Energy and the Economy. Oil Addiction in America

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Energy and the Economy. Oil Addiction in America

In America, addiction to oil results in high oil prices and a unique structure of economy dependent upon crude oil. The future of oil in the world economy is one of the most controversial topics in international affairs at the present time. With the different views held by the producing and consuming countries, it seems that clashes of interest will occur, with perhaps even greater frequency in the future. There is no doubt that the Western governments were shocked with the use of oil as a political weapon by the Arabs and also by the impact which this had on the worlds economy. It caused all of them to re-evaluate their energy policies and, in particular, make greater use of alternative fuels and more efficient use of energy. Of particular interest is the marked growth in the use of natural gas, which before the early 1990s, was flared without any beneficial use in many of the oil producing countries. A different pattern prevails in the USA over the same period (Falola and Genova 33). Here both the consumption of oil and natural gas have shown significant decreases of 4 and 20 per cent respectively. In the world context, the USA is unusual in so far as it has been a major user of natural gas for many years now. Today petroleum products in the USA make up only 66 per cent of energy consumption, compared with over 80 per cent in 1972. This has been achieved largely by a considerable increase in the use of solid fuels and nuclear power. It is also worthy of note that total energy consumption in the USA has only grown by 8 per cent between 1990-1993, while world consumption has gone up by 37 per cent. This reveals the increased energy consciousness within a country which still consumes 24 per cent of the worlds energy, yet contains only about 5 per cent of the worlds population At the present day, the USA is almost self-sufficient in terms of natural gas, but it has to import about 45 per cent or 224 million tonnes of its oil needs. In Western Europe, the situation with regard to oil is even more critical as the consumption of 566.8 million tonnes ( 1985) is 198 per cent more than is produced. Even this seems insignificant when one considers Japan which produces only 0.5 million tonnes per year and yet needs 201.3 million tonnes. These facts illustrate the strategic importance of oil movements to maintain the Western nations (Falola and Genova 39). Although the USA now obtains most of its oil needs from Latin America, Western Europe and Japan remain highly dependent on the Middle East and North Africa for their oil supplies both now and into the foreseeable future. There can be no doubt, therefore, that the Middle East will continue to play a vital role during the remaining years of the twentieth century as a petroleum source for the developed and developing nations of the world equally, though it seems likely that oil and natural gas will continue to become less important as primary energy sources in the twenty-first century. Oil will have played an important role in the development of the worlds economy, but before the bicentenary of its discovery in commercial quantities is reached, its heyday will be well past.

For third world countries, including China and India, oil is the main source of energy. These countries buy oil from Middle East companies or use gas. Besides the proven oil resources, there is always an interest for strategic planning purposes as to the amounts of oil which might still be discovered in a region in the future. The United States Geological Survey has estimated the probability of the amount of undiscovered oil in the Arabian-Iranian basin, which is the richest petroleum province in the world. As far as the individual countries are concerned, the crucial figure is how much oil revenue the government receives. This is related to both the price of the oil and the volume produced (Falola and Genova 41). Over the last few years, certain OPEC countries have attempted to keep their revenue totals high by increasing production when oil prices have been falling. The net effect of this has been to release more oil onto a market already suffering from over-production. The result has been to push prices even lower. Since the early 1980s, OPEC has been aware of this growing problem and has attempted to enforce a system of production quotas on the member states, though with varying degrees of success. During this period, it has only been the Saudi Arabian governments willingness to cut back its own production substantially, which has prevented the price of oil from falling more rapidly than in fact occurred. Suppose it had not been for the fall of the Shah and the Gulf War between Iraq and Iran, which both disrupted oil production. Then an oil glut would have depressed world prices even earlier (Falola and Genova 66). Over the years, the importance of oil revenues has been in the development potential it has provided for the country which has received them. In these early days, it was oil companies themselves, which were the major agents of change. Even in those countries where large reserves are known, such as Saudi Arabia and Kuwait, there is a growing awareness that petroleum supplies will one day come to an end, and an increasing desire to ensure that the countrys economy is on a sound footing before this happens. One of the main problems is that as oil is removed from a reservoir, it becomes increasingly expensive to obtain what remains until eventually, the costs of extracting the oil can equal the revenues which can be obtained from it (Falola and Genova 43).

In sum, addiction to oil can be explained as a policy followed by the USA and its partners for decades. Estimates of the worlds oil resources are made at regular intervals by the petroleum industry. These figures are never constant, owing to the dynamic nature of the industry. The total rises as new oil fields are discovered, but with every year of production, the reserves are being depleted. On balance, however, the net total of known reserves has steadily risen since records were first made. Since 1970, the rate of new discoveries relative to oil consumption does appear to have slowed down considerably, though the trend still remains upwards. The distribution of the estimated proven oil reserves throughout the world varies greatly from one region to another. In particular, the area of Southwest Asia alone contains 56.4 per cent of the worlds reserves.

Works Cited

Falola, T., Genova, A. The Politics of the Global Oil Industry: An Introduction Praeger Publishers, 2005.

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