Each oil crisis spells a new energy future

The US government should follow Europe and Japan's lead in taxing energy to stave off oil addiction.

By John K. Cooley

from the February 26, 2007 edition

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ATHENS - The latest international row over oil is just one more episode in the black stuff's long and continuing entanglement with power politics.

The internationally recognized Greek Cypriot-ruled Cyprus Republic, a European Union member, is taking bids from multinational energy firms to drill for oil and natural gas offshore. Large, though still unproven reserves, are believed to be at stake.

Turkey and its dependent "Turkish Republic of Northern Cyprus" (which is recognized only by Ankara since invading Turkish troops created it in 1974) object. They insist that both the Nicosia Cypriot regime and its ally, the Greek government in Athens, should desist until final settlement of the 33-year-old partition of Cyprus. The Turkish side insists it will drill in the same locations, and even implies possible military backup for its own efforts.

It's another major obstacle in Turkey's delayed negotiations to join the EU. It's also a classic example of how oil and politics constantly interact.

Middle East turmoil and the severe Gulf of Mexico storms in 2005 helped drive up crude-oil prices from about $37 a barrel in January 2005 to more than $70 by May 2006. Although prices have dropped to the $50-$60 range, long-term factors suggest that oil will remain pricey for years to come.

That's why more enlightened and courageous energy policies, especially in the United States, are so crucial today.

The world now uses almost all produced oil (and a lesser proportion of gas). Refineries and pipelines are hard hit by factors such as hurricanes in the US, and by accidents, sabotage, and hostage-taking in oil-rich countries such as Iraq and Nigeria. In many countries, especially the US, supply isn't keeping up with galloping demand for gasoline and other refined-petroleum products.

To remedy this problem, big-oil states and energy companies should expand refineries and pipelines. They also need to invest much more in both production and exploration. A major factor keeping Iraq's output well under the 3 million-plus barrels per day of the Saddam-Hussein era, is that old Iraq partners, such as ExxonMobil and France's Total, won't put new money into the building and repair of wells, pipelines, and refineries that insurgents repeatedly blow up. The sooner Iraq is stabilized, the sooner oil companies may invest in expanding the country's production.

Meanwhile, global demand for gas and oil soars. This gives big producers such as Russia – now No. 1 in the world – leverage over their markets. Western Europe has become dependent on Russia's giant Gasprom firm for about half of its rising gas needs.

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