As the Memorial Day weekend neared the price of gas at the pump in New York State skyrocketed to $3.21 per gallon for regular. In the past year crude oil has risen 33 percent. The Bush administration and the mass media claim the cause is the law of supply and demand. According to them the industrialized countries are “addicted” to oil and, particularly in the U.S., as the summer vacation period approaches, demand is going up. Add to this the lingering effects of Hurricane Katrina on oil production and the refineries in the Gulf of Mexico, and the burgeoning energy needs of the booming economies of India and China and fears of political instability in the Middle East, particularly because of the continuing war in Iraq, where oil production has not returned to pre-war levels, and a possible military confrontation over Iranian nuclear ambitions, and terrorist attacks on oil facilities in Nigeria, and the result, according to the bourgeoisie, is a classic situation in which demand far outstrips current oil supplies. As National Public Radio put it, “So you have a situation where demand has been growing steadily and inexorably, and the systems of supply is quite vulnerable. That’s the basic recipe for high prices” (NPR April 27, 2006).
The leftists, including consumer spokesman and Greens leader Ralph Nader, offer yet another explanation. For them, corporate greed and unconscionable price gouging are to blame, pure and simple. It’s the work of evil, money hungry capitalists. They point to soaring oil company profits as proof.
Whatever grain of truth these explanations contain that give them some semblance of plausibility, neither corresponds to a comprehensive explanation of reality.
Despite the current controversy over Iran’s nuclear ambitions, oil supplies are unaffected. Iran has not even threatened to cut oil production as a political tactic in the current confrontation. As Iranian oil minister, Kaxem Vaziri-Hamaneh, put it during the January OPEC meeting in Vienna, “We are not mixing politics with the economic decisions on this issue.” Despite the American bourgeoisie’s claim that there are inadequate supplies, all the evidence indicates that current inventories of crude oil are adequate to meet current purchases, and will continue to be for the foreseeable future. According to forecasts for future global oil production from sources as diverse as the U.S. Energy Department, Daniel Yergin of Cambridge Energy Research Associates, and Simmons and Company International, global oil production will continue to grow for the next 10 to 30 years. All the political instability and war that the bourgeoisie says might reduce supplies in the future are the inevitable by-products of imperialism and the social decomposition of capitalism. It is imperialism and decomposition that is responsible for soaring oil prices, not the invisible hand of supply and demand.
If there is pressure on world oil supplies, it comes from the headlong rush of industrialized countries to augment their Strategic Petroleum Reserves, in anticipation of possible interruptions in oil production due to the threat of war. Currently there are 26 nations with SPR of over 1.4 billion barrels of oil, oil that is artificially removed from world oil supplies, oil that it is not available to meet current consumer demand. With the growing threat of war (imperialism again!), the U.S. is reportedly planning to increase its current SPR of 700 million barrels of oil, by 300 million. Australia, the countries of the European Union, and Japan and Korea are also expected to increase their SPR as well. In addition, China, Russia, and India plan to create their oil SPR in the period ahead. India seeks to create an SPR of 40 million barrels initially. China plans an SPR of 100 million barrels. While Russia has not announced its SPR goal, 78 million barrels would give it a reserve equivalent to 30 days of typical oil consumption. To fill these expanding SPR needs, as much as 1,000,000 barrels of oil per day are likely to be withdrawn from the open market over the next few years, putting more pressure on crude oil prices (www.energybulletin.net/11386.html, May 22, 2006). This inflationary pressure on crude oil prices is the direct fruit of U.S. imperialism’s strategy in the Middle East for the past decade, to put pressure on Europe, particularly German and French imperialism, by exerting control over world oil supplies. As increasingly happens under the conditions of capitalist decomposition, every action U.S. imperialism takes to defend its hegemony only exacerbates its problems, in this case by sending petroleum prices through the roof, even for the U.S. itself.
In this context the leftist grumbling about greedy capitalists becomes a caricature. Nader’s arguments about corporate greed rest primarily on the contention that American petroleum industry has artificially created an oil shortage by shutting down “scores of refineries and then turn ‘refinery shortages’ into higher gas prices at the pump.” (Nader, “The Price of Oil,” April 28, 2006 www.pirg.org). Even if this were true, it wouldn’t explain why the price of crude oil would rise so dramatically so fast. Sure, greed is inevitably a factor in the capitalist economy. The oil corporations, as any capitalist enterprise in the same circumstances, have not hesitated to take immediate advantage of soaring crude prices, to raise prices at the pump, even if it will take two to three months for current higher priced crude oil to make its way to retail outlets. Since their original investment in crude oil production, from which they gain most of their profits, was made at a time when oil prices were much lower and their break even point is therefore much lower, naturally profits will rise dramatically.
To the extent that the Hurricane Katrina impacted oil refineries in the Gulf Coast, that is a manifestation of decomposition, in that capitalism’s total disregard for the environment has negatively affected world meteorological patterns and caused the rash of extreme weather disturbances in the last few yeas. Years of neglect of the infrastructure, a fruit of the social decomposition of capitalism, has made the Gulf Coast unnecessarily vulnerable to catastrophic storm damage.
The bourgeoisie can spout all the mumble-jumble it wants about supply and demand as its alibi for skyrocketing oil prices, but it is the world imperialist system itself that is the fundamental cause of the current difficulties.
JG, July ’06.