From: bzs@ussr.std.com (Barry Shein)
Subject: Re: Foreign policy musings, THE REAL PRICE OF OIL
Organization: The World
	<Bt6Dw1.9CF@world.std.com> <2796988236@dwetzel.mis.stratus.com>
	<1992Aug20.050819.28422@odi.com> <2797170305@dwetzel.mis.stratus.com>
	<BZS.92Aug20204117@ussr.std.com> <2456@mitech.com>
Date: Sat, 22 Aug 1992 03:59:22 GMT


From: gjc@mitech.com (George J. Carrette) [responding to moi]
>> 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.

But clearly that was speculative and short term.

>You can take a wild guess as to why the oil price went down after
>that.

The market stabilized back down to the true value of the commodity?

>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.]

Sure, but that just makes my point, no?

>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.

But why would we have tried to go w/o Kuwaiti and Iraqi oil? That's my
whole point, Hussein would have sold it at the market price, and it's
doubtful he could have influenced it much. At this point it's just not
that volatile, the world would have just adjusted to reduce demand,
it's nothing spectacular.

Now, had he marched into Saudi Arabia and Qatar the picture might have
changed.

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

Yes. But why would we be there?

>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.

I think you're missing an important point. Qaddaffi was never able to
turn his oil into a weapon, as much as he might have liked to.

What really happened after the oil crisis of the 70's was a
readjustment of world banking credits and other instruments that
really make this kind of thing next to impossible. They found the hole
and closed it, everyone now has everyone else by the neck.

What good is demanding petrodollars if you're not allowed into the
marketplace with them?  It all quickly becomes fiat money until you
get back into line. No one can challenge a US/Europe/Japan juggernaut
for long in the economic sphere, not if they like to eat something
other than bank notes.

I read that during the time the US was patrolling the Persian Gulf
during the Iran/Iraq war, including that cost, the US was paying
almost $500/bbl for oil. Sort of puts things into perspective.

>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.

Or they go broke or do whatever it was that Brazil et al do when they
find they can't pay their debts.

They can raise their prices all they want, but they still need a
buyer, and they still need to be able to play in the international
money game to make any of that work.

That's why some think tanks expressed dismay at Reagan's bombing of
Libya. As Robert McNamara (former head of the World Bank, and former
US Secty of Defense) commented at the time (roughly, from memory):
``It was unnecessary, we [world bank] had already taken Qaddaffi out,
it was completely unnecessary''.

I'm not saying this could have resolved the Iraq/Kuwait thing. The
problem there was that the violence being perpetrated was at least as
big a problem as the sheer economic issues. But had we chosen to let
Iraq hang onto Kuwait I doubt things would be very different today
UNLESS Hussein kept expanding (or developed an atom bomb or whatever.)

>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.

And the people that loan that kind of money aren't stupid, they were
going to come out ok no matter what happened, pretty much. Most likely
they loaned Iraq the money to build more oil facilities while covering
that loan by investing in companies most likely to profit from those
new facilities. So by the time Iraq goes sour on some of it it's all
paid for anyhow. If they do pay it, that's gravy.

They're very clever those int'l banking types. That's why they handle
billions of dollars and you and I don't :-)

>Also, running an atomic weapons development program is EXPENSIVE!

See, now here was another real concern, in my mind.

I think this was really one of the biggest concerns.

If Hussein was ``set up'' for this war, it was probably as an excuse
to defuse any atomic weapons program. Not oil, we can deal with oil
economics in board rooms quite well, thank you.

--
        -Barry Shein

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