Why $2 gas is amazing.

Why $2 gas is amazing.

Why $2 gas is amazing.

Gossip, speculation, and scuttlebutt about politics.
May 19 2004 12:17 PM

Why $2 Gas Is Amazing

Three reasons it should be cheaper.

Gasoline is now selling at more than $2 a gallon, which, after inflation, is higher than it's been since 1981. But that's not the amazing part. Actually, there are three amazing parts.

Amazing Part No. 1 is that this is happening during the first time in history when the United States belongs to the international cartel that controls gas prices. A rarely discussed benefit of invading Iraq was that, since Iraq is a member of the Organization of Petroleum Exporting Countries, the United States, which controls Iraq, became a de facto member of OPEC. Since cartels violate U.S. law, Chatterbox figured that the American occupation of Iraq would create legal problems for the Coalition Provisional Authority. (See "Is Bremer a Price Fixer?" and "Has the U.S. Joined OPEC?") But it turned out the United States was too busy violating the Geneva Conventions to give much thought to whatever lesser legal arrangements it might be ignoring. So, until June 30, the date when we turn Iraq over to some sort of sovereign government, we get to belong to OPEC. Why aren't we mau-mauing from within to boost production or, better yet, to dismantle the cartel altogether? Well, there's the fact that President Bush, who is from Texas and formerly worked in the oil bidness, is a bit of an OPEC-o-phile. (Paul Krugman wrote a forehead-slapping column about this three years ago after Bush told a reporter that it was important for the oil market to be "stable and predictable," even if that meant higher prices.) Another complication is that our interests diverge from those of the future sovereign state of Iraq when it comes to the price of oil; Iraq wants it high, while we want it low. Apparently the interests of the future sovereign state of Iraq won out. Clearly, this empire business isn't what it's cracked up to be.

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Amazing Part No. 2 is that this temporary colony of ours sits atop an estimated 115 billion barrels of oil, which, depending on who you ask, constitute the world's second- or third-largest oil reserves. Chatterbox knows, of course, that this war was not fought for oil. Still, securing greater control over world oil markets was certainly an anticipated fringe benefit. The oil ministry, you'll recall, was famously the only Baghdad government office guarded by coalition troops to keep out looting mobs during the early days of the liberation. The Bush administration anticipated a short-term spike in the price of oil, but by now it was thought Iraq's oil would flow so plentifully that the post-Saddam reconstruction might pay for itself. Instead, Iraq is struggling to produce as much oil as it did before the U.S. invasion, when the Treasury Department described its production as "erratic." Although Iraq will surely boost production substantially over the long term, its outdated oil technology, which is subject to frequent sabotage, makes quick recovery impossible.

Amazing Part No. 3 is that, before the war began, Prince Bandar bin Sultan, the debonair Saudi ambassador, assured President Bush that "the Saudis hoped to fine-tune oil prices over 10 months to prime the economy for 2004," according to Bob Woodward's Plan of Attack. "What was key, Bandar knew, were the economic conditions before a presidential election. … " On the April 19 edition of CNN's Larry King Live, Bandard clarified that "this was nothing unusual." He had fielded similar requests from Bill Clinton in 2000 and Jimmy Carter in 1979. "We always want any president who is in office to be re-elected," Bandar explained. Presidential challengers are hereby placed on notice.

Unfortunately, as Alan Murray pointed out in a May 18 Wall Street Journal column, "Prince Bandar's ability to keep oil prices below $30 a barrel is shot. … The Saudi government has indicated it will boost production, but the market has shrugged off those assurances." Murray quoted oil expert Daniel Yergin explaining why: Much of the price run-up is caused by the anxiety over the turmoil in Iraq. To put it in terms that supporters of the three Bush tax cuts can understand: Poor planning for the postwar occupation of Iraq is costing you money at the gas pump.