From Wall St: Iraq invasion has tripled oil prices and gained Big Oil over $1 trillion

[ProgressiveEconomist]

This item I came across on Yahoo's financial webpages is worth my first post in a long time.

A Wall Street options analyst who's always stayed away from politics over the years I've read his columns just provided some real ammo for critics of "OIL"--"Operation Iraqi Liberation".

From http://biz.yahoo.com/opt/070326/opt_16957.html?.v=3 :

"Why Did We Go To War? By Jeff Neal; Optionetics.com; Monday March 26

Despite vociferous denials by White House officials, it's hard to overlook the oil factor as a key reason for entering into the war with and occupation of Iraq. In fact, many political analysts claim that the initials for Operation Iraqi Liberation (OIL) are no accident. It certainly seems to accurately represent part of the motive of what eventually has transpired.

... the war has limited the output of Iraqi oil production to 2.1 million barrels a day; that's down considerably from the pre-war, pre-embargo production of more than 4 million barrels a day. This has fostered quite a supply squeeze, and subsequently generated gigantic revenues for the big oil companies. Consider that oil is now hovering around $60 a barrel versus only $18 a barrel in the pre-war Clinton years. Quite a surge indeed!

And that's not the only area of our ecopnomy that has boomed throughout he war on terror... The oil service and equipment industry is booming. Consider that Halliburton's (HAL) share price has almost tripled since the start of the war. Vice President Dick Cheney's former company has garnered huge profits, and not just from Iraqi reconstruction contracts. The company capitalized most from the rise in oil prices by charging more for Halliburton's drilling and piping equipment. In fact, during this conflict, the value of the reserves of the five biggest oil companies has more than doubled to $2.36 trillion. ...

In this seasoned trader's opinion, there is definitely more here than the liberation and democratization of a country.

Jeff Neal Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent"

[Uben]

1. Mission Accomplished

nt

[Stanchetalarooni]

4. This is the true mission and it has indeed been accomplished.

$1,000,000,000,000
That is a lot of zeros.

[SpiralHawk]

5. "Mission Accomplished Indeed" - Commander AWOL & republicon corporate cronies

"My republicon homey cronies love this shit.
Oh yeah, the talking point of the day, almost forgot:
too bad about you pathetic proles. Blah, blah, blah, and some other
kompassionate konservative shit like that. Smirk."

- Commander AWOL

[Canuckistanian]

32. Hey guys, thanks for all the cash!

And uh, sorry about your kids.

[newyawker99]

21. Amen....

:puke:

[katsy]

2. Did they send the chimp a thank you card? n/t

[IDemo]

3. Stay tuned for Operation Iranian Landslide

[DemReadingDU]

6. Escalation = more profit

[The_Casual_Observer]

7. At the start, the conventional wisdom was that prices would be lower

I think people supported the invasion on that basis.

[raccoon]

8. Yes, yet another proof the "conventional wisdom" usually isn't wise. nt

[The Doctor.]

9. Right, because it was assumed

that we would get access to the oil, and that energy companies with direct access could provide it more cheaply.

Something like that, right?

[ProgressiveEconomist]

14. At least you agree that "energy security" concerns appear to have been more

important motivators for the invasion than "democracy" or "WMDs".

I remember the argument that invading Iraq would undermine OPEC's control over world oil prices. At the time, I did not notice that that MUST have been an oil company cover story. Who was lobbying for invading Iraq, oil consuming industries or oil PRODUCING industries? Remember the IRAQ OIL MAPS that crazy Larry Klaman got Cheney's "Energy Task Force" to admit were distributed to their still-secret meeting attendees? (See http://www.judicialwatch.org/iraqi-oil-maps.shtml .)

I rather doubt many representatives of oil consuming industries were in attendance at Cheney's secret meetings.

What makes oil different from most other commodities is its highly "inelastic" demand. The only way for oil companies to make more money is to RAISE the price of oil and/or lower their costs of acquiring oil reserves and pumping it out of the ground. Sellers of other commodities with elastic demands sometimes can lower prices and raise revenues on higher volume, but not oil companies.

This is a lesson for the future: When sellers of products with inelastic demands lobby for government action to LOWER prices, watch out! Something "does not meet the eye".

[Scriptor Ignotus]

17. i wonder

was the Bush Administration "used" by the oil industry? Iraq must have seemed win-win to them, either low supply and higher prices and thus high profits, or access to Iraqis oil reserves, which they did not have, and thus more profits.

