The Economic Nationalist

Ali Akbar Dareini of the Associated Press reports:

TEHRAN, Iran (AP) — Iran’s hard-line president declared that crude oil prices, now above $115 a barrel, are too low, state media reported Saturday.

President Mahmoud Ahmadinejad told an oil and gas exhibition in Tehran on Friday that he thought the commodity still had to “discover its real value,” according to the Web site of Iran’s state-run television.

Oil prices have hit all-time highs above $115 a barrel in recent weeks, amid reports that oil and gasoline reserves in the United States were lower than expected and as the dollar sinks to record lows.

“The oil price of $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value,” the Web site quoted Ahmadinejad as saying.

Crude oil futures surged to a new trading record of $117 a barrel Friday following an attack on a key pipeline in Nigeria. The increase capped a week of record highs fueled by supply woes and the dollar’s weakness relative to other major currencies.

Ahmadinejad said despite high oil prices, the true value of crude oil, adjusted for inflation, is currently less than what it was in 1980.

“While the price of other commodities have increased, the economic value of the current oil price is even less than 1980,” he said.

But some figures suggest that today’s crude prices might have surpassed inflation-adjusted highs set in early 1980. Depending on how the adjustment is calculated, $38 a barrel then would be worth $96 to $103 or more today.

This is sobering news for any American. Mr. Dareini continues:

Ahmadinejad accused Western industrialized nations of “selfishness” in their quest for cheaper oil.

“When they get hold of oil, they assume that oil is a free commodity and belongs to them and has wrongly been placed in other territories. … This is the spirit of selfishness and arrogance,” Ahmadinejad was quoted as saying.

This is not what Americans want to hear, and jihadist loudmouth Mahmoud Ahmadinejad is definitely not whom they want to hear it from, but anyone who misjudges Mr. Ahmadinejad to be a dimwit is making a mistake. In this specific matter does Mr. Ahmadinejad not have a point?

A host of supply and demand concerns in the U.S. and abroad, along with the dollar’s weakness, have bolstered oil prices, even as record retail gasoline prices in the U.S. appear to be dampening demand.

A weaker dollar makes commodities such as oil less attractive to investors as a hedge against inflation, and it makes oil more expensive to investors overseas. Analysts believe the weaker dollar is the primary reason oil has soared this year. The effect tends to reverse when the greenback gains ground.

Ahmadinejad called the U.S. currency “a handful of paper” without any global support.

The truth hurts.

Iran has stopped using the U.S. dollar in [her] oil transactions with the outside world, switching to currencies such as euro.

And who can fault her?

“The dollar is not money any longer but a handful of paper distributed in the world without commodity support,” the Web site quoted Ahmadinejad as saying.

Some neoconservative readers will undoubtedly reflexively fret that Mr. Dareini’s article and the present commentary blame America first, but they are missing the point. It is not a matter of blame but of opportunity.

Sudden oil shocks undoubtedly damage American prosperity, but if energy independence is something we actually want then the smoothly increasing oil prices the market has delivered in recent years present the very chance we have been waiting for. By simultaneously threatening and explaining higher oil prices, Mr. Ahmadinejad is arguably doing us a favor. Oil is used for many purposes but chiefly to make fuel such as gasoline. Chemically, there exist many ways to make gasoline. To make it from crude oil is one way; but there are other ways, our chemists know how to implement them, and we need only a little time for our energy companies to build and activate the needed production plant.

Some conservative American traditionalists, having been badly misled by libertarian U.S. economists in matters of labor and trade, have begun in recent years to suspect all economic theory. While such suspicion is understandable and even somewhat justified, economies nevertheless are real and behave according to certain laws—even when flawed human economists misbehave. One such law can roughly be stated thus: if a good X can be produced at price P by a method M, or alternately at price Q by a method N, and if price P is significantly less than price Q, then—other things being equal—very little will be produced by method N, even when method N is perfectly workable and entirely practical. If I can produce X at $ 25 per unit and you can produce X at $ 35 per unit, then I will sell X at $ 30 and you will have to find something else to do for a living. On the other hand, if my production cost rises to $ 100, then you are back in business, though admittedly it may take you some time to ramp your production up.

This is precisely how it is with gasoline production. One of the most promising alternate methods thereto, to produce gasoline from coal, becomes profitable by one estimate when crude oil prices remain reliably above $ 35 per barrel. As Mr. Dareini has observed, crude oil sells for well over $ 100 per barrel right now. If prices remain high, then coal’s time has come.

Of course, some other process than the coal process might prove even more cost effective, but this is not the point. The point is that, if it is not coal, then it will be something even better; and thus that the present high energy prices are a blessing to us in disguise. If only we will let them, the high prices can wean us from our chronic, dangerous addiction to foreign oil.

Congress as a body is not always smart, but individual Congressmen tend to be pretty clever people. One oughtn’t to underestimate their ability to understand the alternate gasoline production issue. And, naturally, what goes for gasoline also goes more or less for home heating oil, natural gas, and so on. This writer would recommend to Congress the enactment of a sliding energy tariff to keep imported energy prices high, for the express purpose of lending our energy companies the needed confidence to invest their recent large profits in U.S. plants to produce gasoline from coal in coal states like West Virginia and Illinois. It can be done. It is entirely practical. We know how to plan it and we have the industrial capability to implement the plan. No new invention, no new science, only engineering resources we already have or can soon develop are needed to make this work.

Energy independence lies well within our reach. We want only the will to grasp it.

HJH

This entry was posted on Tuesday, April 22nd, 2008 at 12:07 pm and is filed under Islamic jihad, Trade. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.