Clicking on banner ads enables JWR to constantly improve
Jewish World Review Oct. 15, 2002 / 9 Mar-Cheshvan, 5763

Bill Steigerwald

Bill Steigerwald
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Ann Coulter
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
James Glassman
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
Michelle Malkin
Jackie Mason
Chris Matthews
Michael Medved
MUGGER
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Roger Simon
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports


Iraq, oil and war: 10 minutes with ... economist/historian Daniel Yergin


http://www.NewsAndOpinion.com | Few people know more about the global oil industry than Daniel Yergin, the economist/historian who, thanks to the looming war with Iraq, has become a multichannel presence on TV and radio news and talk shows.

Yergin won a Pulitzer Prize for General Nonfiction in 1992 for "The Prize: The Epic Quest for Oil, Money and Power," which later became a popular PBS/BBC series.

More recently, the president of the Cambridge Energy Research Associates consulting firm has a written a new, highly praised and equally readable book, "The Commanding Heights: The Battle for the World Economy."

The story of how the world "changed its mind" about governments and markets during the 20th century, "The Commanding Heights" also became a PBS series.

To pick his brain about what war with Iraq will mean for the oil industry and the cheap gas we need to fuel our vehicles, I called Yergin at his offices in Washington, D.C.

Q: When war with Iraq comes, what will it do to the price of oil and what threat will it pose to world oil supplies?

A: Iraq has marginalized itself as an oil exporter, which means its exports have become much less significant than they were in past years. During the Gulf crisis in 1991, 5 million barrels a day of Kuwaiti and Iraqi oil needed to be replaced.

Today, only about a million barrels a day would need to be replaced. So the price would go up until the market decided that the alternatives were coming into the market, and then the price would come down again.

Q: So in the short or medium run, there might be a problem?

A: Yes. So much depends on what happens and what direction hostilities will take. But the base case is that this is pretty manageable from an oil point of view.

Q: Is Middle East oil still crucial to United States' security?

A: We get major supplies not only from the Middle East, but from Canada, Mexico, Venezuela. But at the end of the day, there's only one world oil market, and so if supplies are disrupted in one place it, it affects the whole market because oil easily moves around.

Q: Many Americans on the left and some libertarians and others firmly believe that this coming war with Iraq is a war for oil and that U.S. companies have their eye on Iraq's reserves. Is this true? Is this a populist myth? What?

A: Well, it seems to me that the (Bush) administration's policy is shaped by its concerns about Iraq's ownership of weapons of mass destruction and that's what's focused its attention.

There's an oil dimension, which is concern about security and stability in the Gulf region, which holds two-thirds of the world's oil. But the notion that this is driven by a grab for oil, I don't think is at all realistic.

I don't think oil companies or their interests are driving it. Many of the companies are, of course, worried about how this could negatively affect stability elsewhere in the Middle East, where they have ongoing operations.

Q: So in some ways you can say this war is a big risk for oil companies, because it could screw up the whole market.

A: It is. And at the end of the day, if there is a new regime in Iraq, you'll see oil companies of many nationalities operating there.

Q: I'm always amazed that so many people hate oil companies. My dad is always saying what a complete miracle it is that you can go up to the corner gas station and buy a gallon of gas for a $1.50. It seems like it's a pretty good deal for consumers. What do we have to complain about?

A: What strikes me about this is this kind of amazing engineering and logistical system that moves 77 million barrels of oil a day around the world. It extracts it from a well in some distant part of the world, moves it, refines it and it, eventually, gets it into a gas station and your gas tank so you can go and visit Aunt Millie.

The complexity of the oil industry and the scale of the engineering have always very much struck me. It ends up with a gallon of gasoline that usually costs $1.30 or $1.40.

You compare it to Europe, where it costs $4 or $5 a gallon, and you come to the conclusion that gasoline in the United sates is one of the great bargains of the Western world. When you adjust for inflation, we're actually back in the world of relatively cheap gasoline.

Obviously, at a time like this, the price goes up 10 or 15 or even 20 cents, because of the tension in the marketplace. But basically, if you look at the long trend, it is really a bargain here compared to so many other countries.

Q: What is your strongest criticism of the oil industry? So many people bash it for so many reasons, but what, in your mind, is a good, honest solid criticism of the oil industry?

A: I guess I don't really think in those terms. I really see my job much more as a sort of analyst, a kind of historian of the oil industry. Where the rubber hits the road, where the conflicts are, where the big questions are, are how the environmental agenda and the energy realities come together. That's where a lot of the conflict in our society is - how to agree on the right balance in energy and environmental objectives.

Q: Would you scold the oil industry for doing anything like dragging its feet on environmental issues or those kinds of things, or do you think they are doing a good job?

