Quick war will boost US economy

Society Pakistan & World Affairs
1

Iraq is more feeble than the last time despite all the BS about WMD, so it looks like a fairly good outlook if things got to plan:

============================================

http://www.timesonline.co.uk/newspaper/0,,174-504308,00.html

December 06, 2002

Swift work in Iraq would boost the US economy
Foreign Briefing by Richard Lambert

THE conflict with Iraq and the war against terrorism have cast a shadow of uncertainty over the US economy that is unlikely to be cleared up any time soon.
The outcome of any campaign is not in doubt, given America’s astonishing military superiority over the rest of the world. And the enormous size of the US economy means that it can comfortably finance military spending on a scale that would bankrupt other nations.

But there are very different economic scenarios for the consequences of war, depending on the scale and duration of the struggle. At one extreme, it is possible that a quick victory over Iraq would actually leave the US economy growing rather more rapidly than it would if there were no war at all, thanks in good measure to the boost in business and consumer confidence that could be expected once this uncertainty was resolved.

At the other extreme, a prolonged campaign that led to general disarray in the Middle East and a much higher oil price would bring a sharp recession along with higher inflation and unemployment. Another terrorist attack on American soil could have similar consequences.

There are a fair number of clues to the direct costs of a war in Iraq. A starting point is the first Gulf War, which cost roughly $80 billion (£51 billion) in today’s money. A study by the Democratic staff of the House Budget Committee in September suggested that the figure might be rather lower this time.

For its part, the Congressional Budget Office has said that it could cost up to $13 billion to get troops into position, another $6 billion to $9 billion a month to run the war, and up to $7 billion to return US forces to their bases.

Depending on the length of the campaign, that could imply a broadly similar figure.

A rather higher estimate came in what appears to have been an unguarded comment by Larry Lindsey, head of the White House’s National Economic Council, who in September projected what he called the upper bound of war costs at between 1 and 2 per cent of US gross domestic product, or very roughly $100 billion and $200 billion.

All this fits in with a recent remark by Alan Greenspan, Chairman of the Federal Reserve Board, who said: “I would be very doubtful if the impact on the economy is more than modest, largely because this is not Vietnam or Korea. Korea . . . had a really monumental effect, because the economy was so much smaller.”

At this point the complications start. The numbers could be much higher if the campaign is longer and rougher than is now expected.

Other enormous variables include the amount that will be spent on reconstruction and nation building, and the extent to which the costs will be shared between America and its allies.

The Centre for Strategic and International Studies in Washington has produced three possible scenarios to help to address these questions.

In the benign case, to which it attaches a 40 to 60 per cent probability, Saddam Hussein is removed with little collateral damage and Saudi Arabia increases oil production to offset any temporary shortfall in Iraqi output. The result would be a slightly faster rate of growth in the US economy than if there were no war at all.

The worst-case outcome, which has a 5 to 10 per cent probability, is very different. There is protracted military resistance in Iraq and significant damage to oilfields in the region. Iraq uses terrible weapons against Israel and the allies and there is widespread hostility throughout the region.

In this case, the price of oil could shoot up to $80 a barrel and stay up at about $40 for several years. The growth rate in the US would slow by 4.5 percentage points compared to a no-war case, and the economy would slip into a recession.

Splitting the difference, the centre outlines what it calls an intermediate war scenario, with a 30 to 40 per cent probability. This would lead to a decline in business and consumer confidence that would slow US growth by just under 2 percentage points.

A pessimistic analysis by the Yale economist William D. Nordhaus produces numbers that are quite close to this worst-case outcome. In his figures, the direct cost of military spending is multiplied several times over by the much greater follow-on costs of occupation and peacekeeping, reconstruction and nation building, and by the macroeconomic impact of higher oil prices and falling business and consumer confidence. A protracted conflict, he suggests, would bring output losses equivalent to between 2 to 5 per cent of GDP, and tip the US into a recession on the scale of that which followed the first Gulf war.

If the economic consequences of a war against Iraq are unpredictable, those of the war against terrorism are even more so.

