Unrestrained by an appalling lack of regulation, this has led to a steady rise in crude oil inventories over the last two years, “resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the US Department of Energy.”[7]
The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can't sell into floating storage. ‘If we produced more oil, it wouldn't find buyers,’ says the Saudi source. It wouldn't affect the price at all."[8]
And why producing more oil “wouldn’t affect the price at all”? Well, because what is driving the soaring oil prices is not shortage but speculation: “with so much investment money sloshing around in the commodities markets, the Saudis calculate they have no hope of controlling short-term price fluctuations. They blame the recent price run-ups on speculation and fear of shortages [not real shortages], factors they say are beyond their control.”[9]
To sum up, manipulative speculation and dollar depreciation account for most of the recent increases in the price of oil—speculation accounts for nearly 60 percent, dollar depreciation for almost 40 percent. This is no longer a secret. What remains largely a secret, and needs to be exposed, however, is the relationship between speculation and dollar depreciation, on the one hand, and war and geopolitical instability, on the other.
While it is important to point out the impacts of dollar depreciation and commodity speculation on the price of oil, it is even more important to show that both of these factors are byproducts of war and militarism. Not only has the war played a critical role in the weakening of the dollar (through plunging the U.S. deep into debt), it has also created favorable grounds for manipulative speculation in commodity markets, especially energy markets.
Therefore, while efforts to curb speculation in energy markets (through regulation of the largely unregulated futures markets) or buttress the dollar from further declining may sound comforting, such efforts will remain elusive and ineffectual unless the devastating wars and military adventures in the oil-rich Middle East are terminated; that is, unless the root causes of currency depreciation and commodity speculation are exposed and cut out.
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References [1] Robert L. Hirsch, Roger Bezdek, and Robert Wendling, “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management,” Testimony on Peak Oil before the House Subcommittee on Energy and Industry (7 December 2005), click here [2] “No oil shortage in markets,” Reuters (24 June 2008), click here [3] Ed Wallace, “There Is No Gas Shortage,” Business Week (1 April 2008), click here[4] “Oil Surges to New Heights after Israeli Warning on Iran,” Agence France-Press (6 June 2008), click here
[5] “Record oil prices tied to dollar depreciation,” GeoTimes.org (15 April 2008), click here [6] F. William Engdahl, “Perhaps 60% of Today’s Oil Price Is Pure Speculation,” financialsense.com (2 May 2008), click here[7] Ibid.
[8] Stanley Reed, “Help from the House of Saud: Why the leading oil producer wants to cool off the market,” Business Week (29 May 2008), click here [9] Ibid. Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.
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