Misconceptions dominate the oil debate

Misconceptions dominate the oil debate
By Bassam Fattouh
Special to The Daily Star
Tuesday, August 10, 2004

Since the Sept. 11, 2001, attacks, there have been growing misconceptions about Saudi Arabia's key position in the oil market. These misconceptions, though usually politically motivated, have become part of the conventional wisdom and are beginning to dictate US energy policy and its strategic agenda.

After Sept. 11, many US analysts doubted whether Saudi Arabia could still play the role of swing producer in the global oil market. Matthew R. Simmons, chairman of Simmons & Co. International, an investment bank specialized in the energy industry, claimed that Saudi Arabia's oil production is extremely fragile and could witness a severe decline in the coming years. This was echoed in The New York Times, which claimed that Saudi Arabia's oil fields are now "in decline, promoting industry and government officials to raise serious questions about whether the kingdom will be able to satisfy the world's thirst for oil in coming years."

These assertions are usually followed by suggestions that the United States no longer needs to rely on the kingdom as a swing producer. Instead Russia, the emerging energy giant, can assume this role. For instance, an article in Business Week by Jeffery Gorton called for America to "help Russia accelerate its production and its exports to undermine Saudi Arabia's role as the pivotal swing producer."

Surely these doom-laden predictions mean that Saudi Arabia is becoming less important to the oil market. "Nonsense," says the Economist. "Ignore the headlines and look instead at geological and market realities, and it quickly becomes clear that Saudi Arabia remains the indispensable nation of oil. The Saudis not only export more oil than anyone else, but they also have more reserves than anyone else - by a long shot."

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This leads us to refute a related misconception: the US should aim at achieving "energy independence" from the kingdom. This issue has been raised repeatedly, especially during election campaigns. In a speech on 29 July accepting the nomination as Democratic presidential candidate, Senator John Kelly told his audience that he wants "an America that relies on its own ingenuity and innovation - not the Saudi royal family."

Such calls within the US and elsewhere for "energy independence" are just political slogans based on flawed reasoning. Energy policy aimed at increasing domestic production and reducing or diversifying the sources of imports is both wasteful and ineffective. The reality remains as professor Adelman notes "that every barrel in the world competes with every other" regardless of where this barrel is produced.

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http://www.dailystar.com.lb/article.asp?edition_id=10&categ_id=3&article_id=7121

that oil from crude is the world's only viable energy source.

We have to wean ourselves from the oil spigot no matter the source.

idea was a childish fantasy, instead of an utter necessity.

This article is entirely mendacious. All barrels of oil may look the same and sell for a similar price in the market. However, it was almost certainly the profits of Saudi oil not that from the North Sea which funded the terror attacks on 9/11. Kerry's speech obviously has them seriously worried. Lets hope he wins in November and then has nerve to transform his ideas into reality.

...the bigger and more wasteful the better. That's the free market in action. Corporate America is real concerned about fuel economy.