Tuesday, January 17, 2006

World Events Further Strain Oil Prices

Events around the world continue to conspire to drive up oil prices. In addition to the crisis in Iran, which threatens oil supplies to Asia and parts of Europe, Nigeria has had their oil output reduced by 10% thanks to a series of attacks on oil rigs in that African nation. Several oilmen were taken hostage, prompting Royal Dutch/Shell to evacuate 330 of their workers. (AlJazeera: Shell pulls workers from Nigeria).

Rebels belonging to the Movement for the Emancipation of the Niger Delta vowed to disrupt all oil flow out of Nigeria, the 8th largest oil exporter in the world. The Niger Delta has become increasingly unstable as the region prepares for the 2007 elections. Local politicians are often at odds with the military and federal government over control of the rich oil fields in the region, each wanting their share of the wealth.

Nigeria becomes the latest in a long series of conflicts threatening oil supplies around the world. Iraq's oil production was down for the better part of a decade due to economic sanctions followed by the Iraq war. Kuwait's oil production was devastated after the Iraqi invasion of Kuwait and Hussein's subsequent burning of their oil wells. Neither of those countries have returned to 100% production. The escalating tensions in Iran further strain Middle Eastern oil pressures, leading to yet another rise in prices.

In South America, Ecuador's output is only at about 50% capacity due to a political coup that damaged or shut down many refineries. Venezuela continues to pump oil, however they have threatened to shut off supplies to the west based on any number of issues that seem to vary with the day of the week. Bearing in mind that Chavez is closely allied with Iran, any actions taken by the west against Iran will likely ripple down to Venezuela. Bolivia has aligned itself with Chavez, raising questions about the reliability of oil reserves from that land-locked nation.

Russian oil supplies, while stable, have been impacted by the on-going dispute between Russia and the Ukraine. Two weeks ago, supplies to the EU were cut when Russia closed a pipeline through the Ukraine, a move that sparked a dramatic rise in price world-wide.

It would be far easier to list oil producing nations that are not in the midst of crisis. With demand world-wide continuing to rise and supplies world-wide increasingly threatened by political unrest, it's easy to see gas prices well over $3.00 per gallon come the summer. One must wonder how much further we will allow this to go before getting serious about alternative fuel sources. It is pure folly to hinge our entire economy on the backs of an energy source in the hands of unstable and often hostile governments, yet that is precisely what we are doing. The oil market is not going to stabilize anytime soon, if ever. Developing and deploying a viable alternate source - one that is not dependent on any foreign resource - must be a national priority. Until then, our economy is in the hands of governments that may not be around by noon the next day.


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