I don't know what Peter does for a day job, but he seems to know a helluva lot about oil. Peter and Tony make me wary of talking about the topic for fear that I'll make a fool of myself, but here goes.
I've been thinking about the high(er) price of oil the past few weeks and what I perceive to be a fairly laid back attitude to this development by the Bush Administration. Despite the fact that theoretically high gas prices are a sure vote loser, the Bush team seems none-too-worried about this.
Here's my amateur explanation as to why.
- Saudi Arabia - the Saudi economy has gone to hell over the past 10+ years due to low oil prices. Sure, long term they have to do something to encourage people to create wealth and not just cash in on the wealth under the sand, but the higher prices we're seeing at the moment will help the Saudis buy some quiet while they deal with the discontented rabble that is swelling the ranks of the Islamic terrorists.
- Russia - there's no doubt that George Bush's friend's life is made easier by higher oil prices. I wonder if American equanimity in the face of these higher prices explains Putin's revelation about his warning before last year's invasion.
- Iraq - every barrel of oil coming out of Iraq is selling for more than was expected in the budgeting for reconstruction of Iraq. The less that costs, the easier it will be for Bush to cast the policy in a favorable light.
- China - the Chinese use lots and lots of oil. And, when it comes to production, they use it less efficiently than Americans. So, although the higher oil prices hurt American business, Chinese businesses are hurting more. A little dampening down of the Chinese economy would help keep China from challenging the US anytime soon.
- Kyoto - despite what is generally assumed, the Bush Administration has made a lot of noise about Kyoto, but not formally abrogated (is that the right word? & I'm looking for a link that discusses this) the treaty. Higher gas prices will reduce emissions as people simply drive, fly, produce less than they would if oil were $10 per barrel. This development is a bone to throw to the EU, which is not faring all that well with Kyoto compliance itself.