Econgeeks and Hotbabe: Deal with Iran Beats Offshore Drilling

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.

Comments

[hu.man]

This thing is so right on and yet I am confounded by why the premise of offshore drilling can help us lower gas prices is not being challenged by MSM. There is the whole side of the issue that we are having the country's cash being drained by importing oil. This makes no sense either. Yes, if we had to pay for oil with euros then it would make somewhat of a sense. But with dollars, we got the printing press in the backyard cranking it out.

Reduced geopolitical tensions will result in lower oil prices, specially if they happen in oil producing region of Middle East. Why can't Obama formulate this message? Are Democrats heading to another defeat in November at the hands of crafty Republicans? I am shaking my head indeed.

Another thing is that the rest of the world is getting hurt so much more by higher oil prices than we are here in U.S. There is really no mention of that and how we can truthfully alleviate this global crisis. Some leadership, indeed, in Washington.

[hchriste]

Does anyone check out what they are really talking about with off shore drilling. Drill Now is a House Bill, HR 6443, which authorizes the lease of land for exploration and drilling off the coast of Texas, Alabama and Louisiana. George is seperate and Florida ptobably by choice is not included. If I read this bill correctly the real issue is not the leasing but the American Taxpayer paying the tab for exploration and drilling. A current deep water platform can cost $2billion and the number of barrels of oil that can be pumped make the cost a loser but not if Middle Class America is dumb enough to fall for the lie and pay the tab,then it is very profitable to build and drill. McCain talks about being qualified to make Presidential decisions, will does his mindless support of Drill Now with out figuring the consquences, the way a President should make decisions?

[fussygorilla]

I did write to my congressperson and he responded. But, imagine what he said. He totally avoided the issue of Iran's legitimate right to enrich unranium as a member of the NPT and the fact that Iranian leaders for years have said that they do not plan to build nuclear weapons and also IAEA certifying its peaceful program, and that U.S. under no circumstances (except when attacked) has the right to attack another country. Instead, he tells me that the right to go to war rests with congress and not with !the president! Is the issue the struggle for power between the two branches or is the issue the lie the administration continues to say and congress buying it? He states that the President needs authorization from Congress regarding action because of "Iran's nuclear WEAPONS program".
So, what do we as voters should do when even signing letters does not change anything?

[research]

The drilling is irrelevant. The oil companies can't drill the new land for years anyway. So President Obama can stop the drilling before they get to it.

Releasing the strategic reserve and ending the Enron Loophole will both cause the price of oil to drop dramatically. Just Obama taking about releasing the strategic oil reserve caused the recent drop in oil prices.

[speakeasy]

#1- The Dems are going to have to cave on this drilling thing before the repubs bury us with it. I hate the idea, but this is so politically explosive that there will be no point of return if they fight it and all momentum will be lost in this next election.

#2- At $120 a barrel, do we really want to give Iran another $240,000,000 a day with 2million extra barrels pumped?

[Hass]

See, there you go thinking that good policy is necessarily politically viable.

Cut a deal with Iran? With AIPAC around? Exactly which congressman will take THAT risk, even if it does serve US interests?

[RobertNaiman]

I don't discount AIPAC, obviously, but as far as I know there has been no real public push yet using this argument so I regard this as an open question. AIPAC's power is greatest when there is little public scrutiny. Its power is weakest when public opinion for real diplomacy is mobilized. Congress adjourned with AIPAC's blockade resolution still in committee, and with several of its co-sponsors backing away from it. That's because there was a mobilization of the public. Let's try mobilizing the public on the basis that a deal with Iran would lower gas prices and see what happens.