This is because they will be largely determined by something that is absolutely unknowable — the shape and timing of any future terrorist attacks on America and its allies.

It is not so much the direct costs of any such attack that are a concern, grave though they may be. Rather, it is the possible impact on confidence in the West and, potentially even more serious, the likely reaction of the US to any further terrorist outrage.

For example, America’s ports are widely seen to be vulnerable to attack. If a weapon of mass destruction were concealed in a container and exploded in a port, the US might feel obliged to close down its sea transport system for a period.

A stoppage that lasted for more than a week or two could result in gridlock for much of the world’s commerce. How likely is such an attack? In a document that it declassified in October, the CIA suggested that if Saddam had his back to the wall there was a distinct likelihood that he would try to attack America with chemical or biological weapons.

Graham Allison, director of the Belfer Centre for Science and International Affairs at Harvard’s Kennedy School, believes that the most urgent unaddressed national security threat to both America and Russia is a nuclear terrorist attack (although not from Iraq).

The US is a resilient and powerful nation, which is well capable of sustaining a protracted struggle against terrorism, and which can treat shocks that might cripple weaker countries as little more than a bump in the road.

Some of these worries are already being discounted by the financial markets and reflected in business conditions today: share prices would be higher than they are without these concerns and the oil price would be lower.

But uncertainty is going to be a burden for the US economy, and so for the world, for some while to come.

2

Judge,

"A rather higher estimate came in what appears to have been an unguarded comment by Larry Lindsey, head of the White House’s National Economic Council, who in September projected what he called the upper bound of war costs at between 1 and 2 per cent of US gross domestic product, or very roughly $100 billion and $200 billion. "

In light of this do you not think that the US could BUY all of the oil reserves under Iraq for $200 Billion? Doesn't this pretty much shoot a hole in the arguement that this is about oil? If we went to Iraq today and said that we will buy every drop of oil underneath your country, give Saddam a billion or two to go away, and let the UN manage the rest of the fund until a stable democratic government is set up, would that not be better than war? It is sort of the ultimate bribery, but it might work....

3

Interesting, to my knowledge the bulk of thee Gulf Effort and post Gulf war Military work was effectively bankrolled by the Gulf Arab states. That's why they offerd huge incentives to countries joining the effort. When Pakistan joined the war against terrorism it was only offered a billion dollar write of, and even thats stalled. I would imagine any war and dpeloyment which the United States is paying for from it's own pocket and when they are basically using surplus Military equipment, rather then stimulating industry would be on a whole a blow to any economy.

4

*Other enormous variables include the amount that will be spent on reconstruction and nation building, and the extent to which the costs will be shared between America and its allies. *

Last time round, re-building Kuwait was not done for free, the majority of the work went to American companies. Any new regime would probably agree a similar deal with US this time round as well. The Bush administration is responsible for it's own citizens, I don't think they can afford to operate as a charity with tax payer's money.

5

<~~~ Simple one.

(just responding to the topic, didn't read the posts..lol)

Most offensive news story I ever experienced was 2 days ago. It was on MSNBC.

The topic was economics and how the U.S. economy pulled through and thrived through various wars.

Beginning with WWI all the way through to the GulfWar.

Made me sick. Made the pit of my stomach ache.

Reason is?

Hey??? Anyone? Anyone?

Speaking of War in terms of monitary gain..

When there are innocent lifes are at stake. Innocent people that have no voice. No say. Everyday citizens who just want to provide for their families.

Yet MSNBC does a report on the monetary fund fluctuation..if .. war with Iraq might come to pass.

Yes economics are important, but I think the debate should be the cost in humanitarian terms....not monetary gains or losses.

Totally Ugly in my thinking.