A: Again, that's not the kind of frame of reference I would get into. But one of the striking things is how much fuel quality has improved. A new car today - and this is the interaction between the auto industry and the oil industry - only puts out about 5 percent as much air pollution as a new car would have done at the beginning of the 1970s.

What's not often understood about the energy business is the degree to which it is a technology business. It puts technology to work to solve problems. Those problems may be finding oil in the harsh offshore waters of Norway or in terms of cleaning up the fuels to the standards people want to today.

Q: Speaking of technology, I presume that technology and good old human ingenuity are why we will never run out of oil?

A: You know, and you're there in Pennsylvania, some people thought we started running out of oil in the 1880s. One of the leading oil men of the day starting selling his stock in the old Standard Oil Trust because he was convinced that there was no oil outside Pennsylvania.

So we've gone through periods of shortage or perceived shortage and then new technologies and new terrains are opened and you end up with a kind of surplus and sometimes a glut.

These cycles have been true of the whole industry. I always find myself thinking, sure, it's a finite resource, and that at some point in the future we will really run into a supply constraint. Some will argue that they can see it 10 or 15 years down the road.

But the work we do and my reading of the industry and history is that the Oil Age will last longer, until there are economic competitive technologies that can work on a mass scale. We seem to be pretty far from there.

Q: Is there anything that could happen in the Middle East that could really screw up the oil industry and disrupt our lifestyles?

A: Well, ever since the 1970s and even before that, there have been Middle East crises that seem to have threatened oil supplies, and then it turns out to have been manageable. We're in one of those periods when people have a heightened sense of risk.

Q: There's nothing that evil Saddam Hussein and all his powers could do?

A: Well, we don't know. There's a lot of discussion about what kind of capabilities Iraq has and what it could do. But you'd have to say the supply system is pretty resilient.

Q: What big important thing do you know about oil and the oil industry that the rest of us don't know, but should?

A: Gosh. Maybe the man or woman on the street in their car doesn't realize what a technology industry it is. It's really run by engineers and scientists.

It's very intertwined with geopolitics and at the same time it is very literally and figuratively down to earth. It's about managing technology. And the complexity and scale of the technology that underpins the whole system is not well known.

Enjoy this writer's work? Why not sign-up for the daily JWR update. It's free. Just click here.




JWR contributor Bill Steigerwald is an associate editor and columnist at the Pittsburgh Tribune-Review. Comment by clicking here.

10/11/02: England's gun-control experiment has backfired
10/04/02: Buchanan the media baron?
09/27/02: Analyzing Esquire, GQ is not for the squeamish
09/20/02: CEOs: The rise and fall of American heroes
09/13/02: Skeptics remind U.S. to calm down
09/10/02: 'A failure to recognize a failure': 15 minutes with ... Bill Gertz
09/06/02: Rating the 9-11 mags
08/30/02: Bad trains, bad planes, and bad automobiles
08/28/02: Baseball, broken, can be fixed: 15 minutes with George Will
08/16/02: 9-11 overload has already begun
08/13/02: Tell us what you really think, Ann Coulter
08/09/02: A funny take on a new kind of suburb
08/02/02: It's not the humidity, it's the (media) heat wave; the death of American cities
07/12/02: Colombia's drug lords are all business
07/09/02: If capitalism is 'soulless' then show me something better: 10 minutes with Alan Reynolds
06/25/02: Origins of a scandal: 10 minutes with Michael Rose
06/21/02: 9/11 report unearths good, bad and ugly
06/18/02: The FBI is rebounding 10 Minutes with Ronald Kessler
06/14/02: U.S. News opens closet of Secret Service
06/11/02: 10 minutes with William Lind: Can America survive in this 'fourth-generation' world?
06/07/02: America, warts and all
05/30/02: FBI saga gets more depressing
05/13/02: The magazine industry's annual exercise in self-puffery
04/30/02: 10 Minutes with ... The New York Sun's Seth Lipsky
04/26/02: Will the American Taliban go free?
04/23/02: 10 minutes with ... Dinesh D'Souza
04/19/02: Saddam starting to show his age
04/12/02: Newsweek puts suicide bombing in perspective
04/09/02: How polls distort the news, change the outcome of elections and encourage legislation that undermines the foundations of the republic
04/05/02: Looking into the state of American greatness
03/25/02: The American President and the Peruvian Shoeshine Boys
03/22/02: Troublemaking intellectual puts Churchill in spotlight
03/20/02: 10 minutes with ... Bill Bennett
03/18/02: Suddenly, it's cool again to be a man
03/12/02: 10 minutes with Ken Adelman
03/08/02: TIME asks the nation a scary question
03/05/02: 10 minutes with ... Rich Lowry
02/26/02: 10 minutes with ... Tony Snow
02/12/02: Has Soldier of Fortune gone soft?

© 2002, Bill Steigerwald