While protestors risk their lives, battling in violent confrontation with the government of Col. Muammar el-Qaddafi, analysists estimate that nearly a million barrels of Libyan oil a day have been removed from world markets recently, reports the New York Times. And of course we have the standard whine that “Investors fear that more oil production could be disrupted as the unrest spreads to other crucial producing nationals like Algeria.” So which would the world have, the tyrants or the sweet crude? I think I know the answer.
Crude oil prices did hit $100 a barrel in the US on Wednesday, more than in two years, as Middle East oil flows were slowed this week by the fight for new, more democratic leaders. The ever-mercenary multinational oil companies cut production in Libya, and there are concerns they could slow the imaginary “fragile global economic recovery” from the financial shark attacks on various economies, including our own. Actually, Libya produces less than 2 percent of the world’s oil, with little exported to the US. But “the rule of thumb,” the Times tells us, “is that quality of the reserve magnifies its importance in world markets.”
Libya’s sweet crude is favored in production of gasoline, diesel, and jet fuel, mostly by European and Asian refineries not equipped to refine “sour” crude, which is higher in sulfur content. Despite Saudi’s offer to tap 4 million barrels of spare capacity, that gift is mostly sour crude. So should the Libyans put the revolution on a timetable? Should it go longer than two weeks when the Europeans will have to buy from Algeria and Nigeria, two principal suppliers of sweet crude to the US whose prices have already gone up 6 cents a gallon? In the battle of ideologies and change, it turns out, days and pennies count.
Moreover, conflict could start a bidding war (no guns just paper and money). That warning came from L. J. Goldstein, a director at Energy Policy Research Foundation, partly financed itself by the oil industry. Goldstein warned, “Quality matters more than quantity,” that is in oil not necessarily in tyrants. But the sweet crude is better suited to produce diesel fuel is more popular as transportation fuel in Europe than the US. Sour crude is more costly to refine for Europeans. But American refineries have the equipment to refine both since much of the sour oil is imported to the US from Latin America, particularly Venezuela and our favorite punching bag, its president, Hugo Chavez, often demonized by the Western press when he criticizes the US for its imperialist policies in South America and the world.
But then in 2007–08, the last time crude came in short, prices rose to over $140 a barrel, though that was due more to spiraling demand than a cut in supply—the hoarders at it again. West Texas Intermediate oil is headed for $110 a barrel. Strategic Energy and Economic, a Consulting firm, said the Brent benchmark was headed for a $120 a barrel. But where are Libya, Algeria, and Nigeria all headed is the question: to revolution, reformation, or reversal to past dictatorship?
The fact is, more than 85 percent of Libyan oil goes to Europe, a third to Italy, the rest to Asia and 5 percent to the US. Spain, France, Germany and Norway have stopped most of their Libyan oil production, around one million barrels a day, more than half of Libya’s production, and moved personnel from the country. Most of Libya’s oil producing and port facilities are in the eastern part of the country, where the government and Khadafy have lost control. The writing is on the wall.
That leaves the world looking at Algeria, the seventh largest oil producer, where unrest has prevailed for quite awhile. In the past weeks, on this wave of Middle East revolt, sporadic protests erupted over high food prices (look to Western commodity speculation for that answer) and resulting unemployment, generating two large demonstrations in Algiers, demanding that President Abdelaziz Bouteflika resign.
The situation was described by Michael J. Economides, professor of engineering and energy economics at the University of Houston as “ . . . a powder keg in Algeria with social problems, ethnic problems and an Islamist organization blended together and overlapping. Many refineries would go into paroxysm if they lose Libyan and Algerian oil.” They would also lose the leaders and sideliners that helped to get them there.
Fortunately, most Middle East oil production is controlled by national companies operating as virtual state agencies tying their security needs to their national militaries, not foreign multi-national corporations, bringing with them the IMF, World Trade Organization, World Bank and other financial cancers of second and third world nations.
This is not the case with Libya or Algeria, where the US and European oil companies have made large investments in the past decade to push lagging production. Foreign companies in Libya, and to a lesser degree in Egypt, have shown that they’ll shut down both exploration and production and close their offices rather than jeopardize “the safety of their employees,” conceivably a protest as well to the displacement of the status quo. Crusader Capitalism prefers an uninterrupted flow of the people’s blood, sweat and tears, not the cry of freedom from their overseers.
Jerry Mazza is a freelance writer, life-long resident of New York City. An EBook version of his book of poems “State Of Shock,” on 9/11 and its after effects is now available at Amazon.com and Barnesandnoble.com. He has also written hundreds of articles on politics and government as Associate Editor of Intrepid Report (formerly Online Journal. Reach him at gvmaz@verizon.net.