6

Another related story to the importance of oil and American dependence on Saudi oil. With a more pliable government in place in Iraq, Opec and the Saudis will lose a lot of clout it has at present. Interesting that Iran is also mentioned here being one of the key nations mentioned in the Bush’s ‘Axis of Evil’ speech:

============================================

http://www.timesonline.co.uk/article/0,,2095-506009,00.html

December 08, 2002

American Account: Irwin Stelzer: Bush counts the cost of depending on Saudi oil

IF IRAQ plays ball with the new weapons inspectors, and gets a bill of health so clean that even George W Bush is satisfied, sanctions will be lifted. If Iraq resumes its cat-and-mouse game, America and “a coalition of the willing” will depose Saddam Hussein, and the sanctions will be lifted. One way or another, and probably sooner rather than later, Iraq’s oil will start to flow to world markets in ever-increasing volumes.
If Iran’s restless young masses, America-loving and yearning to breathe free, can topple the mullahs who now have the country in their grip, western investment will flow into that nation’s capital-starved oil industry, and Iran’s oil will start to flow to world markets in ever-increasing volumes.

If Russia’s oil tycoons can agree to fund the pipelines and ports needed if that country’s oil exports are to become more available and competitive, Russia’s oil will start to flow to world markets in ever- increasing volumes.

Substitute “when” for all these “ifs”, and it is safe to predict a significant increase in the volume of crude oil entering world markets. Iraq and Iran possess almost 20% of the world’s proved reserves of crude oil between them, not far behind Saudi Arabia’s 25%. With suitable investment, it wouldn’t take them long to increase production by between 6m and 10m barrels a day, and at a cost per barrel not very far above the cost of extracting oil from beneath the sands of Saudi Arabia.

The situation in Russia is different. Although it is producing almost as much oil as Saudi Arabia, it is unlikely ever to be anything like the Saudis as a player in oil markets. It has only about one-fifth of the proved reserves on which the House of Saud sits; it needs a good part of its oil for domestic use; and the costs of getting Russia’s oil out of the ground and to market are much higher than they are in the Middle East. In the end, the Russians have to hope that the Saudis maintain the price umbrella that makes the Russian industry viable.

So what does all this mean for the outlook for oil prices? So far, the Saudis have succeeded in keeping prices in the $25-$30 range, helped by a “war premium” estimated to be somewhere around $5 a barrel. They have managed this by restraining their own production while other members of Opec are cheating on the cartel’s 21.7m barrels per day quota, to the tune of some 2.5m barrels daily. Industry experts estimate that the Saudis have about 3m barrels a day of excess capacity.

Meanwhile, non-Opec production is climbing so steadily that it now accounts for about twice as much oil as the cartel. Worse still from Opec’s point of view, areas outside its control will probably continue to take a bigger share of the market.

This brings us to the current state of relations between Saudi Arabia and the United States. To say they are fraught is to put it mildly. Until September 11, the deal forged in 1945 between Franklin Roosevelt and King Abdul-Aziz Ibn Saud seemed likely to endure for ever. The Saudis agreed to meet America’s oil needs at reasonable prices, and America agreed to support the royal family against its enemies, domestic and foreign. The Saudis pumped oil, America trained their military, stocked their arsenals, and made the Ivy League home to young royals.

Then 15 Saudis flew planes into the World Trade Center and the Pentagon, and American policymakers began to realise that the price of Saudi oil is a lot higher than the one shown on the invoices. Senators on both sides of the aisle are urging the administration to press the Saudi royal family to put a stop to the financial support it is giving to Osama Bin Laden & Co, and to muzzle the hate-preaching clerics who dominate the kingdom’s religious and educational institutions.

The Saudis have mounted a furious public-relations offensive in Washington to counter charges of complicity with terrorists, and have got Secretary of State Colin Powell and his men to come to their defence. But in the end what America does will come down to the question of oil.

In the immediate future, America needs that oil. So long as Saudi Arabia remains the world’s low-cost, swing producer, it will have a big influence on oil prices, raising them by cutting output, lowering them by turning on the taps. It can, if it chooses, drive a lot of non-Opec producers to the wall by turning on the taps and forcing down prices to single digits.

