Peak oil?: Oil supply and accumulation
|By D. T. Cochrane • January 4th, 2008|
For the past few years the buzz about ‘peak oil’ has largely been confined to activist circles. The possibility of oil’s disappearance as a viable energy source was a cause for both dread - what horrible things might happen within a society deprived of its energy gluttonous toys? - and celebration - what desirable changes might occur? However, talk of the theory is increasingly finding its way into the mainstream. Most recently, the Toronto Star featured the article “Is oil supply at its peak?” on the front page of its business section. One of the experts included in the article was Jeff Rubin, chief economist of CIBC World Markets. Hardly a radical, Rubin says that oil output will likely fall in the near future. Although this does not mean the disappearance of oil as an energy source, or even its immediate demotion from the top spot among energy sources, it will translate into an upward trend of oil and gas prices. As well, the prices will likely fluctuate much more drastically. Among the changes this will motivate, according to Rubin, is an increase in regional economies and decrease in ‘globalisation.’ This scenario certainly holds appeal for progressives and radicals for whom corporate globalisation was ‘Enemy No. 1′ during the 1990s and early 2000s.
Although a peak and decline in oil production is a geological certainty, we should question whether it is actually occurring right now. The supply of oil within the global market depends on much more than the geological realities of production. Governments of all sorts - Iran, Saudi Arabia, Venezuela, the United States, Russia - are heavily involved. Its corporate players are among the world’s most powerful and profitable businesses. The goings-on within the market are of interest to every other business. Speculation is rife. Examination of recent price increases need to consider these factors and many more.
One of the pieces of evidence offered by advocates of the theory is the uncertainty surrounding the actual quantity of oil in the Middle East. The size of the reserves controlled by the big oil exporting countries is unknown. There is some evidence that Saudi Arabia, in particular, has routinely overstated the amount of known reserves. However, although these countries do not want to lose the political clout they enjoy from their control of the great global lubricant, it is not difficult to see how they benefit from such uncertainty. Uncertainty drives up prices; higher prices, higher earnings.
Another source of uncertainty has been the invasion and occupation of Iraq. This one-sided war is routinely labelled as a ‘War for Oil’ by its critics. The standard idea behind the slogan is that the U.S. wishes to control the global oil supply in order to ensure the easy access required by its corporations. However, the war has hardly brought an increase in supply. Instead, it has coincided with a rather drastic increase in oil and gas prices. The oil exporting countries are hardly the only beneficiaries. The oil companies have been enjoying record profits.
An increase in prices, rather than supply, as an outcome of the invasion, was predicted by political economists Jonathan Nitzan and Shimshon Bichler in their 2003 article “It’s all about oil.” The pair challenged the conventional wisdom that the war was meant to undermine OPEC (Organization of Petroleum Exporting Countries) and ensure the free flow of oil. They demonstrated that the fortunes of the oil companies and OPEC move together. Far from seeking to loosen the supposed iron grip of the dictators who control the global oil supply, the corporate petroleum giants have benefitted from their interventions. In fact, the invasion of Iraq was partially motivated by the the oil cartel’s ineffectiveness at raising prices. Nitzan and Bichler have shown that ‘energy wars’ in the Middle East have followed upon periods of deaccumulation by the oil giants relative to the members of what they call ‘dominant capital.’ For example, in 1988, although the return on equity of what Nitzan and Bichler call the ‘Petro-Core’ was more than 12%, the Fortune 500 - a proxy for dominant capital - had returns greater than 15%. This means that the oil giants fell behind their capitalist cohorts: they failed to beat the average. For the entire second half of the 80s the Petro-Core lost ground. The situation was not reversed until the early 90s when Bush the First invaded Iraq (see Nitzan and Bichler, 2002, ch. 5).
However, from the differential perspective it becomes clear that the interests of other capitalists are not being served by the wars in the Middle East. When the oil companies are accumulating relative to dominant capital as a whole, others must be losing - although we cannot tell exactly who unless we disaggregate the picture. An end to the U.S. occupation will likely come when the (relative) losers within dominant capital finally exert sufficient pressure upon the politicians in Washington. The oil companies realize that they cannot hold court indefinitely and it is likely the political-military tide will turn against them. Yet, they would like to retain their accumulatory advantage. If military adventures can no longer drive up oil prices, then perhaps talk of diminishing supplies will.
Peak oil will come. When it does, its effects on the global economy are uncertain. In the meantime, the oil companies must keep the following plates spinning: faith in oil as the energy source of capitalism, a high enough price to remain on top of the corporate world, a low enough and steady enough price to avoid contributing to a lengthy recession, or even a depression. While the differential perspective on accumulation makes it clear that growth is not synonymous with the corporate interest - as long as everyone else is declining faster than you, then you are differentially accumulating - depressions are dangerous for their unpredictability and their potential to threaten the capitalist status quo (see, Nitzan, 2001). Undoubtedly, one of these plates will drop. The question is: which one? The consequences of the answer to that question will come more immediately than the geologically necessary peak in production and should be of greater concern.
Nitzan, Jonathan. (2001). “Regimes of differential accumulation:mergers, stagflation and the logic of globalization.” Review of International Political Economy, Vol. 8, No. 2, pp. 226-274.
Nitzan, Jonathan & Shimshon Bichler. (2002). “The Weapondollar-Petrodollar Coalition.” The Global Political Economy of Israel. London: Pluto Press.
—–. (2003). “It’s all about oil.” News From Within, Vol. 19, No. 1, pp. 8-11.
Hamilton, Tyler. (January 3, 2008). “Is oil supply at its peak?” Toronto Star, B1, B4.
D. T. Cochrane
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