If oil stays low . . .

Here's a link to my recent piece for Antiwar.com, suggesting that if the price of oil stays low for the next year or so, it will have mostly a beneficial impact on the United States and to some extent on the prospects for reducing confliuct in the world. Venezuela and Iran will be the biggest losers and Russia will have less flexibility. A fair number of experts think the price of crude will stay below $40 a barrel or even lower and that the run-up earlier this year was the anomaly. Don't know for sure, but I kinda hope so.

Silver lining to the financial crisis?

Here's a link to my most recent piece for Antiwar.com. It argues that if there is a bright side to the world financial crisis, it is the falling price of oil, which means that several countries that have amassed petrodollars and used them to make mischief in the world at large -- notably Iran, Russia and Venezuela -- will have less money available and thus less capacity to create problems for others.

The Register ran an editorial today that made a similar argument. Coincidence? I think not. I'm afraid my former colleague John Seiler misunderstood the import of the editorial and attacked it in his own blog. We ran the editorial in part to undercut the idea that the United States needs to be actively interventionist overseas to counter these countries, because the threats are petering out of their own accord -- not only because of the falling price of oil but because that falling price exposes some inherent weaknesses in the economies of those countries. I agree with almost everything John wrote, in fact, except for the part where he said the Register had become economic nationalists, for heaven's sake. John and I will remain friends, of course.

Drill -- and everything else

Here's a link to the Register's editorial on the possibility that the House just might take a vote on opening up more areas to offshore drilling, or at least letting state governments decide. It acknowledges that drilling is far from a panacea, and that it will take a while to see any oil even if drilling starts now. But since current willingness to put supply on the market and current prices reflect the anticipation of future prices, it would put downward pressure on prices immediately, as I noted in a previous post.

I say try everything else also, but not in the same way many do. Most politicians want to use various government incentives like tax credits to encourage wind energy, ethanol, other biofuels, solar and the like. That distorts the market and makes it more difficult to know what kinds of alternative energy is truly economical and competitive.

We got a call from a very angry old man today who said this editorial was "wrong on everything" and that it reflected the left-wing bias of the nasty media. He said he was canceling his subscription, but he didn't want to talk to the writer, because it was just plain wrong. You put your work out there and you just don't know what people are going to think. I love it.

How to lower the price of oil

Here's an interesting piece by Harvard's Martin Feldstein, who was Council of Economic Advisers head during the Reagan administration and is a pretty good economist. He argues that because the expected future price of oil causes those with supplies to keep it in the ground rather than sell it -- because they expect the price to be even higher in the future -- anything done now to reduce the expected future price of oil will have an immediate impact on the current price of oil. He notes that steps to reduce demand -- higher CAFE standards, for example --would help, as would steps expected to increase supply, even if the expected new supply wouldn't actually come online for a while. Thus, I infer (he doesn't say it directly) that just announcing that we're going to start drilling offshore or in ANWR should have a downward impact on the price of oil now.

I find the argument quite persuasive. The same argument applies to food. Announcing that the ethanol program would be ended or suspended for a few years should place immediate downward pressure on the price of corn. It might well end up higher than a year or so ago -- increased demand due to increased affluence in China, India and the Gulf states would still be a factor, as would the drought in Australia that to my knowledge hasn't ended yet -- but it still should go down noticeably. The greatest impact would be on those on the edge of dire poverty in underdeveloped countries.