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Econgeeks and Hotbabe: Deal with Iran Beats Offshore Drilling

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On the day when journalism in the United States is held accountable to some minimum standards of competency, like medicine and the law, it might not be necessary to go to extreme lengths to defend important and obvious objective truths which are today treated by the corporate media as matters of subjective opinion, like the fact that lifting the Congressional ban on most offshore drilling won't do squat about gas prices, now or in the future. Or that cutting a deal with Iran that lifts US sanctions on that country would do more, and do it quicker.

Since we have not yet lived to see that happy day, a hot babe, evoking Paris Hilton, makes the case:

More soberly, a group of economists have initiated an open letter to the Congressional leadership, making the same points in more detail, noting that modest efficiency improvements would do much more than offshore drilling, and also noting that the oil companies are far from doing all they can to boost production now. Instructions for economists to sign are given between the signatures and the references. Here is the letter:

Economists' Letter on Offshore Drilling

August 11, 2008
Senate Majority Leader Harry Reid
Senate Minority Leader Mitch McConnell
House Speaker Nancy Pelosi
House Minority Leader John Boehner

Dear Senators Reid and McConnell and Representatives Pelosi and Boehner,

As economists, we write out of concern that you are being pressured to lift the Congressional ban on most oil drilling off our coasts, despite the fact that this would do nothing in the short term and almost nothing in the long term to reduce gas prices. Simpler measures that don't threaten our environment would do much more.

The federal government's Energy Information Administration projects that this would have no impact on gas prices in the near-term since it will be close to a decade before the first oil could be extracted. The EIA projects production would reach 200,000 barrels a day at peak production. It describes this amount as too small to have any significant effect on oil prices, even when production is at its peak. [1]

If the US had raised auto fuel efficiency standards between 1985-2005 by a quarter of the amount it raised them annually from 1980-1985, instead of leaving them virtually unchanged, the result would roughly have been the equivalent of 3.3 million barrels of oil per day in new production,16 times the projected impact of offshore drilling. [2] It is reasonable to assume that modest increases in fuel efficiency in the future would have a similar effect.

If we negotiated an agreement with Iran that led to the lifting of US sanctions, oil production in Iran could increase 1-2 million barrels a day. That would be 5-10 times the projected impact of drilling off our coasts.

U.S. oil companies are not doing all they can do boost production. In May, the Washington Post reported that Exxon had spent $8 billion buying back shares in the first
quarter as a way to boost the value of the stock for shareholders. That far exceeded
the company's $5.5 billion capital spending budget.[3] In 2006, Exxon spent $25 billion buying back its stock, again more than its capital spending budget. [4] The industry spent $52.4 billion on stock buybacks in 2006, nearly double the amount in 2005. [5]

It would be far better to pursue modest conservation and negotiations with Iran, having the effect of bringing 20-25 times as much oil on the market, rather than endanger tourism, fishing, and beaches on our coasts for a long-term effect on gas prices that we won't even notice.

Thank you for your consideration of our concerns.

Michael Perelman, Economics Dept., California State University, Chico
James Devine, Economics Dept., Loyola Marymount University, Los Angeles
Hadi Salehi Esfahani, Economics Dept. University of Illinois, Urbana
Mark Weisbrot, Center for Economic and Policy Research, Washington
Rudy Fichtenbaum, Economics Dept., Wright State University, Dayton, Ohio
Michael Brun, Economics Dept., Illinois State University, Bloomington-Normal
Hank Leland, Research Analyst, SEIU, Washington
Edward S. Herman, Finance Department, Wharton School, University of Pennsylvania
Jeffrey Stewart, Economics Dept., University of Cincinnati
Laurence Shute, Economics Dept., California State Polytechnic University, Pomona
Hendrik Van den Berg, Economics Dept., University of Nebraska
Lucy Law Webster, Economists for Peace and Security
Lyle Fettig, Agricultural and Consumer Economics Dept., University of Illinois, Urbana

[Economists may send signatures to naiman--at--justforeignpolicy.org, with subject line: sign economists letter. Include economics affiliation as indicated by the current signers. Deadline: end of day Friday August 15.]

References:
[1] "Annual Energy Outlook 2007 with Projections to 2030," Energy Information Administration, February 2007.
[2] "Offshore Drilling and Energy Conservation: The Relative Impact on Gas Prices," Dean Baker and Nichole Szembrot, Center for Economic and Policy Research, June 2008.
[3] "Up $10.9 Billion, Exxon Worries About New Tax," Steven Mufson, Washington
Post, May 2 2008.
[4] "Higher Oil Prices Help Exxon Again Set Record Profit, " Steven Mufson, Washington Post, February 2, 2007.
[5] "Big Companies Put Record Sums Into Buybacks," Ian McDonald,. Wall Street
Journal, June 12, 2006.