[paparush]

10. Oil is at 2007 high. Just watch those proffits soar as the F-17's start striking Iran...

[TNOE]

11. ok - how would you rebut this:

The fact that oil has jumped in price is not simply attributed to the Iraq war, as you and the author of the op-ed piece suggest. Moreover, the "profits" of the oil companies are not NET profits, but instead GROSS profits. If you don't know the difference, I'll explain. NET profits are those that are leftover after you deduct all the money spent on your business from the money earned. I believe the figure for the oil industry is about 10%, and this includes the MUCH more profitable refining side of the business.

Oil exploration is in fact not very profitable. It takes a lot of investment money to make a productive well give you profits, and even then you're not guaranteed a profit.

So, let's look at why exactly oil has gone up.

First, remember oil is traded in dollars. Since the Clinton administration, our dollar has lost about 50% of its value vs. the Euro and other currencies. This means that, right off the bat, we would expect oil to be at about $30 a barrel, all other things being equal.

Now, in the past 10 years, oil consumption by countries such as China and India have seen incredible leaps, while the overall capacity for production has not increased in the same manner. Basically, it becomes the simple law of economics of supply and demand. If you have more customers wanting the same product, it will go up in price. I know, this is a shock.

So, what has the oil industry done to meet this demand? Well, they've started developing new technologies to extract oil from areas in which they couldn't do it before (think of the sands in Canada). This new technology is extremely expensive to develop and implement, and, as much as you may hate it, companies tend to pass on their research costs on to the consumers. I know, I know...it would be nice if oil companies did all this out of the goodness of their hearts, but I doubt a warm and fuzzy feeling is what their investors are looking for as far as returns are concerned.

Now, let's take the article's numbers for consideration. He claims that Iraqi oil production has gone down from 4 MMBPD to 2 MMBPD. That's a drop of 2 MMBPD (you don't even need a calculator for this).

Considering that the world oil consumption is about 50 MMBPD (the U.S's is about 20 MMBPD) you can see that the 2 MMBPD difference of the Iraqi oil is quite minimal, certainly not enough to raise the price by 300%, as the writer claims.

Finally, remember that the crude oil business is a COMMODITIES market. That is, speculators are betting on whether oil production will be higher or lower in the months to come. If these speculators are right, they make tons of money. If not, they lose. That is the risk that they take for the potential reward. Notice, however, that they are the ones dictating the price of the oil in the market, NOT the oil companies.

There. Consider yourself less ignorant...at least on this topic.

[IDemo]

15. World oil consumption is at about 85 million bpd

And, just as "2 MMBPD difference of the Iraqi oil is quite minimal", the impact of tar sands on oil prices is and will continue to be minimal. Despite Bushco's urgings of a month or so ago to Canada, it is extremely unlikely they will ever hit the 5Mbpd level, given the decline in natural gas and water required to extract it.

[ProgressiveEconomist]

16. I gave an important story a headline to bring it to the attention of anti-war

activists.

What would have been YOUR headline, and how many DUers would have seen the story if you had posted instead of me?

Thanks for the "enlightenment". You've got auite a simplistic theory there, along with some accounting definitions that would get companies in a lot of trouble with the SEC.

[TNOE]

18. No - ooops I'm sorry.

I'm arguing this point on another board - and THIS is what somebody said to me. I haven't responded, because frankly, I'm not that knowledgeable!

Sorry!

[ProgressiveEconomist]

20. Excuse me, TNOE--I'm glad you clarified what you were driving at

IMO the importance of Jeff Neal's story is that Wall Streeters have started to question years of White House spin on why it was "necessary" to take out Saddam Hussein at the cost of tens of thousands of American casualties and hundreds of thousands of Iraqi lives.

Jeff Neal's very brief column IMO is crtically important not because it answers a question but because it ASKS a question: How has Big Oil benefited from the foreign policy it apparently persuaded Dick Cheney to adopt in Iraq?

Of sourse attribution of causation is very tricky when there's only one historical set of events to explain, and many of the most relevant events still are arrogantly kept secret by the White House.

[ProgressiveEconomist]

31. I should have turned my headline into a question: "HAS the iraq invasion

tripled oil prices and given Big Oil over $1 trillion?"

It's been so long since my last posts that I had forgotten that very useful device for avoiding heated technical sidebars.

