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  • Socialism, Not Capitalism, to Blame for High Oil Prices

    More than 75% of the world’s oil reserves are controlled by national oil companies. Of the world’s top 20 oil-producing firms, 14 are state-run. Those areas where private companies have been able to drill have recently been shrinking, and remaining private companies are facing hostile governments that may try to nationalize them.

    Meanwhile, Congress, pandering to the least economically sound sentiments of the American public, recently tried to pass a bill to curb oil market speculation. This, lawmakers argued, was the way to get prices down. Speculation is just trading on the future price of a good. There have been many reasons to expect the price of oil to continue to rise. Along with rising demand, and subsidies to aid the rise in demand, there is a lot of risk. Risk causes volatility and drives prices up — at least in the short term.

    There is risk because of the war in Iraq, because of the government in Iran, terrorism, and then there is additional risk because of the growing number of countries where the governments are trying to nationalize the oil supply.

    This typically starts with the government harassing private oil companies. Clearly that makes owning stocks in those companies risky as owners will lose their investment. This can also fuel volatility in the futures markets as investors try to predict the likelihood of nationalization. If those companies get taken over or forced out, the total supply of oil may fall and so the future price will be higher.

    This has been going on for a few years now. And the trend continues to worsen. Russia’s Vladimir Putin jailed the ex-chief of Yukos oil company so that it could be taken over by state-owned Rosneft in 2004. And today in Moscow, British Petrol is being hassled and taken to court.

    In 2003 Hugo Chavez took the reigns of Petroleos de Venezuela in a “re-nationalization” move, and now Ecuador is taking Chevron to court. This little move by Ecuador could be the start of something bigger, as it looks like Ecuador might join forces with Chavez’s state-run venture, which might in turn join forces with Russia’s.

    Bolivia also nationalized in 2006. Soon there will be nowhere left outside of Western Europe and the U.S. where private oil can safely drill.

    Another reason that nationalization can drive prices up is that state-owned companies tend to under-produce private ones, creating additional risk that long-term output will be lower. Finally, consolidation of oil companies into just a few nationalized firms, especially when those countries form cartels rather than competing freely on the market, will also drive up prices. This trend in nationalization is simply an extension of the existing problems of OPEC. It should be obvious that this trend is contributing to the high oil prices.

    But rather than see the reasons for the rise in prices — the real risks which face the oil market — Congress tries to strangle speculation, prevent new drilling, and it even flirts with idea of nationalizing our own supply. Reps. Maurice Hinchey (D-N.Y.) and Maxine Waters (D-Calif.) both recently suggested it, and a recent poll shows many Democrats(and even a few Republicans) think it’s a good idea. But nationalizing is the problem, not the answer.

    Posted in Energy [slideshow_deploy]

    3 Responses to Socialism, Not Capitalism, to Blame for High Oil Prices

    1. I Crause London says:

      The oil is the natural property of these nations under whose land or sea it is found.

      It is therefore only fitting and just that it should be used, as in an increasing number of countries like Bolivia, to try to fund the escape from poverty of a hitherto abused and dirt poor population before they are condemned to an eternal economic servitude.

      My heart bleeds for you. 'Soon there will be nowhere outside of the US and Western Europe where private oil can safely drill.'

      Except, not everyone lives in Western Europe and the US: just the majority of those who profit (or just benefit) from keeping lots of other people extremely poor.

      Perhaps it's time for a New Party style of politics again, methinks…just until the God-given natural order is reestablished.

    2. Darvin Dowdy, Houst says:

      We shouldn't worry about the dem's threats. They're days are numbered. You can't continue to blunder like they have and survive. They've moved so far to the anti-U.S. left that they've lost all credibility.

      But the news of these other countries governments commandeering their nations oil companies is great news for free world oil producers. Especially U.S. wildcatters/producers. Gov'ts running anything always means inefficiency and loss. So the 25% will easily out perform the 75%. And make tons of money doing it. With each country that nationalizes their oil industry, the competition pressure level goes down for the remaining free market companies. Thats a good thing, isn't it? DD

    3. rainerirrsinn says:

      as long as we depend on international capitalistic concepts such as the oil-price, selling to the highest bidder, which is in a logical conclusion the most exploitent states such as the USA and the EU (and China furthermore) we can never emancipate our socialist solidarity from these states as we most depend on their goodwill to pay us the highest price.

      By pure Logic you can tell us that this is leading us nowhere but into higher dependancy on the states which we, in common sense would assume to be the mother of so much socio-economic suffering in our part of the globe.

      Isn't there a more noble and better way to get around?

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