From: gjc@mitech.com (George J. Carrette)
Newsgroups: ne.politics
Subject: Re: Foreign policy musings, THE REAL PRICE OF OIL
Date: 21 Aug 92 18:17:59 GMT
Organization: Mitech Corporation, Concord MA

In article <BZS.92Aug20204117@ussr.std.com>, bzs@ussr.std.com (Barry Shein) writes:
> Even with Kuwait, Iraq did not control enough of the world's oil to
> affect the price he could get on the open market. This is clearly
> evidenced by the fact that for several months after the war there was
> no Kuwaiti or Iraqi oil, and I don't remember any particular crisis in
> either price or supply.

Oil prices shot up at first because the market thought there was a chance
that the Saudi oil fields would be taken out of production.

You can take a wild guess as to why the oil price went down after
that. Ever since the last Arab oil-crisis the world has built
up some pretty large reserves. Tens of millions of small, medium, and large
oil tanks all over the world. In the hands of millions of different owners.
[Also, major producers of "petrochemicals," e.g. the Eastman Kodak plant
in Kingsport Tenn, have switched from oil to coal ever since the 1'st 
Arab oil crisis.]

In the short term it was possible to do without Kuwaiti and Iraqi oil.
However after about a year and a half things would have gotten a lot
tighter. Although, there is enough slack in the system now so 
that as the price rises it is possible for more expensive methods of
production to be turned-on. The key is lead time, *and* a price rise.

It could never be a crisis again. There is a huge amount of
potential production capability in the OIL SHALES of Canada
and other places. These operations have pretty much been shut
down now. But the oil prices would have to get back up to $50 
or so for these production facilities to "kick-in." 

And $50 a barrel would have a negative impact on the U.S. and
world economy. Millions of jobs would be lost.

That $50 a barrel price and the economic impact would have
been a crisis for every elected leader of a western country.

Therefore I beleive that every U.S. Senator that voted against
the January "Desert Storm" well understood that there was a definite
time limit to sanctions. And that within an additional year
the world would have had to either suffer much higher oil prices or
pay Iraq for Kuwaiti oil, or both. In other words, to cut some
kind of deal.

-----------------

On the other hand. I totally agree that paying the we don't give
a tinkers damn for the debts that Iraq owes Kuwait, seeing how Kuwait
acted like it didn't care for any U.S. military help at all.
And that the money for Kuwait oil could have just as well gone to Iraq.

The *price* had to be higher of course. Since Iraq owes so much money
to so many people/countries that it could not have possibly paid off things
in a reasonable amount of time at current world oil prices.
Remember, people loaned Iraq (and other places like Mexico) most of
that money when world oil prices were a lot higher than they are now.

Also, running an atomic weapons development program is EXPENSIVE!
Especially when you have to pay 10 times the fair price for your
equipment in order to keep your sources of supply secret.

-gjc