Imperialist economics: Why the recent rise in US oil production is historically minor

A pumpjack in Texas

A pumpjack in Texas (Photo credit: Wikipedia)

Yes, yesterday reports were published that US oil production rose dramatically from 2011 to 2012. Is that news? Sure! Is that big news… well, not too big, no. It is important to have a context of clarity to know how important the news about the rise US oil production is.

eia us oil production chart

So, oil production in the US rose to levels first reached in the late 1950s. Is this good for the US economy? Of course! It has been a major contributing factor to the economic rebound of the last few years.

Relative to the vast majority of the world, the US is still an extremely rich country overall. Not only does the US produce a lot of oil, but, in recent decades, a LOT more oil than is produced here has been consumed here. The HUGELY disproportionate consumption of oil in recent decades is a sign of the military and economic dominance of the US. Less than 5% of humanity lives in the US, but about 25% of the world’s oil is consumed here (and most of that is imported). (Note that this chart is a few years old.)

oil consumption by country

So, of course the rise in oil production is good for the local areas producing the oil (including Alaska, etc). Of course it is good for the local job market and housing market and tax revenues. Likewise, the enormous rise in oil prices from 1999 to 2008 (and 2009 to 2013) has been great for the US (or at least certain parts of it) because revenues from oil production are a factor both of volume and price per barrel.

oil 1999-2008

But the rise in price is not the only factor to consider. The real economic issue is not production or revenues but profits. If the costs of finding and extracting oil are going up faster than the sales price, then the profits per barrel can actually decline. Of course, for areas of the US that are consuming far more oil than they produce, the big rise in production elsewhere in the US is simply not a major factor in the local economy.

Further, the US does not exist in a vacuum. There are other parts of the planet that it is worth considering when studying economic trends.

For instance, the overall global discovery of crude oil (the kind that is cheap to extract) peaked several decades ago. (Chart below is from 2007.)

peak-oil-growing-gap-between-discoveries-and-production

Global production also peaked a few years ago, plus, even it global production were to slightly rise again to new highs, the issue is that production is plateauing rather than rising at rates like in the 20th century, plus global demand for oil is still rocketing, which is why in 2004 I published a forecast of a continuing rise in fuel prices (as developed, shown in the above chart).

I noted the enormous importance of the issue of demand increases for fuel far outpacing changes in production, thus producing rising fuel prices. I noted the far-reaching economic consequences, especially for the world’s leading oil importer, the US.

In particular, I specifically connected oil prices to global credit markets, to emerging changes in US real estate borrowing (and prices), and to US stock prices. Just as oil production has produced a huge boom in the economy of Alaska in the last few decades, oil production resulted in huge economic booms for the US and USSR in the 20th century. (Note that those were the two leading producers of oil in that century).

However, in the 1970s, the shift from being a net oil producer (producing more than consumed) shifted for the US. Back then, we (the US) had lots of other countries to “rescue” us with oil that we could import. So, the economic turbulence in the US in the 1970s was relatively minor. What is coming soon will not be. Global oil production (at least of cheap oil like in the 1970s) is rather flat in recent years. The US will have to compete with China and other places that are growing in prosperity (and oil consumption) much faster than the US.

In the 1970s, the US had vast reserves of accumulated wealth (and military power) to use to entice (AKA intimidate) other nations to let us use their oil. The global domination of the US “international police state” has certainly expanded in some ways in recent decades, with the US attempting to preserve a relatively exclusive reserve of nuclear weapons.

Fear: the root of prejudice, blame, contempt, hatred, hysteria, phobia & paranoia

We can put a lot of attention on keeping other nations from developing advanced military weaponry and may invade them to prevent competition and serious military threats. However, invasions and long-term occupations can be expensive, such as the ongoing US “occupation” of Japan and Germany (where the US still has active-duty military bases) for the last several decades.

The real issue for the US economy is the colonial empire of the US. Is it stable? Is it expanding? If it is expanding, is it expanding at prior rates?

For instance, in the 20th century, US military domination was expanding very quickly, with huge numbers of new military bases being established by the US throughout its global empire. Now, is the rate of expansion still growing? Is the return on investment still rising? When the US invades a country and occupies it and sets up favorable trade policies (like when the US took over land and resources from Native Americans or Iraqis or Germans), how much net economic benefit is produced?

pyramid eye horus triangle

Many people focus on things like the cost in human lives, which is of course one issue to consider. However, in terms of something like barrels of oil, if the US uses a million barrels of oil to access two million barrels of oil (in the US or elsewhere), that is very different than if it takes consuming a million barrels of oil to access six million (or one million).

From a very simple economic perspective, we are talking about tangible resources. Lots of people get confused by relatively complex financial accounting issues like dollars and interest rates. Actually, there is nothing really confusing about any of that (or not inherently- only when someone has inaccurate presumptions which result in confusion when reality does not match someone’s presumptive model of what should be).

annual oil production us vs fsu

So, the oil boom of the 20th century heavily favored the US and USSR, the two leading producers of oil, resulting in those countries rising from relative obscurity to global military domination (with the US being the first of the two to be a real global military superpower- long before the USSR). Certainly, that new military dominance of the US (within the last 100+ years) has been very beneficial to the overall intimidation factor and economic clout of the US.

