq’s oil is of high quality for gasoline and is
INTRODUCTION 11