Thursday, February 24, 2011

Of Revolutions and Oil

As I was driving home today, I was listening to Hannity's radio show. Over and over, caller after caller kept insisting that this was the beginning of The End, all predicting that the revolutions now sweeping the Arab world will somehow end up in a one pan-Arab Caliphate, Islamist in nature, and that war was a certainty. As for me, I'm not so sure.

Shortly after the Bush Administration began to lay the publicity groundwork for the invasion of Iraq, I read a very prescient piece based on an interview with one Paul Wolfowitz, who at that time was the Deputy Defense Secretary. The piece wisely saw that a burgeoning youth population, high unemployment, corruption and disenfranchisement was certain to incite revolts-- and it went on to predict that most of the Arab world's dictators would fall in revolutions because of these factors. It was hoped by Wolfowitz that once the Arab world saw a functioning, stable, prosperous Arab democracy, they would begin to demand it in their own nations, sweeping away corrupt tyrants and ushering in an era of peace and democracy in the Arab world instead of worse alternatives. Iraq was to be the beacon, leading the way forward. It was certainly a grand throw of history's dice.. a bloody and expensive one at that.

Alas we have arrived, though Iraq certainly was not the beacon Wolfowitz has hoped for-- but neither do you see these revolutions taking place in Iraq. In my humble opinion, this is not about Islam. It's about unemployment and disenfranchisement. In all of the cases so far.. Tunisia, Egypt and now Libya, Yemen and Bahrain-- there were dictators in place, high unemployment and frustration. They were disenfranchised. Now they are (or will soon be) gone. There was today the beginnings of serious demonstrations in Saudi Arabia, a day after King Abdullah threw a ton of money at some of the Kingdom's social and economic problems. For the youth of these nations, it was their first taste of enfranchisement and power-- and they liked it, as well they should. 

Prediction Time !!  I don't see any pan-Arab Caliphate coming. Each of these nations has a differing set of variables and so likely have different outcomes. In Egypt and Tunisia, the Army will hold power for a time. I do believe that elections will be held in Egypt. I'm not so convinced about Tunisia. In Libya, Colonel Qaddafi will lose and will flee the nation, followed by another Army government and shortly thereafter elections. Bahrain is more of a religious thing.. most of the people are poor and Shiite, and the ruling family is rich and Sunni. I think the royal family will be forced to leave, and a Shiite government will take over-- and this will quite likely mean the eviction of the US 5th Fleet. As for Saudi Arabia, I believe that in time the King will be given the choice of a constitutional monarchy (like Britain) or being kicked out completely-- but I'm not convinced it's going to be anytime soon. Algeria is also on the bubble, and I see Boutaflika also being forced into exile. Will these people be able to produce some form of democracy ? I say yes.. Egypt almost certainly, the others not so certain, but it will take hold in a number of these nations. Unknown to most westerners, the vast majority of people in these nations want what we want.. peace, prosperity and democracy. There are huge numbers of educated, young, urbane college grads in the Arab world.. these are the people you see in the streets demanding change, not radical jihadis. But in all of these there is also a radical element.. perhaps a fifth of the population.. who want to turn back the hands of time to the 14th Century. But I say that history moves forward for the most part, Ayatollah Khomeini being one of the few exceptions. I also expect that the mullahs in Tehran will one day be forced to yield power. Forcing democracy is one thing.. providing reasonable employment is quite another. Many of these nations have very high birth rates and (except for crude) no natural resources. What would they produce ? The world only needs so many t-shirt plants. But even a dirt poor democracy is better than dirt poor kleptocracy. This is a situation which will be revisited with increasing frequency on the African continent. 

Now we come to the uglier part of this piece-- crude oil. Today Brent Crude (Europe's main source of crude) touched $120/bbl-- levels not seen since 2008. West Texas Intermediate Crude (the US oil) went north of $110/bbl. Most of this was on the news out of Libya, where today it was announced that the half the nation's crude exports had ceased. There were also rumors that Colonel Qaddafi, never one to espouse reason or sanity.. would blow up his nation's oil wells and turn the place into a gigantic Kuwaiti oil rig fire. Libya usually produces about 1.5 million barrels per day.. total world production is something like 83mm barrels per day. But the world is using much more oil than before; supplies were already tight before this. Algeria produces roughly the same amount as Libya does. Combined, this would be a tough loss, sending prices soaring. Depending on how bad things get-- and they might get very ugly-- we could see $4.00 gasoline again this summer, kneecapping any hopes Obama had of a recovery. If something serious were to happen in Saudi Arabia, look out-- $6.00/gal is quite possible-- and if this lasts for some time, it could be a  "Game Over" event. But talk of such things is still premature. I fully believe that more kleptocrats will be swept away this spring and that $3.50 gas is a reality we're going to have to learn to live with for the short term. Oddly enough, I'm happy for the peoples of these nations who will finally have a say in how they are governed. Let's just hope that it does'nt bring catastrophe upon our own economy in the process.


  1. "Depending on how bad things get-- and they might get very ugly-- we could see $4.00 gasoline again this summer,..."
    You meant to say "...this spring," didn't you?

    We may even see $4.00/gal before the end of winter, at the rate prices at the pump are increasing.