However, the prior oil boom of the USSR and US is relative to the oil production of other nations. Currently, the US and (former) USSR make up much less than half of global oil production. Decades ago (such as the 1980s), imagine that the two countries of US and USSR produced a majority of oil worldwide: more than all other nations combined. Below is a chart showing the actual production of OPEC nations relative to that of non-OPEC nations (which means mostly the US and USSR).

opec vs non-opec w notes

At the far right of that chart are the words “OPEC dominance.” In 2020 or 2030, even if the US produces as much oil as it did in 1970 again, the global balance of power still will have continued shifting dramatically.

If new fuel technology makes oil production irrelevant, so be it. But, until then, oil is the most important fuel on this planet, accounting for about 1/3 of all fuel consumption (energy) worldwide.

Besides the issue of the percentage of global oil produced in the US, there is also the issue of percentage of global oil consumed in the US. That is also an important figure.

Economics, ultimately, is about the actual use of resources (especially energy). Will the US continue to use 25% of the world energy resources, rise to 30% or 50%… or fall to 10% or even 5%? Those are the big questions.

In the 20th century, the economic boom of the US was from rising from being the consumer of 15% of certain primary global resources to consuming 20% and even 25%. These calculations are much simpler than financial issues like contracts of “future promises to perform.” These are just simple tangible economics.

So, if the US reverses its expansion as the dominant global military imperialist (and slows down its colonization of the planet or even starts closing more foreign bases than it opens), then that could correspond to consuming a declining portion of global energy resources. The US could fall to consuming only 20% of global resources or even only 10% or 5%.

tank tunisia

Why? Because oil-rich places like Arabia may no longer be so intimidated by the US. Or, those places may be more intimidated by China instead.

In that case, trading preferences would shift. Economic alliances would shift.

tank protester

Instead of the US having military bases all over the middle east and Europe and Japan, what if those bases begin to close and, instead, the Chinese had bases and warships and stealth bombers and assault helicopters all over the planet? I ask these questions not in the mode of forecasting, but to emphasize the incredibly naive discounting of the importance of US military intimidation on global economic trends (to emphasize the importance of US intimidation and military colonialism).

spetsnaz

Most people in the US do not think of the US as the dominant global police state. The enormous influence of the US military on global economics is often simply ignored in the US by most people.

In other countries, the presence of foreign US troops occupying the nation is not ignored. The public can see the bases and observe the behavior of the young soldiers off the base, plus the way that local court systems are biased to favor the young soldiers so that disorderly conduct charges and assault charges and rape charges and murder charges may be treated very differently depending on the citizenship (legal rank) of the person accused.

Further, since a huge amount of the US military infrastructure worldwide is through technology, not just obvious things like regular military bases, much of the influence is not seen directly by the public of other nations either. Only the higher-ranking elites would have a clear sense of the immense intimidation factor of the US, contributing to very favorable trade deals for the US.

c9528-article-2140134-12f1fcab000005dc-166_468x504

Imagine a group of native americans encountering a group of well-armed European conquerors a few hundred years ago. They get together to trade food or hides or whatever. Would the overwhelming military superiority of the Europeans influence the negotiations? If the well-armed invaders wanted to “purchase” an island from the natives (permanent removing the natives off of the island they had formerly inhabited), would it be possible for the invaders to give the natives only a few trinkets of beads and still maintain military domination of “their new island?”

Of course! The beads are trivia. The superior military could have taken the island without making any payment.

police

Now, consider global trade treaties. Consider the global value of the US Dollar.

Does the US military contribute to promoting favorable trade negotiations? Does the military might of the US contribute to the purchasing power of the US Dollar?

House funds

Again, for contrast, imagine that the US had no military bases outside of the US. Imagine that China had bases all over the planet. Would that contribute to favorable trade negotiations for China? Would that promote the purchasing power of the Chinese currency (which represents the global influence of their military and economic system)?

tokens   chips

Note that when a court system of organized coercion stops operating, then the currency which they had been demanding to pay for invented tax liability claims loses all purchasing power. The sacred tokens of currency suddenly are simply valued as just  pieces of paper or plastic chips or whatever. They are no longer items of religious worship.

Why? The extortion system has collapsed. That is all that ever produced demand for the currency: the threat of “serious consequences” for non-payment of the invented tax claims. Those invented tax claims can only be paid in whatever currency token has been dictated by that court system of organized coercion and extortion.

So, no military threat means no purchasing power. The currency of a defunct court system is worth nothing more than the trade value of the material from which it is made (paper, plastic, metal, etc)….

fake coin

lady with fan of cash

That is why the rise in US oil production is historically minor. It is not insignificant though. The global domination by the US may continue to expand in the near future, but the naive presumptions of much of the middle class in the US may collapse soon. Their lack of appreciation for the importance of the US systems of organized violence may leave them not just confused, but disappointed and even terrified.

They may be shocked by a collapse of global credit markets and a huge rise in the purchasing power of the US Dollar. The sudden transfer of immense amounts of real estate equity away from the middle class and to the banking system may correspond to a massive increase in bankruptcies and total dependency on socialist welfare programs. However, as in the case of the USSR, sometimes the promises made by socialist bureaucracies may turn out to be simply too expensive to keep.

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