Past Its Peak
Michael Klare’s plan to ward off the impending oil crisis is to put ‘American and Chinese consumers of oil … on a diet’ (LRB, 14 August). The problem, as he sees it, is a combination of the geological finiteness of oil reserves, economic growth in developing countries, and the Bush-Cheney energy policy. He absolves oil companies and commodity and stock traders from blame. But if there is an oil crisis, it has taken the form of a crisis in the value of the US dollar, or of a sudden drop in the price of oil and of the commodities tied to it, which has reduced the profitability of the oil industry and global capital as a whole. This is why oil producers – state and multinational oil companies alike – have resisted calls to invest in expanding production capacity as oil prices have climbed in recent years. Such investments would have reduced profitability by cutting directly into profits and by increasing the risk of market gluts that would bring prices down and reduce profits further.
Oil companies decide against investing in expanding production because they don’t want to erode the conditions that generate surplus profits, not because there isn’t enough oil. Oil majors are never ‘eager to bring new projects online (and thereby increase their take from the current surge in prices)’, as Klare maintains, because this would produce the opposite effect. Indeed, major companies have always endeavoured to keep oilfields unexplored and unexploited for long periods of time, and to prevent smaller producers, the so-called independents, from gaining access to them. They have managed this primarily through monopolies, cartels and gentlemen’s agreements: the concentration of power has remained an essential characteristic of the oil industry since the turn of the 20th century.
The surge, or more precisely the fluctuation, in oil prices has more to do with speculation on ‘paper oil’ in commodity markets. Financialisation has also penetrated the oil industry at a more fundamental level. Oil ‘investments’, when they do occur, do not necessarily find their way to the wellhead or the exploration rig: they go mostly into buying shares, stocks and assets, resulting in the further monopolisation of the oil industry through large-scale mergers and acquisitions. When profits are not available to finance such mergers and acquisitions, oil companies (including state oil companies) borrow from large investment banks or offer company stock on the market. Hardly any oil major today is not publicly traded, and only a handful of state oil companies are completely owned by their respective states. Consequently, profits have increasingly derived from trade in stock rather than from investment in extraction. Indeed, ‘investment’ in the oil industry, in the form of mergers and acquisitions, has increased the ability of oil majors to control and prevent investment in production. The share of investment to profit has significantly declined over the past decade, as more has been invested in buying back stock and distributing higher dividends to shareholders. According to Floyd Norris of the New York Times, in 1997 Exxon was investing twice as much as it paid its shareholders; in 2005, with the first surge in oil prices, it invested 70 cents for every dollar it distributed to shareholders.
The financialisation of the oil industry has turned political instability into an asset, especially if it can be managed in such a way that it does not completely prevent access to oil reserves. The deterioration of the political situation in the Middle East after the invasion of Iraq, and the consequent interruptions in supply, has expanded the profits of oil majors (and military contractors: wells and pipelines must be protected). The tightening of sanctions against Iran and the threat of a military strike there have had the same effect. There is a more intimate connection between war and oil than peak oil analysts suggest. As oil reserves dry up elsewhere, the cheap and easily accessible reserves of the Middle East will become ever more crucial. Military expansion to gain access to oil, according to Klare, has made ‘price spikes’ more frequent because of the disruption to oil supplies caused by attacks on oil infrastructure by terrorist groups. But what if the war on Iraq was itself intended to create a longer-lasting disruption of oil supplies and a spike in the price of oil? What if the war was intended to keep Iraqi oil off the market by preventing, and in the long run controlling, investment in its production? In this respect the war has had a similar effect to the sanctions maintained against Iran since 1996, which have prevented it from expanding its productive capacity. Today, Iran’s share of world oil reserves is around 10 per cent, while its share of world oil production is around 5 per cent (and dropping). Iraq has a similar (possibly greater) share in world oil reserves and an even smaller share in world oil production. Both countries could significantly increase the supply of oil on the world market, which would result in a drop in its price.
