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NYTimes.com Article: The Oil Crunch

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      The article below from NYTimes.com
      has been sent to you by rickrise@....

      Oh, NOW they start to figure it out....


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      The Oil Crunch

      May 7, 2004

      Before the start of the Iraq war his media empire did so
      much to promote, Rupert Murdoch explained the payoff: "The
      greatest thing to come out of this for the world economy,
      if you could put it that way, would be $20 a barrel for
      oil." Crude oil prices in New York rose to almost $40 a
      barrel yesterday, a 13-year high.

      Those who expected big economic benefits from the war were,
      of course, utterly wrong about how things would go in Iraq.
      But the disastrous occupation is only part of the reason
      that oil is getting more expensive; the other, which will
      last even if we somehow find a way out of the quagmire, is
      the intensifying competition for a limited world oil

      Thanks to the mess in Iraq - including a continuing
      campaign of sabotage against oil pipelines - oil exports
      have yet to recover to their prewar level, let alone supply
      the millions of extra barrels each day the optimists
      imagined. And the fallout from the war has spooked the
      markets, which now fear terrorist attacks on oil
      installations in Saudi Arabia, and are starting to worry
      about radicalization throughout the Middle East. (It has
      been interesting to watch people who lauded George Bush's
      leadership in the war on terror come to the belated
      realization that Mr. Bush has given Osama bin Laden exactly
      what he wanted.)

      Even if things had gone well, however, Iraq couldn't have
      given us cheap oil for more than a couple of years at most,
      because the United States and other advanced countries are
      now competing for oil with the surging economies of Asia.

      Oil is a resource in finite supply; no major oil fields
      have been found since 1976, and experts suspect that there
      are no more to find. Some analysts argue that world
      production is already at or near its peak, although most
      say that technological progress, which allows the further
      exploitation of known sources like the Canadian tar sands,
      will allow output to rise for another decade or two. But
      the date of the physical peak in production isn't the
      really crucial question.

      The question, instead, is when the trend in oil prices will
      turn decisively upward. That upward turn is inevitable as a
      growing world economy confronts a resource in limited
      supply. But when will it happen? Maybe it already has.

      I know, of course, that such predictions have been made
      before, during the energy crisis of the 1970's. But the end
      of that crisis has been widely misunderstood: prices went
      down not because the world found new sources of oil, but
      because it found ways to make do with less.

      During the 1980's, oil consumption dropped around the world
      as the delayed effects of the energy crisis led to the use
      of more fuel-efficient cars, better insulation in homes and
      so on. Although economic growth led to a gradual recovery,
      as late as 1993 world oil consumption was only slightly
      higher than it had been in 1979. In the United States, oil
      consumption didn't regain its 1979 level until 1997.

      Since then, however, world demand has grown rapidly: the
      daily world consumption of oil is 12 million barrels higher
      than it was a decade ago, roughly equal to the combined
      production of Saudi Arabia and Iran. It turns out that
      America's love affair with gas guzzlers, shortsighted as it
      is, is not the main culprit: the big increases in demand
      have come from booming developing countries. China, in
      particular, still consumes only 8 percent of the world's
      oil - but it accounted for 37 percent of the growth in
      world oil consumption over the last four years.

      The collision between rapidly growing world demand and a
      limited world supply is the reason why the oil market is so
      vulnerable to jitters. Maybe we'll get through this bad
      patch, and oil will fall back toward $30 a barrel. But if
      that happens, it will be only a temporary respite.

      In a way it's ironic. Lately we've been hearing a lot about
      competition from Chinese manufacturing and Indian call
      centers. But a different kind of competition - the scramble
      for oil and other resources - poses a much bigger threat to
      our prosperity.

      So what should we be doing? Here's a hint: We can neither
      drill nor conquer our way out of the problem. Whatever we
      do, oil prices are going up. What we have to do is adapt.��

      Bob Herbert is on vacation.



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