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Q&A: How Will the Libyan Crisis (and Its Oil) Affect the US?

Feb 24, 2011 – 6:34 AM
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Dana Kennedy

Dana Kennedy Contributor

Libya is different. Unlike the toppling of dictators in Tunisia and Egypt and the unrest roiling Bahrain and Iran, the violence gripping Libya, the 18th largest oil producer in the world, may have a more immediate impact on the American pocketbook.

That became clear early Wednesday when the Financial Times reported that half of Libya's oil industry had shut down, causing oil prices to surge to $100 a barrel on fears that the turmoil could spread to other major oil producers like Saudi Arabia and Algeria.

A defiant Col. Moammar Gadhafi also threatened to blow up energy pipelines, Time magazine reported Wednesday.

Some experts say the turmoil in the Mideast could push gas prices up to $4 a gallon in the U.S.

Libya produces just 2 percent of the world's oil supply, but it is some of the world's most sought-after highest quality crude. It exports 85 percent of its oil to Europe and only 5 percent to the U.S.

International Energy Agency chief economist Fatih Birol said Tuesday that oil prices were in the danger zone and could rise further if the turbulence continues in the Middle East.

Experts, however, say global oil and gas supplies are far from being at risk -- for now.

But the almost science fiction-like specter of Gadhafi threatening to "die a martyr" and possibly sabotage his own oil fields sheds a harsh glare on the reality of U.S. dependence on foreign oil and the limits of the oil reserves themselves.

AOL News spoke about the Libyan crisis with James Howard Kunstler, an iconoclastic author and outspoken social critic whose 2005 book "The Long Emergency" describes a near-apocalyptic future in a world with dwindling oil supplies.

AOL News: How is what's happening now in Libya affecting the average American?

Kunstler: Neither Egypt nor Tunisia were meaningful oil producers. Libya, on the other hand, is an important oil producer and gas producer. Oil production is a very complex industry, and it doesn't do well under chaotic conditions. The American public largely misunderstands how the oil markets function. But they will face the reality when they show up at the pump and either can't get any gas or have to pay through the nose.

AOL News: What don't they understand?

Kunstler: We have a nation paralyzed with wishful thinking and unreality. People are largely clueless as to the correlation between the oil markets and their lives. We are painfully dependent on foreign countries for oil. And the world is generally done with cheap, easy to get, high-quality sweet oil. The oil that's left is poorer quality, more expensive to produce and found in forbidding and difficult regions. But people believe all kinds of fairy tales that are manifestly untrue and idiotic, such as the idea that the earth is like a bonbon with a creamy nougat center of oil.

AOL News: How is the crisis in Libya going to start to manifest itself in the world?

Kunstler: Oil prices are rising because there's a recognition that the entire Middle East has become profoundly unstable and that all bets are off as to the outcome. As far as Libya goes, it's very hard for the world to absorb the loss of even 2 percent of the oil that is produced every day. Economies in industrial countries really wobble when this happens. World supply and world demand have been very tightly balanced for the past few years. Unlike years past, there is no surplus. The world is using more oil. They sold more cars in China last year than in the U.S.

AOL News: Give me some concrete examples of how the economy could wobble in the U.S. as a result of the crisis.

Kunstler: You may see American truck drivers start to suffer. They have to pay for their own diesel fuel, and they won't be able to absorb the kind of price increases we're starting to see right now. I can't overstate how much truck drivers move stuff around and feed America. If their business model starts to fail, the food is not going to show up in supermarkets. When truckers have a problem, sooner or later chain stores have a problem, and companies may not be able to pay their employees.

AOL News: What do you think the immediate fallout from Libya will be in the region?

Kunstler: The exertions that Gadhafi is going through now will only inflame the region more. The more he resists his departure and the more violence he provokes will only inspire people in other countries. Saudi Arabia is prime for a meltdown. The king is over 86 years old and not in the best of health, and his successor is over 85. There are other aristocratic families who'd like to toss the royal family off its throne. If Saudi Arabia becomes too turbulent, you can't run the oil industry there. If all that happened, it could be a duck and cover situation for the U.S. They are our second biggest supplier of oil.

AOL News: The International Energy Agency said peak oil hit in 2006. What does peak oil mean?

Kunstler: Peak oil is the point of maximum oil production, either in a country or the world as a whole. After which you enter the arc of depletion. About half of the world's oil is left. Unfortunately, a large percentage of that is economically unrecoverable for one reason or another. And because the banking system is blowing up, we've entered a crisis of capital, which means we may not have the money to get the remaining oil out.

AOL News: What about using new technology to get oil out of the ground?

Kunstler: The problem of the diminishing returns of the new technology comes into play. Horizontal drilling or injecting nitrogen or seawater into rock to goose the oil out of the rock just depletes the oil fields more. The Saudis have depleted their fields that way. They're no longer the world's No. 1 producer of oil. Russia is.

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AOL News: What about alternative energy?

Kunstler: People think we'll be able to substitute other energies. Well, we're not going to run Wal-Mart, the military and interstate highways on alternative fuels.

AOL News: Is there a solution, then, to end our dependence on foreign oil?

Kunstler: They are behavioral changes we're not willing to make. I'm talking about creating walkable neighborhoods, restoring the country's regular train tracks rather than building high-speed trains. Our investment in living the way we do is too great. But we're being dragged kicking and screaming into a different way of doing things by what's going on in the world now.
Filed under: Nation, World, AOL Original, Arab World Unrest
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