Posted by: bmeverett | March 21, 2008

The High Price of a Gallon of Obama

Senator Obama’s views on the US economy often resemble the sermons of Jeremiah Wright – blustery, scary and just plain wrong.

In a March 20 speech in Charleston, West Virginia, Senator Obama declared that the high pump price of gasoline is a direct result of the Iraq War. According to Senator Obama, “When you’re spending over $50 to fill up your car because the price of oil is four times what it was before Iraq, you’re paying a price for this war.” Huh?

Any high school economics student can tell you that prices for everything, including oil, are set by supply and demand. Let’s have a look at oil supply. In 2002, the year before the US toppled Saddam, Iraq produced an average of about 2 million barrels per day (MBD). Today, Iraq is producing about 2 MBD. Total oil production by the Persian Gulf countries (Saudi Arabia, Kuwait, Iran, Iraq, The United Arab Emirates, Qatar and Bahrain) has risen from less than 20 MBD in 2002 to over 23 MBD in 2007. The Iraq War doesn’t seem to have disrupted Middle East oil production at all.

There’s lots of oil in the world – an estimated 1.2 trillion barrels of proved reserves and many times that amount in undiscovered potential. These resources are not being developed very fast because the people who know how to do it (the international oil companies) are not allowed access to the most promising areas. That’s true in the Middle East, where the bulk of the world’s oil resources lie, but it’s also true in the US where substantial oil potential in the Alaskan National Wildlife refuge (ANWR) is off limits to even the most minimal drilling activity thanks to, among many others, Senator Barack Obama.

Now let’s have a look at oil demand. The world consumed just under 80 MBD in 2002 prior to the war. By 2007, we were using over 85 MBD – a 5 MBD increase. The US accounted for a bit of this increase (about 0.7 MBD), but the real culprits were China (+2 MBD) and other developing countries (+3 MBD). It’s rather difficult to see how this huge increase in demand (which is continuing today) was a result of the Iraq War. The world is getting richer and more people, particularly the formerly poor in the developing world, want access to what we have always had in the US – mobility. It’s no surprise that the growing appetite for oil coupled with our reluctance to produce more of it is putting serious pressure on prices.

Energy is critical to our economy, and we should expect our elected officials to discuss the issue in a thoughtful and intelligent way. Instead, we get nonsense like Obama’s speech, crafted no doubt by focus groups rather than by analysis of the problem. We need better. Perhaps Senator Obama could start by taking high school economics.


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