Jim Krane of the Associated Press quotes analysts who seem to blame the high price of petroleum on the shambles in Iraq. Iraq could be exporting nearly 3 million barrels a day (bbd) if the guerrilla war was not resulting in massive sabotage. In 2005, Iraq did only 1.4 million bbd on average, down from 2.8 mn. bbd before the war. Not only is Iraqi production way off but Iraq actually imports over $4 billion a year in petroleum products taking them off the market for other consumers.I can't imagine that Iraq really is much of a factor here. The world petroleum production is on the order of 86 million barrels a day so the lost 1.4 million bbd of Iraq is about 1.6% of the total. Even if you factor in Iraq's imports (and remember it doesn't have much of an economy at the moment), I can't imagine that Iraq production issues account for very much of the current price spike. Some economists argue that there is a lot of speculation, including a security premium, built into the current price, because you have war and rumors of war going on in the Gulf. A ten percent security premium is the difference between paying $3.00 a gallon for gas and $2.70.The main problem in supply isn't raw petroleum production but a shortfall in world refining capacity. The rise in demand is partially seasonal with Americans hitting the road in the summer.Some economists seem to be arguing that over five to ten years, Iraq could have had an impact, if there hadn't been all that sabotage and if $30 bn. had been invested in the industry. The fact is that if Americans did some serious conservation they could reduce consumption by 1/3. Since they use about 20 million barrels a day of petroleum, they could replace the production of both Iraq and Iran all by themselves.But the last politician who dared tell you that was Jimmy Carter and no one will ever go on television and talk that way again who wants to hold public office.
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