The American Left and its international comrades are claiming that the impending war with Iraq is not about defanging terrorism. Rather, they say, it’s all about oil. They argue that President Bush is really motivated by a desire to seize Iraqi oil for American oil companies (and gas-guzzling American SUV drivers). “No blood for oil!” is their rallying cry.
No basis has ever been cited for this accusation — perhaps because the accusation makes no sense, as a matter of basic economics.
Unless the Iraqis drill and sell their oil, it is worthless to them. They must sell it somewhere on the world oil market to get any gain out of it.
But oil is a fungible commodity, so once they sell it — anywhere — it becomes part of the world oil supply. That increased supply in turn reduces the world oil price, until some equilibrium is reached between supply and demand.
From that point on, it doesn’t matter to anyone where the Iraqi oil actually goes. If it goes to Japan, the Japanese will buy less oil from Venezuela and Nigeria. More oil from those countries would then go to the U.S. Indeed, as the oil supply sloshes around on world markets, no one really cares — or keeps track of — where it originated, so long as it meets quality standards. For all anybody knows or cares, every drop of Iraqi oil could end up at southern California gas stations.
Moreover, just who do the “war protesters” think Iraq would sell its oil to, in any event? The Western oil companies, primarily American companies, would be the primary purchasers of Iraqi oil, whether they buy it directly or circuitously through various middlemen. Who else is going to refine, distribute, and sell the stuff to the huge Western (and particularly American) consumer market? Have you ever seen or heard of any Iraqi gas stations?
In short, the oil companies already ultimately get the oil now. They don’t need Bush to go to war to get it for them.
The proportion of the world oil supply currently consumed by America will continue to get here one way or another through world oil markets. If oil producers tried to cut off the huge American consumer market, there would effectively be a huge drop in the total world demand for their oil — and, consequently, a huge reduction in the world price.
Who else is going to consume world oil output except American consumers (and those gas-guzzling SUVs)? The truth is that Middle Eastern oil producers — including Iraq — need America and its consumers a lot more than we need them. We can always figure out other ways of powering our transportation and warming our homes, technologically. But has the Middle East ever figured out any way of getting dollars other than pumping and selling oil?
That is why an oil boycott is ultimately no real threat either. Again, Iraq and other oil producers must sell the oil somewhere on the world market to get anything out of it. And once they do, they add to the world oil supply and reduce the price to approach a new supply/demand equilibrium. The world oil market then distributes the available oil supply to wherever the demand is — which means America and the rest of the West.
Indeed, it is the West that has been restraining Iraqi oil supply since the Gulf War, with various restrictions on Iraqi oil sales. And it has been the Iraqis who have been pleading to open up their production and sales. An Iraqi oil boycott is not even remotely an issue today.
So the contention that the impending war is really about oil is senseless as well as being baseless. Which leaves us with this question: Why is the American Left joining with its foreign comrades to defame America with this silly and transparently false accusation? Is it really all just about anti-Americanism? Is it really just rooted in a hatred of American power and an attempt to stop its exercise? Isn’t it time they came clean and told the truth?
— Peter Ferrara is director of the International Center for Law and Economics in Fairfax, Va.