  2. Great work Mr K. "I was listening to Hannity's radio show" was probably your first mistake. I don't see much talk of Islam and/or Al-Qaida in these revolutions (except from Gaddafi blaming AQ, LOL). These are Muslim countries, but it's not about religion, it's basic freedom, human rights, democracy, not being ripped off and oppressed. It's the youth of these nations driving it, using the internet, in a way that was barely possible 10 years ago.

    America, can in a very ironic way, blame itself for all this anyway. Silicon Valley developed and popularized the internet, mobile phones, Google, Facebook and Twitter, most stemming from DARPA funding in the beginning. Now those tools are being used to overthrow "friendly" dictators. Oops.

    Funny how rhetoric about freedom and democracy goes out the window when it's people in a far away place with a strange culture who own a "vital" resource, isnt't it? Neo-cons etc would prefer Arabs live under oppression as it's easier for them to deal with. I'd call it simple paranoid fear of the unknown, at a basic level. And classic Imperial blowback as Chalmers Johnston wrote it. When you support brutal dictators, it works for a decade or three, then they get overthrown and the people there don't like you much because you supported the hated dictator - duh, who could see that coming.

    These are historic times, and who knows what will happen in the end. But I discount almost all of the paranoia because it emanates from the usual brain dead right winger neo-con suspects. Did Hannity every issue a public apology for cheerleading the Iraq invasion btw? If not, he ought to, then sit down and shut up, along with the rest of the neocons. But of course they want to start another war over it. As if that will end any better than their other ones.

    The people of these nations will work it out for themselves s they see fit, or not, and there is almost nothing the West can do about it but watch. We should provide temporary food aid etc to the newly freed people, as a gesture of friendship, and let them get on with rebuilding their nations. It will take decades anyway. Their youth will not be easily influenced or swayed by our concerns. Their democracy may not be a mirror image of ours, but it will be what fits to their culture.

    A hundred years of interfering in the whole MENA region has failed, that's the lesson of history. Nobody likes a foreigner who tells them what to do and when. The King of Saudi Arabia is a brutal dictator, torture is routine there. If he falls, I'm not shedding any tears

    And yes, gas may soar - that's our fault for not moving on to a better fuel source by now.

  3. I think Americans are too concerned with gas prices anyway. I always see "analysis" from some pundit, or comments on a Blog etc, for many years now, that "man, when gas gets over $3, $4, $5, whatever, by God, the whole economy will instantly implode!"

    Get over it already. Gas costs around $10/gal in Norway, and they have lots of oil. Their economy still functions. People adjust to it - buy smaller cars, drive less, make 1 trip to do the shopping instead of 2 or 3. Life goes on.

    Here in Canada I just paid 116.9/litre, which works out to $4.55 CDN, or $4.64 US/gal. I drive a v-8 pickup. So what. The roads are full of cars and trucks, stores are busy. People shrug and carry on. They may complain, nothing new there. Most people don't even mention gas prices here, after the '08 price shock, it's more of a minor irritant than a panic.

    I know a rising fuel price drives inflation and cuts discretionary spending etc, it will slow the economy. there were a couple posts on ZH that quantified the effect pretty well. But it's not the end of the world. Or Norway would have already imploded by now.

    The people who will get the hurt the most are, ironically, (lot of that going around) the citizens of the oil producing nations like Saudi Arabia or Iran etc, where gas costs like 20 cents a gallon or whatever because the Government subsidizes it. They won't be able to afford that anymore, and the retail price will have to move up much more in % terms than in the West. The boomerang effect. Probably cause more Governments to fall, people there have no idea about fuel efficiency, they've always had really cheap fuel prices.

    A few more years, so many people in North America will buy electric cars that gas stations will be closing for lack of buyers. In 20 years, they'll probably be hydrogen hybrids running on water, or something not even thought of yet. We have enough natural gas to last a 100 years even if every vehicle now on the road burned it.

    Now there's a good business idea, a shop that converts vehicles to natural gas. I think most current engines could run it with a few new parts. Taxis in Toronto have all been propane powered for decades now.

  4. What you speak of is the Pickens Plan, a plan well thought out and far sighted. Unfortunately, we don't have the foresight for such a big change. In Brazil, most small cars run on sugar cane ethanol. I agree that at some point, something will change. Switchgrass perhaps ?

  5. I don't think it's much of a "big change", at least here in Canada, to run all your vehicles 9except tractor trailers) on natural gas, right now.

    There are already natural gas powered vehicles on the roads, and stations to fill up at. Not a lot of stations yet, but they are around, in larger urban areas. Much fewer when you go out farther from big cities.

    A friend had a 'dual-fuel' equipped full size Chev van back in the late '90s, it ran on gas and/or natural gas. He would fill up the natural gas tanks, and could run for about 600 miles on that, then switch over to gasoline until he got to a natural gas filling station.

    This was 12 years ago or so. Hardly new technology.

    I've read a natural gas conversion should cost about $1,500 US these days, no idea if that's right. Sounds a bit low, without mass production, I recall being quoted $2,200 CAD about 14 years ago for the same conversion here, it probably runs at least $3K now.

    But, depending on how far you drive per month, it can pay for itself very quickly. As long as you go 'dual fuel' you have all the flexibility you need, run natural gas when you have it, and gasoline in between till you get back to a natural gas station.

    I don't think the "Pickens Plan" is needed in particular, the cost saving should drive motorists to do the conversion on their own, and if there is demand, stations will install the natural gas filling equipment.

    There's not a lot new about the technology, it just lacks wide spread acceptance, yet. But as the price of oil rises.....