That would not be a costless exercise in a country that has already seen per capita income fall from $20,000 to $7,000 in the past two decades and needs lots of money to support the profligate lifestyles of its 5,000 princes and fund benefits for its unemployed and largely unemployable middle classes.

And it also can, if it chooses, replace interrupted supplies from Iraq by making its 3m barrels a day of excess capacity immediately available to prevent a huge, recession-causing price rise. That gives the Saudi royals real power when they visit the Oval Office.

This is why the president is serious about easing America’s dependence on imported oil. He has told White House economists to develop an energy policy that encourages at least a limited increase in domestic production, an expansion of the Russian and much underfunded Mexican industries, and an increase in the efficiency with which oil is consumed in America’s cars and homes.

Until they provide him with workable alternatives to the current level of dependence on the Saudis, he will have to swallow hard and keep American-Saudi relations on an even keel.

Irwin Stelzer is a business adviser and director of regulatory policy studies at the Hudson Institute

7

And here is an article published yeterday which addresses this very issue of why people don’t like to discuss economic implications of war and need to drum up ‘Evil Saddam/Ayatollah/Noriega etc’ stuff instead. This is a very disturbing read but the brutal honesty is commendable:

http://www.timesonline.co.uk/article/0,,2088-506437,00.html

=========================================

December 08, 2002

John Humphrys:

** We’re planning a war, but don’t mention the oil…**

No Jews were killed in the twin towers on September 11. That proves it was a Zionist plot. Except, of course, that many died. Hundreds of them. Which proves that the conspiracy theory is rubbish. Most conspiracy theories are.
You and I, world-weary sophisticates that we are, may laugh at this sort of stuff but not everybody does. According to the latest survey of Muslim opinion in Britain, there is still a significant minority who refuse to accept that Muslim terrorists had anything to do with September 11. To them there is indeed a big conspiracy. So try another conspiracy theory for size.

This one’s about Iraq. You can forget all the talk of an attack on Iraq being a part of the so-called war on terror. You can ignore all the hype about Saddam developing weapons of mass destruction. All of that is a cover. There is one reason alone why America and Britain want to go to war with Iraq. Oil.

George W Bush is just a dupe, run by a small group of ruthless oilmen who’ve controlled every step in his career since he was old enough to tie his own shoelaces. When he was a young man they even gave him a company to play with and let him make some money of his own. Eventually they installed him in the White House. Now it’s payback time. They want to get their grubby paws on Iraqi oil and the only way to do that is to get rid of Saddam first.

No doubt you’ve heard all that before too. You may even buy into part of it. You may be uneasy about the motives driving some of Bush’s men. But you can’t accept that Bush, let alone Tony Blair, would even contemplate going to war for such entirely base motives — sacrificing the lives of wholly innocent men, women and children for a few billion barrels of black gold. Neither can I. **We all like to think that our leaders take the ultimate sanction for only the most noble, selfless reasons.

Yet they don’t. They go to war to protect our national interests. If that happens coincidentally to serve the common good, fine and dandy. But the first responsibility of every government is national security.

Security is about more than protecting us against our enemies. Societies are vulnerable in other ways and economic dependence is one of them. Our entire economic system and the lifestyle it supports depend on oil. Dealing with that dependence is as much a part of a government’s responsibility as protecting us from terrorists. **

More than 85% of the world’s energy needs are supplied by hydrocarbons. Oil accounts for the biggest chunk by far. And it’s running out. Yes, I know this is a statement of the blindingly obvious. Oil is a finite resource and, by definition, it started to run out the day the first Texan oil well spouted. Waiting for new oil lakes to form under the earth’s crust will take more time than we have. The question is not whether it will last for ever, but for how long. So let’s try to be a little more precise. The amount of oil discovered every decade is less than that found in the previous one. The amount discovered in 2000 was less than half of what the world consumed in that year alone. And according to geologists such as Dr Colin Campbell of the Centre for Oil Depletion Analysis, production is about to peak.

New discoveries tend to be made in increasingly inaccessible places. You would not go looking for oil under 6,000ft of ocean unless you had to. Anyway, salvation does not lie there. Campbell reckons there is only enough oil beneath the oceans to supply the world for less than four years.

