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What's behind the gas prices crisis?

By Elizabeth Schulte | June 4, 2004 | Page 6

WHEN THE price of gas jumped above $2 a gallon in May, John Kerry took the opportunity to go on the attack. But his Arab-bashing rhetoric wouldn't have sounded out of place coming from a Republican right winger. Kerry accused the Bush administration of being "too soft" members of the Organization of Petroleum Exporting Countries (OPEC), especially Saudi Arabia.

Politicians like Kerry can throw all the blame they want at oil-producing countries, but much of the responsibility belongs with oilmen right here in the U.S. Kerry should know, since he's no stranger to oil money. In 2000--just one of several campaigns in his 19 years as a senator--Kerry took in more than $109,500 in contributions from the energy industry, according to the Center for Responsive Politics.

Meanwhile, some environmentalists had a different response to rising gas prices--celebration. "There will be a hangover, no doubt, but we should think about the benefits of kicking the habit," Mitchell Anderson, a staff scientist with the Sierra Legal Defense Fund, wrote in an article titled "We are Finally Running Out of Cheap Gas--Good" in the Toronto Star. "We may realize that our addiction has cost us more than we realized."

Anderson's conclusion? "Rising fuel prices will succeed where moral suasion has failed."In other words, the best way to stop people from using fossil fuels is to take them away.

Anderson should try telling this to truck drivers at the Ports of Los Angeles and Oakland--many of them Mexican immigrants--who protested rising gas prices in May because this is keeping them from making a living.

In one important way, Anderson's argument has something in common with Kerry's--it puts the blame in the wrong place and, therefore, lets the real wrongdoers off the hook.

As long as consumers are held responsible, the profit-hungry oil industry will be the winner. And when it comes to gas prices, consumers will be forced to pay whatever the oil bosses dictate.

According to the consumer watchdog Public Citizen, mergers over the last decade have allowed oil companies to fix gas prices like never before. Today, the five largest oil companies that operate in the U.S.--ExxonMobil, ChevronTexaco, ConocoPhillips, BP-Amoco-Arco and Royal Dutch Shell--control 14 percent of global oil production, 48 percent of domestic oil production, 50 percent of domestic refinery capacity and nearly 62 percent of the retail gasoline market.

The oil companies deliberately keep their inventories low to keep prices high. According to internal company documents submitted to a 2002 Senate subcommittee investigating oil prices, Marathon called Hurricane George a "helping hand" to oil producers because it "caused some major refinery closures, threatened off-shore oil production and imports, and generally lent some bullishness to the oil futures market."

In California, where gas prices have skyrocketed, the comparison is being drawn to the "energy crisis" a few years ago. "[T]he problem is as simple as California's electricity crisis turned out to be: A few giant energy corporations have manipulated supply to keep profits high," wrote author Jamie Court and oil industry consultant Tim Hamilton in the Los Angeles Times. "By strategically cutting the number of state refineries almost by half since deregulation of gasoline in 1981, even while the state's population has exploded, the refiners have created conditions under which price spikes occur regularly. Inventories are kept low so that when there is a problem at a refinery--such as a fire--the market anticipates a shortage and sends the speculative price of gasoline sky-high. Refiners make a killing because it doesn't cost them any more to produce the gasoline, which they can charge more for."

In other words, scarcity is good.

It's true that the world consumes 12 million barrels of oil more than it did a decade ago. But as economist Paul Krugman pointed out last month, "It turns out that America's love affair with gas guzzlers, shortsighted as it is, is not the main culprit: The big increases in demand have come from booming developing countries."

The fear is that high oil prices will bring this economic expansion to a stop, according to left-wing writer Mike Davis. "More expensive oil will undercut China's energy-intensive boom...and accelerate the environmentally destructive exploitation of low-grade oil tars and shales," Davis wrote. "Most of all, it will devastate the economies of oil-importing third-world countries. Poor farmers will be unable to purchase petroleum-based artificial fertilizers, just as poor urban-dwellers will be unable to afford bus fares."

But someone will benefit from the crisis--the oil company executives and the politicians whose wheels they grease.

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