Thursday, April 30, 2009

Oil Supply: Is War the Answer?

I recently read a fictional scenario in which two countries were engaged in a war over disputed territory... which had oil under it. This border had been disputed for years, and in the latest round of border skirmishes, one had seized the oil territory from the other. This region was a major exporter to the US up until this point, and as a result of the conflict, the price of oil had risen 30% or so. It was part of a survey, and was followed up with a lot of questions about my opinion as to whether the US should send troops, why, the aftermath of a conflict, etc. It got me thinking.

My first thought is this: oil prices are rising? Oh noes. Big fucking deal. Yeah, it cuts into our standard of living... but violence for raising or maintaining a standard of living has another name when done at the individual level: theft. Its their dispute, the dispute is probably the result of an incorrectly drawn colonial border (and colonial borders cannot but be incorrectly drawn), and so probably the two sides need to figure out where exactly it should be, if anywhere. Such matters are often decided via warfare, unfortunately, and the US sending troops is not going to help them with that question, in the long run.

But what about the oil? Wouldn't the world be better off if this oil were available? And when an oil rich region is in a state of perpetual conflict, wouldn't it be better if someone brought an end to that conflict, making this resource available for extraction? I'm going to analyze the probable effects of leaving the conflict alone.

First, the higher prices remain at that level in the short term, and no signals are sent that the supply from this region is going to resume at any point in the near future. This higher price does curtail consumption, potentially impacting the standards of living of everybody dependent on oil, but it also stimulates production. First off, the potential profits of resuming production in the war torn region can tempt both governments to working out some arrangement by which production can resume. If not, they miss an opportunity, which is taken by others.

These others include other oil producing regions that are inhabited by people that do not engage in warfare every decade or so. In the short term, they reap greater profits due to the higher price. In the long term, these profits make available and/or attract additional capital into oil production. The result: the war torn region no longer has as great an opportunity for profits in oil production. Peace is rewarded; war is penalized; the market is the mechanism by which this occurs.... naturally.

Additionally, in that same long term period, it isn't oil that is needed specifically, but energy generally. The higher price of oil results in profits not only for oil producers, but for energy producers of all sorts. This would stimulate investment in non-oil energy sources, such as coal, solar, biomass, hydroelectric and wind, and possibly things most of us haven't even imagined yet.

Thus, the end result of non-intervention:

1. More oil produced in peaceful regions.
2. Less oil revenues available to the belligerents in question, and thus reduced capacity for violence.
3. More energy from non-oil sources.

All of this, not from expensive government programs, but from our government refraining from action. Thus, we have a #4:

4. Less loss of life for US soldiers, lower taxes, lower public debt, a better national reputation, etc.

Honestly, I count only positives in this scenario, and absolutely no negatives, not in the "common good" sense, at any rate. There are certainly people who lose out in this scenario, and I can even accept a demand that the attacking side reimburse those among our fellow citizens who had property destroyed in the conflict (oil rigs, wells, etc.).

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