Even so, he says production should not fall for about 20 years. So if we carry on consuming at the current rate, we’ll be fine until then.

That’s a mighty big if. China alone has 20 times our population and is industrialising at a scary rate. Aircraft are the thirstiest beasts ever created and more of us want to go to more places with cheap tickets more often than ever before. The US Department of Energy reckons that total world consumption will increase by 54% by 2020. It’s a simple sum. By the time your sweet little daughter is fighting off drunken louts in her first year at university there will be half as much demand again for the same amount of supply. And after that it begins to get really bad. Campbell has a colourful way of putting it: “Hydrocarbon man, now virtually the sole surviving human sub-species, will certainly be extinct by the end of this century.”

Still don’t believe the forecasts? Still recalling how they’ve got it wrong in the past? Well, the American who won Olympic gold medals for pessimism, M King Hubbert, was laughed at back in 1949 when he said the era of fossil fuel would not last long. We laughed at him again in 1956 when he predicted that America’s own oil production would start declining around 1970.

**Guess what? He got it right. He was bang on target. And we all know what happens when a commodity starts getting scarce. Prices rise. Steep rises in oil prices have a nasty habit of triggering recessions. Hence our vulnerability — and our dependence on the Middle East in particular. Two-thirds of the proven oil reserves are in that region and Iraq is sitting on the second biggest reserves in the world. The conspiracy theory begins to look a shade less absurd in this context. **

Of course we could simply end the sanctions against Iraq and buy the stuff. How much more agreeable to spend those billions on oil than on bombs.

But this is where politics comes into it again. Sure, some of the money might end up feeding children who could do with a square meal or rebuilding and equipping some crumbling hospitals. But not all of it. Saddam would increase his power as the billions flowed in. That’s the last thing the Americans want. They want Saddam dead and buried, replaced by a suitably co-operative regime.

Not that they can be sure it will end up like that. If the war goes badly — and sometimes wars do — oil supplies could be less secure. The great fear is creating such instability in the region that we end up with a fundamentalist regime in Saudi Arabia. The new enemy would control even more oil than Iraq.

For us it is a worrying dilemma. For the people of Iraq it may be a matter of life or death. And yet it is not something that is discussed openly by democratic governments. Hence the conspiracy theories. Conspiracies must, by definition, be unspoken.

**If the explicit connection were made between oil and war, the international reaction would be devastating. Imagine the reaction in Muslim countries to proof that the West was pursuing its economic self-interest by shedding the blood of innocent people. The Americans could kiss goodbye to any thoughts of an international coalition. **

Tony Blair has problems selling a war to a sceptical Britain. He would not be helped by newspapers displaying a photograph of a barrel of oil and the bloody corpse of a baby on the facing page.

So this part of the war scenario cannot be discussed. However much presidents and prime ministers may be advised that they must sometimes act ruthlessly to protect our energy and, therefore, our national interest, they have to tiptoe around the subject.

It is difficult enough to talk openly about what may need to be done in wars when our very survival is at stake. How much more difficult when what we may be protecting is economic prosperity.

There are really only two ways out of this. One is to wean ourselves off our dependence on oil — but you can forget that. There’s as much chance of the Americans using less oil as there is of their breathing less oxygen — at least until there is a realistic alternative. And that’s still a long way off. The other is for politicians to speak the unspeakable and risk the political consequences.

Don’t hold your breath. It is much easier to dismiss those who raise such difficult questions as conspiracy nutters.

8

Wonderful articles, JM. (That John Humphrys bloke had a fair bit of courage to write that article :k: ). Wonder how long the House of Saud will last without US support once Hussein is replaced with a ‘democratically’ installed pliable and pro-US government.

9

Yep Nadia, John Humphrey's written some very brave articles along with Simon Jenkins from the same newspaper which also deserves credit for running it. Not something you'd see on mainstream news though cause it's pretty much political dynamite.

