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Cole writes: "Seven years ago, it was common for militias to smuggle as much as $5 billion a year of Basra refined petroleum products. ISIS may want in on that bonanza, and it has the bomb-making expertise to blackmail the industry into giving him a share that is better than her present one."

An image made available by the Jihadist Twitter account al-Baraka news on June 16, 2014, allegedly shows ISIS militants executing members of the Iraqi forces on the Iraqi-Syrian border. (photo: AFP)
An image made available by the Jihadist Twitter account al-Baraka news on June 16, 2014, allegedly shows ISIS militants executing members of the Iraqi forces on the Iraqi-Syrian border. (photo: AFP)


Will ISIS Control Iraq's Oil?

By Juan Cole, Informed Comment

24 June 14

 

he virtual collapse of the Iraqi army and its inability to take back any territory from Sunni forces coordinated by the Islamic State of Iraq and Syria brings into question our earlier insouciance about the oil impact of ISIS advances. The Kirkuk fields in the north produce only about 670,000 barrels a day. Up to 300,000 of that production can be exported through the pipeline to Ceyhan in Turkey. These days, the pipeline is only handling about 120,000 barrels a day from Iraqi Kurdistan.

The Kirkuk fields contribute only a fraction of Iraq’s 3.3 million barrel a day production. Most of it is in the south around Basra.

Until the Ceyhan pipeline was reopened in May after sabotage closed it, all Iraq’s oil exports of 2.5 million barrels a day were going out through Basra in the south.

But if city after city is falling to ISIS, and they have even captured the Jordanian border towns, you have to ask yourself if they can really be kept out of Basra in the south. Seven years ago, it was common for militias to smuggle as much as $5 billion a year of Basra refined petroleum products. ISIS may want in on that bonanza, and it has the bomb-making expertise to blackmail the industry into giving him a share that is better than her present one.

An even more frightening possibility. What if ISIS becomes popular in Saudi Arabia itself? If Saudi production were disrupted, gasoline prices would head toward the moon.

As it is, Brent Crude on the London exchange reached over $115 a barrel last week, and had fallen to $114 or yesterday. A decade ago it wasn’t unheard of for a barrel to be sold at $15 a barrel, about a tenth of what it is now, though the price was more usually around $30.

During the past ten years, American drivers have seen their gasoline bill go up tremendously– though not as much as it by all rights should have– and stay there. Because of Iraq unrest, it will likely average as much as $3.70 later this summer nationwide (because of state taxes and varying profit taking by stations, the price is different from state to state).

The hype around hydraulic fracturing of petroleum in North Dakota cannot obscure that newly found US fields are small by world standards, and are shallow and doomed to run dry by the early 2020s. US fracked oil is almost irrelevant when the world is producing 91 million barrels a day and appears to want 100 barrels a day.

The US is not energy independent and is unlikely to become so. It uses 18.7 million barrels a day of petroleum, with a shortfall of around 5.7 mn b/d. That shortfall will shrink slightly through 2022 when it will likely start growing again because the fracked oil fields are shallow and will quickly get used up.

Moreover, the new US production is small enough in world terms that it doesn’t bring the prices down, given growing Asian demand. Despite small differences between the West Texas Crude and Brent exchanges (with a typical spread of $10 or 10% of the price), the petroleum market is pretty much a single market worldwide. Thus, US prices move up when there are shortages in countries from which it does not import. It is like everyone sitting in a backyard pool full of oil. If the level of liquid falls, it falls for everyone, and supply and demand determine the price.

People with long commutes are going to feel the extra cost this summer.

Americans need, where they can, to move closer to their work. A lot of young people have moved downtown and use public transport because of the high gasoline prices. That is why we didn’t go back up to using 21 mn barrels a day of petroleum when the economy began recovering. All cities need to look at Portland’s transportation program.

For those who drive, Americans who own their own home are crazy not to buy an electric vehicle or a plug-in hybrid.

I put solar panels on my house last December. In May they provided virtually all of the 600 kilowatt hours of electricity my home uses every month. I had no electricity bill. This month my utility is sending me $26 because I generated more than I used. Given the $7500 Federal tax break and the bonus I got from my utility, probably 40% of the cost of the panels was defrayed.

And a got a Chevy Volt, which is a plug-in hybrid (it goes to gasoline when the battery runs dry). Here’s what that looks like:

Juan’s Chevy Volt statistics in May:

  • Fuel Economy: 170 mpg
  • Electric Consumption: 30 kW-hr/100 miles
  • Electric Miles: 273
  • Gas Miles: 80
  • Total Miles: 354
  • Percentage on Electric: 77 %

My car used about 82.5 kilowatt hours of electricity in May, accounting for 13% of my house’s consumption. (Actually Ann Arbor lets you charge for free in city parking lots, so probably 30 or so KwH was just given to me by the city).

Since sunshine is free, I drove 273 miles for nothing, which would have cost me, at $3.70 a gallon and an ordinary gas mileage of say 30 miles per gallon, about $40. (I don’t work 9-5, so most often I charge the car in the daytime from sunlight, avoiding Michigan’s dirty coal dependence).

