CRUDE OIL The Life Blood of the Global Economy & The Major Issue No One Talks About Based on the Facts
OVERVIEW - THE REALITY OF CRUDE OIL
It may sound crazy on first glance, but crude oil may be the most important issue in the 2008 election because it underlies all of the other issues in critical ways. Despite this reality, almost no one is talking about oil because it has become a dirty word in our nations political discourse.
The American left viscerally despises the subject of oil and generally does not believe America should do virtually anything to preserve global access to the world's oil reserves.
The American right intuitively understands the importance of oil, but they seem to religiously avoid educating voters about the subject for fear of opening themselves to moralizing attacks from the left.
As a result of these two postures, no one talks about the reality of oil, and most Americans do not appreciate its vital role in their personal financial well being.
Why is oil so important?
Oil is literally the life blood of the global economy. Without free access to oil at reasonable prices, the global economy and the lifestyle of almost every American would collapse. Almost everything in our lives is manufactured or grown using oil byproducts, is made of oil byproducts, uses oil byproducts as fuel or lubricant, or is transported by oil byproduct powered vehicles.
Our economy cannot function without oil, and there are no cost effective alternatives to most uses of oil. Oil may be a dirty word in political circles, but it is an absolute necessity to the American way of life. A significant loss of access to low cost oil would devastate the global economy, and the financial well being of almost every American.
Why can America not make itself independent from foreign sources of oil?
America has about 2% of the world's proven oil reserves, but the USA consumes about 25% of the world's daily oil production. This imbalance has occurred over the last century as the American economy grew at a rapid rate while consuming its sources of domestic oil.
The import problem is getting much worse. America imported about 30% of its oil consumption in 1973, and it imports over 62% today. Given that America only has 2.5% of the world's oil reserves and produces about a third of its oil consumption, the existing reserves are being depleted at a very rapid rate. Almost all of the existing legal domestic sources of oil are fully developed.
Congress has limited oil exploration in offshore waters outside the Gulf of Mexico and in the Alaskan wildlife refuge.
America has not built a new nuclear plant in over a generation.
America has among the largest coal reserves in the world, but environmental opposition has limited the construction of power plants.
If America dedicated huge resources and imagination to finding and producing alternatives to oil,
it would radically increase the cost of almost everything, and wreck our economy. It would take generations to achieve oil
independence, and that means the USA is going to be dependent on foreign sources of oil for our economic well being for a very long time. Assertions to the contrary are pure fantasy, but it serves the purpose of certain politicians on the left to manipulate voters by demagoguing the issue. Where is the world's oil located?
Below is a summary of the locations of the world's proven oil reserves as of 1/1/05.
% of Daily Proven As a % World Billions of BarrelsReservesWorld TotalConsumptionSaudi Arabia 264 22% 2.2% Iran 132 11% 1.8% Iraq 115 10% .5% Kuwait 99 8% .4% Other Middle East 125 11% 1.1% Sub-Total Middle East 735 62% 6.0% Former USSR 120 10% 4.6% Venezuela 77 7% .7% *Sub-Total "Hostile" 932 79% 11.3%
USA 29 2.5% 25.3%
Canada 17 1.4% 2.8% Mexico 15 1.3% 2.5% Europe 17 1.4% 15.6% India 6 .5% 3.0% China 17 1.4% 8.0% All others14912.6%28.5% Total 1,182 100.0% 100.0%
Please consider the following observations from the above charts:
Some geologists believe Iraq's reserves might be double this amount if fully developed. Saddam left many regions unexplored due to wars and sanctions.
The second sub-total (*) is shown to illustrate that almost 80% of the world's oil reserves could be in the hands of nations hostile to the USA if America abandons Iraq and the Middle East to chaos that produced radical regime changes.
Most of the world is highly dependent on oil from the Middle East, Russia and Venezuela. That dependence is growing very fast as importing nations deplete their own oil reserves at a much faster rate.
The remaining reserve life in the "Hostile" group averages over 70 years while the reserve life in the rest of the world averages about 13 years. This means that dependence on oil imports will grow at a very fast rate absent severe consumption cut backs that can more than offset consumption growth in India and China.
China and India are the fastest growing major economies, and their per capita oil consumption will likely grow at an exponential rate as the standard of living allows for more energy consumption by individuals.
Europe has about 50% more people than the USA, but they consume only 62% as much oil as the USA. This is largely because of the EU's huge commitment to nuclear power and electric fired mass transportation.
The Energy Independence Myth
As
part of their justification for abandoning Iraq regardless of the
adverse effects on oil prices and the economy, the Democrats are
perpetuating the myth that America can quickly make itself energy
independent through biofuels and other "clean fuel" technologies.
This notion is completely absurd for the following reasons:
Grain
base biofuels are not cost competitive with oil based fuels, and
require huge government subsidies that increase the Federal deficit,
and drive up the price of grain commodities without producing material
volumes of fuel. or measurable reductions in "global warming".
Most biofuels cost almost as much to make as the value of the energy they create.
It will take at least a generation to substantially reduce America's dependence on foreign oil even if :
America
invests huge amounts of financial and human resources in new
technologies that ultimately prove successful, which is no certainty.
Congress passes huge new incentives for the rapid building of new nuclear and "clean coal" electricity plants.
Vehicles can be converted to natural gas and electric propulsion.
Huge new electric fired public transportation systems are built.
Congress passed big tax incentives to reduce energy consumption.
Congress permitted drilling in ANWR and offshore USA outside the Gulf of Mexico.
In
truth, Democrats vigorously oppose most of these measures, and that
makes it even less likely that America can materially reduce its
foreign oil dependence which is growing every day as oil consumption
rises and U.S. oil reserves are depleted. Democrats
are brazenly talking out of both sides of their mouth when they rage
for energy independence while they oppose the practical means to
achieve that goal.
The
unavoidable fact is that oil byproducts are by far the most versatile
and cost effective fuels and components for construction and
manufacturing materials and packaging. Paying a much higher price for
substitutes, if they existed, would have a very negative effect on the
economy.
All this means that it is absolutely vital that
America maintain its access to Middle East oil for the foreseeable
future, and the Democrat's arguments to the contrary are born of
ignorance or politically motivated demagoguery.
Hopefully the above data illustrates the absolute necessity that the USA,
Maintain access to low cost Middle East oil, and
Take steps to reduce oil consumption, and
Take aggressive steps to increase nuclear and coal fired electricity production, and
Shift to electric fired mass and individual transportation.
Now that we have covered the basics of crude oil, please proceed to the "Oil Prices" page to better understand the factors that drive energy prices.