Actual and potential political instability in oil-producing regions not only takes a significant amount of oil off the market, but boosts speculation on oil futures. Every time Bush or Cheney reminds the world that the military option against Iran is still on the table, and Iran counters by threatening to close the strait of Hormuz, a signal is sent to investors to buy oil futures lest a sudden interruption in supply results in an immediate and disproportionate increase in its price. In this respect, peak oil predictions of oil crises have the same effect as wars or threats of military crises, and for obvious reasons energy analysts in big investment outfits, as well as corporate raiders, delight in projecting high oil prices (they never explain their miscalculations when the price eventually drops). But the real crisis would result from an inability to maintain high oil prices at a time of general decline in the profitability of capital, and the eventual burst of the speculative oil bubble.
University of Miami
‘There is no “why”,’ Jonathan Raban writes of the Neil Entwistle case (LRB, 14 August). No explanation is going to be complete, but the details of Entwistle’s personal and family life, the extreme impoverishment of his emotional capacity and imagination, and his inability to plan ahead and solve problems, lead me strongly to suspect that he suffers from Asperger’s syndrome. This is a type of autism, and more generally a form of enduring personality disorder. Serious, unpredicted and largely unpredictable violence has in recent years been recognised as an infrequent feature of Asperger’s cases. Sufferers lack the emotional wherewithal to establish a secure identity: they are extreme conformists, but also copycats – they can switch on and off according to their needs. The internet offers an obvious place of refuge for them.
It is difficult to talk of ‘motive’ in such circumstances. The sufferer’s powers of discrimination and judgment, and therefore of problem solving, are so reduced that even the mildest challenge can seem insuperable and overwhelming. We have evidence in Entwistle’s case of a characteristic inability to plan even small matters of domestic finances. He appears to have felt increasingly isolated, without family or institutional support (his wife seems not to have been taken into his confidence) possibly for the first time.
In Britain, Asperger’s syndrome fulfils the criteria for a legal defence of mitigation on psychiatric grounds; in the case of homicide, it allows for a plea of ‘diminished responsibility’ under the Homicide Act (1957). Several such cases have been heard in recent years.
Emeritus Professor of Forensic Psychiatry University of Sheffield
When the Floods Came
In responding to my article about Severn Trent and the 2007 floods, John Clayton falls into a common error about my common error, namely in failing to distinguish between risk and cumulative risk (Letters, 11 September). The odds of being in a plane crash are, indeed, the same every time you board a plane, no matter how many times you have flown before. But, all other variables being identical, if you fly the same route ten times, you are more likely to be in a plane crash at some point than if you fly the route once. To quote Howard Wheater, professor of hydrology at Imperial College, in his memo to the Commons committee which reported on the floods: ‘A 100-year flood has a 1 in 100 chance each year of occurrence. The cumulative risk over a period of time can easily be calculated; for example, over a 70-year period (a human lifetime, or a design lifetime of a structure or facility, perhaps), there is a roughly 50:50 chance of a 100-year flood occurring.’
By selling the fruit and veg grown on his allotment, Raymond Williams’s father was not only adding to his railway pension, he was breaking the rules (LRB, 31 July). When the ruling classes, as he might have termed them, established allotments to improve workers’ health, they banned the holders from selling the produce for profit. One effect of this was to protect the greengrocery trade from competition. It seems Williams senior was having none of that. Transporting his jars of honey to distant Hereford was probably an attempt to avoid detection. I was rather thrilled to read of this small act of subversion. Unlike Stefan Collini, who describes him as a ‘small-scale entrepreneur’, I think Harry Williams’s enterprise is classic working class.
The shame will never leave me. My so-called best pal had just revealed to the tykes on the tenement landing that I didn’t know the date of the Battle of the Boyne.
‘He’s a bloody Jessie,’ said one.
‘His mammy’s a Pape,’ said another.
‘Remember 1690!’ said a third.
Michael Dobson beware (LRB, 11 September).