Between having little or no electric bill and a very small gasoline bill, I’ll pay off the panels in 6 years or so. Assuming that I would have bought a car like a Volt (it is a *nice* car and they’ve dropped it to $32,000) anyway, I’m way ahead economically and not dependent on foreign oil or its instabilities at all.

A bonus, which is the really important thing. Between the car and the panels I have avoided about 2 tons of carbon dioxide pollution so far this year. Each American on average produces 16 tons of CO2 each year, though just driving and powering one’s home is much less than that (the extra comes from the factories that make the things we buy). I have taken a big step toward a net zero carbon style of life. (It does of course cost carbon to produce the panels and the car, but that will be paid off fairly quickly). The US produces 5 bn metric tons of CO2 every year. We need that to be zero ASAP.

I know not everyone can afford the panels or the car. But actually if those who can afford them buy them, it reduces the cost for everyone else down the road. By Swanson’s law, “the price of solar photovoltaic modules tends to drop 20% for every doubling of cumulative shipped volume”. Also, in states like California or Colorado, companies will rent you the panels for an up front cost of only $1000.

After 6 years or so, the savings will be cream. So even if you didn’t believe in global warming, if you plan to be in your house for a decade or more you’re crazy not to do what I did. The cost of solar panels has come way down quickly. Plus, it saves you having to worry about the Middle East oil fields.

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+20 # ganymede 2014-06-24 19:39
Thanks Juan for your commonsense. The accompanying picture says it all. The execution scene is the price we pay for our addiction to oil and our runaway capitalism that lets it all happen. The majority of Americans are still sleeping and unless they wake up our nightmares will get worse.
 
 
+4 # Glen 2014-06-25 07:20
ganymede, the execution scene is the result of the U.S. destabilizing the entire Middle East. These killing machines were not in evidence prior to that, except in small numbers. For certain, Hussein never put up with that stuff.

But yes, you can bet the U.S. will retain control, and probably blame it on U.S. citizens and their "addiction" to oil, the Russians, China, Cuba, Venezuela, or any convenient, conjured "threat" to the U.S. or its resources.
 
 
+8 # soularddave 2014-06-24 22:42
My question to those who have electric vehicles is this: "How many miles do you get for the DOLLAR, no mater what fuel you use?". The carbon footprint, while important, is secondary.

I know several people who now have solar arrays, but few with anything more advanced than a hybrid automobile. Technology is on our side, but few embrace it with vigor.

Juan's estimated "capital recovery" statement of 6 years is encouraging. Thank you!
 
 
+4 # RMDC 2014-06-25 07:03
From what I understand, much of the oil in Iraq is contracted out to BP. BP is the old Anglo-Iranian Oil Company, the company that engineered the overthrow of the Iranian government in 1953 and brought on 25 years of CIA terror state in Iran. I'm quite sure that BP can handle ISIS. It is probably the case that BP execs are in on the planning and funding of ISIS.

Cole's problem is that he has not come to terms with the fact that ISIS is Saudi and US funded and organized. ISIS is a mercernary army doing the work given to it by the US and Saudi Arabia. Of course, running up the price of oil is a good thing for BP (and the others) but taking control of oil fields is not.

The Ba'athists nationalize the oil resources of Iraq. All oil income had to be used for the benefit of all Iraqis. The oil wealth created first world living standards in Iraq between the early 70s and up to the 1991 US war against Iraq.

Bush's war re-privitized oil in Iraq. I'm pretty sure the US, Saudi Arabis, and the rest of the capitalist world will do whatever it takes to keep the oil privitized. Prices will go up, but that is what the oil giants want.
 
 
+3 # bmiluski 2014-06-25 08:43
Sigh........... .here we go again.
 
 
+1 # Bernard Fudim 2014-06-25 10:59
Thank you Professor Cole for the fascinating analysis of interaction Mideast political turmoil and its affects upon the distribution of oil through pipelines in region. We could conceive of the added cost of oil due to the threat of disruption of pipeline flow, as being a redistributive tax upon production which results in a more fair distribution of the national patrimony. It doesn't really change the amount of oil that can be exported because all the conflicting groups can benefit by a maximum flow. It seems to me that the only uniting influence amongst Sunnis, Shiites, Kurds etc., is the common need of a pipeline and the need to pump oil to a port.

I don't see cost as a deterrent to reliance upon travel to work, because as an example in NYC the centralization of work has lead to a higher cost of living, than for example in the southeast of the nation, where automobile travel is more common but living costs and local taxes are lower. NYC residents are taxed 3 times by Fed, State and City and that is barely enough to support a crumbling infrastructure. It actually costs more to concentrate people in cities than to disburse them in the suburbs.
 
 
0 # C.H.Winslow 2014-06-25 11:05
Agreed. . .sigh! Instead of doing some tasks that might help us on this planet, some prefer to try to swim the Pacific Ocean without getting wet. My intuition tells me that more credible strategies are available.
 

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