What has caused the spike in the price of oil

LI has been immensely irritated with the thumbsucking pieces in the papers about the runup in the cost of oil. The conventional wisdom, in a gesture of blind self-protection, has so molded the issue so that its setpoints are: either the price reflects speculation, or it reflects demand. This is a very convenient way to ignore the drivers of the recent spike in oil prices. What are they? There are two of them. One was the infusion of credit into the financial institutions managed by the Fed for six months now – which, not coincidentally, is the period of the biggest spike in oil prices. Fed policy, as well, trashed the value of the dollar. So, as consumer credit tightened and the largest sector of the credit boom dried up - securitized mortgage instruments - money, understandably, sought a new outlet. Thus, the futures boom in the commodities. However, the underlying structural reason for the price rises has been security. It was due to the tight tie between oil production and security that LI concluded, in 2005, that the Bush regime, however criminal it was, was not going to attack Iran. So far we’ve been right. The reason is entirely due to oil prices.

However, there are two other variables at play: Israel’s increasingly threatening policy, and the U.S. strategy in Iraq that is directed, seemingly, at finding excuses to attack Iran and maintaining bases to make that threat a long term project.

The amazing Yves Smith, at nakedcapitalism, a site we’ve been going to daily, finally pierces the CW wall with a post about Iraq oil. We have been drumming on this drum in comments here and there across the web (since we decided to make LI a mostly non-political blog – it seems sorta silly to get on a soapbox when obviously we are never going to have an audience that numbers more than one hundred souls, and we do so now, as in this post, because sometimes our loquaciousness overwhelms our sense of futility), namely, that the underperformance of the Iraqi oil fields, to say the least, over the last five years effectively cut out the potentially third largest oil supplier out of the supply line even as demand was increasing exponentially. It is another cost of having invaded Iraq. If, in 2001, the U.S. had pursued a rational policy – dropped sanctions against Iran, recognized the government, poured aid money into Northern Iraq, thus creating conditions that would make the long range survival of Saddam’s regime impossible – oil’s price would now be around 60 to 80 dollars per barrel. The future’s market is a bet that, in the future, political forces – say, the bombing of Iran by Israel – will have an effect not only on Iran, but also on every oil producer in the region, since this would madden the populations of Saudi Arabia, Libya, etc. to a degree that the tyrants in charge could not afford to ignore. To say nothing of its effect in Iraq.

Yet, week after week, the thumbsuckers ignore this. Why? Because this chain of events casts into doubt the entirety of the establishment view of foreign policy. Not only is the foreign policy we are pursuing immoral, but – simply in terms of material benefit – it has been highly injurious to the average American. Conversely, it has been highly beneficial to the average petro company, defense company, or the huge host of government contractors – which, not coincidentally, are the circles in which the media punditocracy runs. It’s the oligarchy of the filthiest. And, to be a little more nuanced, the filthy circle does employ a huge number of people. This is the high end engineering sector. This is where the most money is poured into R and D (absurdly enough – the R and D devoted to green technologies, to energy efficiencies, to alternative power – it is comparatively non-existent). This is the heart of Bushdom, the real supporters. And they are determined to keep their talon like hold on the power of the American state. The result of which is the production of a discourse in which there is no egress to any of the issues that are, actually, shaping our current economic circumstances.

There are good signs, though, too. For instance, establishment media is taking tremendous economic hits as subscriptions go down and down – which I view as a sort of instinctive reaction by the public to being massively lied to. Even if, on the conscious level, that public wants “good news” and seemingly revels in great moronic fetes celebrating mendacity, torture, and short term greed, instinctively the animal inside stiffens and tugs when being pulled towards the abattoir. It is on the unconscious level that the populace knows that we are seriously fucked, while on the discursive level, the very words in their mouths have been carefully and systematically shit upon by the gatekeepers. It is that dying fecal taste in the mouth that has made the past seven years so unforgettable. Only in our dreams do we retain the language of freedom, words that smell of fresh bread, of sperm, of spring, of earth.