[kenny blankenship]

12. This has been great news for our GDP!

What? Do you think we can make something in this country--that other countries will buy?
We make debt. We make bombs. That's what we do here. We make debt to make more bombs. We bomb our way out of debt, by bombing those who subvert the hegemony of the dollar. In doing so we bomb our way into more debt, true, and that's bad, BUT we also raise the world price of oil, which is good, because that makes petro-millionaires in into petro-billionaires, and we all understand how that money then trickles down to the little people.

If it wasn't for the surge in oil prices, we might not have a GDP at all, and poor people would be suffering. So quit yer bitchin!

[progressoid]

19. Yeah, I feel something trickling down on me...

but it ain't money.

[Lugnut]

13. Indeed

Pocket Linings R Us

[Roland99]

22. To be fair, you'd have to look at the price of oil in late 2002, before all the madness.

But, even then, it's more than doubled.

YAY!

[ProgressiveEconomist]

24. A picture tells an interesting story. Look at the monthly oil price chart

at http://futures.tradingcharts.com/chart/CO/M .

Oil prices generally followed the business cycle through the Clinton era. But, following 9/11/01, there has been a powerful secular uptrend. IMO, the confluence of 9/11and Dumbya's continued childish stamping of his feet thereafter, crying "I want my war!" at every opportunity, introduced a trend of "energy insecurity" that made world energy users more anxious about their continued fuel and transportation. People all over the world apparently became willing to pay much more--in blood as well as in treasure--for reliable petroleum supplies.

The sharp upturn in petroleum prices appears to have followed 9/11 and preceded the 1/29/02 State of the Union address where Dumbya named Iraq and Iran part of an "Axis of Evil".. That idiotic sound byte roiled world markets for years to come, and IMO was the absolute height of the Idiot's lunacy.

Ask yourself, why did Tony Blair, a progressive Labour pol before 2002, follow Bush so slavishly into Iraq? IMO, the only answer that makes sense is that he wanted some petroleum for Britain, too, and was willing to for it in Britons' blood.

[leftchick]

29. yes indeed, look at the chart...

thank you for the thread and the links PE. It explains everything to me...


TFC Commodity Charts
Light Crude Oil (CL, NYMEX)
Monthly Price Chart

the chart will not post, it is definitely worth the click...

[ProgressiveEconomist]

30. "the chart will not post" -- I used View--Source to look through the html,

but I saw no "GIF" or "JPG" I could simply link in my post to get the chart to display. My Java is not good enough to figure out how to call the right routine with the right parameters from a snippet of bracketed DU html.

[Jcrowley]

23. Kicking

[Raksha]

25. With 20/20 hindsight, could anyone here NOT have predicted this?

Oh yes, the Powers That Be (thanks, Will Pitt!) knew EXACTLY what they were doing...as usual.

Mission Accomplished indeed!

[ProgressiveEconomist]

26. The oil price chart I linked in post #24 is very persuasive

After Cheney and Dumbya talked the economy down during the 2000 campaign, a recession began in the second quarter of 2001. Oil prices were declining sharply.

Then, in January 2002, Dumbya declares that the number 2 and number 3 countries on the list of greatest oil reserves are part of an "Axis of Evil". On that list (see http://en.wikipedia.org/wiki/Oil_reserves ), after Saudia Arabia, Iran, Iraq, and Kuwait, no other country comes close to triple digits in gigabarrels of oil.

Despite the fact that oil prices tend to decline during recessions, the price of oil skyrockets starting in late 2001-early 2002 and triples to more than $60 a barrel.

To Cheney, the world oil reserves list must look something like a shopping list.

[Faux pas]

27. Kicking for the non-believers (i.e. freeper lurkers) who thought

my tinfoil hat was pinching my brain back when the war for oil started. Of course I gave you an R too. Thanks!

[Greyhound]

28. Gee, I seem to recall someone saying that this would happen before we started the bombing,

when every single day we were being fed the obvious bullshit about terrorists and WMD and mushroom clouds.

Well now that the Yahoo! business section has finally decided to report what has been happening for over four years, I guess we can now accept the obvious as fact. How long after the Iranian invasion will they come to the same conclusion? Maybe when gas is $6 a gallon, or do you think they'll wait until the Russians and Chinese deliver their ultimatum?

[L. Coyote]

33. MISSION ACCOMPLISHED! n/t

[ProgressiveEconomist]

34. Kick for lunchhour DU surfers