Monday, September 04, 2006

Israel's Oil Weapon

Earlier posts listed the eight biggest threats to Israel’s existence, how these might wipe over 90% of Israelis off the map, and explained why the Iranian fear state could perpetrate this second holocaust.

We suggested how this threat may change Israel’s
political, economic, and military posture and how Israel is stronger without allies.

This post is a "What If" analysis of how Israel might confront the threat to its existence posed by oil. We don't advocate the suggested outcomes - merely note they're likely.

Oil prices
rose massively over the past 3 years:
The price of standard crude oil…was under $25/barrel in September 2003…A record price of $78.40 per barrel was reached on July 13, 2006, due in part to North Korea’s missile launches, Middle East Crisis, Iranian nuclear brinkmanship and reports from the U.S department of energy showing a decline in petroleum reserves...
The top 10 oil net exporters in 2004 were:

CountryNet Oil Exports (million barrels/day, 2004)
Saudi Arabia8.73
Russia6.67
Norway2.91
Iran2.55
Venezuela2.36
United Arab Emirates2.33
Kuwait2.20
Nigeria 2.19
Mexico 1.80
Algeria1.68


All except Norway and Mexico are corrupt fear states.

The average price increase since 2003 is about $30 per barrel so over the past 3 years oil consumers paid Russia (2004 GDP 740 billion) an extra $220 billion, and Iran (2005 GDP $181 billion) an extra $83 billion.

That’s why Iran and Russia are playing "nuclear brinkmanship" – it makes them rich - and explains how they can spend so much on weapons.

Eventually the oil will run out and Iran and Russia will decline. But by then Israel and other democracies may be gone.

The ideal solution would be for the world to quickly replace oil as an energy source with nuclear power plants and renewables. But even at current prices only France and Japan – both democracies with managed economies – have done that. The US and UK have market-driven economies that won’t move to replace oil power until they get strong price signals.

To trigger these pragmatists to switch would take a big price hike (to $150?), and we don't know the reduction in supply needed to trigger this increase. We do know that any price hike has to be seen by the market to be permanent - temporary reductions such as Saddam’s burning of Kuwait’s oil fields don’t effect investment decisions.

Still, absent a price/demand elasticity model, it seems likely that the move away from oil would accelerate if the exports of Iran and Russia were permanently and significantly reduced.

So a state such as Israel that faces extinction by those nations could look to reduce their cash flow from oil, by interdicting oil fields, production facilities, and distribution networks.

That still doesn’t solve the problem, since switching to new energy sources will take 20 years, and during that time the oil exporters might get even fatter and happier on the higher prices. However the discounted value of their assets would be undermined, forcing their ruling elites to face up to the need to modernize and democratize. Or they might just start a war, but then they’re headed that way anyway…

So Israel’s geologists, chemists, special warfare units, and targeting people may now be figuring out how to destroy Iran’s and maybe Russia’s oilfields.