Vietnam was lost on the tv screens not the battlefield after all.

10

Simon Jenkins... He's my favourite from the Times. Love his eloquent and sober manner of writing.
For individuals such as him and Humphrys, it takes a great deal of courage to write and publish articles such as this... not the least as it opens you up to a barrage of criticisms/labels (conspiracy nut, leftie, anti-American, etc.).

Anyways, very well-written articles indeed. Many thanks for posting.

11

To many political analysts the Bush Administrations objectives are:

1) To take control of Iraqs vast Oil reserves giving US Oil conglomerates control of the Oil.
2) To divert attention away from the economic recession that has plagued the Bush Administration.
3)To divert the medias attention away from the Bush Administration's links to Corporate Corruption.
4) To destroy whats left of the Iraqi infrastructure (including Oil installations) so that US companies can be given lucrative contracts to re-build it after the war.
5) To install another puppet regime within Iraq.

At what cost???

1) 1.6 Million children already Killed by the effects of the Sanctions
2) 1 Million children suffering from malnutrition (Confirmed by the UN)
3) Thousands of Children dying of Cancers attributable to radiation from DU shells
4) Millions of Iraqis denied clean drinkable Water as the embargo prevents essential repairs to its infrastructure, thousands dying due to water bourne diseases.
Huge shortages of Electricity again courtesy of the sanctions
5) Huge Shortages of Hospital equipment, hospitals cannot afford to buy any new equipment.
6) Millions of people living in poverty, average earnings reduced from $500 to $10 per month.
7) Living Standards some of the lowest in the world.

12

DHP: We will tackle this once and for all...one issue at a time.

let' s start with US taking over the oil. Please explain how the US intends to do that.

thanks,

CH

13

CH… To the victors goes the spoils… If President Bush ordered an attack on Iraq, it would be pretty obvious to even a novice in economics such as yourself (kidding :-P) that OIL will be central in any equation regarding Iraqs future. I bet the US energy conglomerates cant wait to take over ‘Iraq Oil PLC’… :nook:

14

Dil,

I think he is wondering what actually will happen. Are US troops going to occupy the oil fields and bring in Texaco, and try to ship it out of the country?

Will the cease fire agreement mandate a certain percantage of oil contracts go to American countries?

I keep hearing OIL, OIL, but for the life of me I cannot figure out how we are going to steal the oil from the Iraqi's.

Please explain in detail exactly how this is going to happen.

15

[QUOTE]
*Originally posted by Ohioguy: *

I keep hearing OIL, OIL, but for the life of me I cannot figure out how we are going to steal the oil from the Iraqi's.

We are talking about americans here... they got ways to do it. Before starting this propaganda against Iraq, they have planned how the oil will be exported out of Iraq. Please, thats like the first thing they'd think before starting the propaganda. Its all common sense, just get some facts and merge em together and the outcome is there. Need of logic is required.

[/QUOTE]

16

"We are talking about americans here... they got ways to do it. Before starting this propaganda against Iraq, they have planned how the oil will be exported out of Iraq. Please, thats like the first thing they'd think before starting the propaganda. Its all common sense, just get some facts and merge em together and the outcome is there. Need of logic is required. "

I'm sorry, this is unacceptable. If the big OIL conspiracy has thought this all through, surely somebody could explain to me how the US is going to execute this big ripoff of the Muslim riches. Short of nationalizing the Iraqi oil fields and occupying them I do not know how anybody figures this great theft is going to be profitable.

Now the Iraqi people may decide to pump more oil to rebuild their country, and thus oil prices may go down. But the Caspian Basin is a much more lucrative source of oil for the future, the billions of dollars spent on Saddam would build two or three pipelines out to deep water ports and have a much bigger effect.

Before anybody comes up with this big oil/economy theory, somebody better have a few more facts. Otherwise it is just one of these nebulous rallying cries that seems to stir passions, but has no fact behind it....

So, if it is so logical, please present the facts....

17

[QUOTE]
*Originally posted by Ohioguy: *
"We are talking about americans here... they got ways to do it. Before starting this propaganda against Iraq, they have planned how the oil will be exported out of Iraq. Please, thats like the first thing they'd think before starting the propaganda. Its all common sense, just get some facts and merge em together and the outcome is there. Need of logic is required. "

I'm sorry, this is unacceptable. If the big OIL conspiracy has thought this all through, surely somebody could explain to me how the US is going to execute this big ripoff of the Muslim riches. Short of nationalizing the Iraqi oil fields and occupying them I do not know how anybody figures this great theft is going to be profitable.

Now the Iraqi people may decide to pump more oil to rebuild their country, and thus oil prices may go down. But the Caspian Basin is a much more lucrative source of oil for the future, the billions of dollars spent on Saddam would build two or three pipelines out to deep water ports and have a much bigger effect.

Before anybody comes up with this big oil/economy theory, somebody better have a few more facts. Otherwise it is just one of these nebulous rallying cries that seems to stir passions, but has no fact behind it....

So, if it is so logical, please present the facts....
[/QUOTE]

Ohioguy, what I have stated in my previous post cannot be proven, but hopefully, time will prove my words.

Do you actually think the US is about to spend more than a trillion dollars yet get nothing in return?

18

OG,

The facts that are being presented are that the world economy depends on keeping a check on the price of oil. Saddam’s removal and the installation of an approved replacement will mean that America will be able to challenge OPEC seems to be the gist of the argument.

I think that point was addressed by Irwin Stelzer in the earlier piece:

http://www.timesonline.co.uk/article/0,,2095-506009,00.html

**Substitute “when” for all these “ifs”, and it is safe to predict a significant increase in the volume of crude oil entering world markets. Iraq and Iran possess almost 20% of the world’s proved reserves of crude oil between them, not far behind Saudi Arabia’s 25%. With suitable investment, it wouldn’t take them long to increase production by between 6m and 10m barrels a day, and at a cost per barrel not very far above the cost of extracting oil from beneath the sands of Saudi Arabia.

The situation in Russia is different. Although it is producing almost as much oil as Saudi Arabia, it is unlikely ever to be anything like the Saudis as a player in oil markets. It has only about one-fifth of the proved reserves on which the House of Saud sits; it needs a good part of its oil for domestic use; and the costs of getting Russia’s oil out of the ground and to market are much higher than they are in the Middle East. In the end, the Russians have to hope that the Saudis maintain the price umbrella that makes the Russian industry viable. **

19

Well if anyone cares to look at the american economy in bit of a bad state instead of Bush focusing on solving economic problems he focused on oil and war on iraq!

20

Prout Paki,

"Ohioguy, what I have stated in my previous post cannot be proven, but hopefully, time will prove my words.

Do you actually think the US is about to spend more than a trillion dollars yet get nothing in return?"

Of course no one dares respond to my previous post, so I'll ask it again. For a 100billion, we could buy every drop of oil under Iraq. Saddam gets a billion or two and goes to Libya, and the country has the fund managed by the UN to avoid Baath leaders absconding with it. Sure a heck of a lot cheaper than war. Blair made that point that we could sure make a deal with the type of money we are talking about here.

World oil prices have been extremely stable over the past few years even under Iraqi sanctions. While the Caspian Basin is more costly to extract, pipelines and infrastructure can allieviate alot of the costs. The previous Political instablitiy has not allowed a lot of detailed explaoration and investment. It is a largeley untapped resource, and has easy access and delivery to Eastern Europe, and possibly India, both are driving considerable new demand. The marginal increase in supply from the Caspian has helped greatly to ease world wide prices. Infact, Russia's hard currency need largely renders OPEC irrelevant. Currently a great number of the worlds deep water oil rigs are idle, and other than the "war premium" built into the current oil price, supply is more than in balance with demand.

If there were long lines at the gas stations, and oil prices were spiking through the roof, I might buy into your conspiracy theory. But oil production is spread among many countries in diverse locations, and gone are the days when any one region can dominate prices or supply.