Mission 2007's Team 9 (Michael Shaw)

Team 9: Political Ramifications

Michael Shaw

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Team 9
Mission 2007
MIT

Current Research:

          My research focuses on the impact of drilling in ANWR on the international oil community. Before delving into the topic, we first discuss the nature of said community. Oil is bought and sold across country lines like any other commodity. However, since 1973, the practical workings of the oil market have been antithetical to the nature of pure competition. The Organization of Petroleum Exporting Countries (OPEC) has used its monopolistic powers (technically, it is a cartel, not a monopoly, and its powers are those inherent to an oligopoly) to control the market price of oil.

          Prior to OPEC's actions in 1973, the price of oil was stabilized at approximately $3 a barrel. OPEC took advantage of the nearly perfectly inelastic demand for oil, and shortened its supply; thus, the price for oil rocketted from $3, to $5, to $12, up to today's preferred range of $22 to $28. By a preferred range, I mean that OPEC will cut or raise production so that the price doesn't deviate from that range too much. While this sounds like a perfect system for the countries in OPEC, it assumes that OPEC has unlimited production capability and that they can cut off all world oil production.

          OPEC itself satisfies neither of those two assumptions. However, they are close. The eleven member nations of OPEC -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela -- control approximately 35% of world oil production. In many cases, this number would be enough to minimize their impact. However, OPEC controls over 80% of surplus capacity in the world; nobody else can raise production enought to balance out their influence. Also, OPEC's control of 78% of proven oil reserves gives it a long term capability to control the oil market.

          The influence of American drilling in ANWR therefore must be understood within that context. While production in the 1002 region could yield approximately 10 billion barrels of oil, its impact on the world oil market will be minimal. Such variations in proven oil reserves can make a difference to one country's power in the market in under a more traditional oligopoly, the OPEC cartel can simply cut production by an equivalent amount and bring the price of oil back into the preferred range.

          There is a point, however, past which OPEC cannot cut, where member nations will simply ignore quotas because they need the oil revenue. However, as world oil demand increases, and with OPEC still controlling a significant majority of the world's excess capacity, such a problem will dissappear within the next decade. And, coincidentally, it will take that decade before significant quantities of oil can be extracted from ANWR. At that point, the world demand will be high enough that OPEC can cut its production by whatever comes out of ANWR and still maintain reasonable quotas for its member states.

          For a case study, consider the influence of war in Iraq on the world oil community. Iraq's prewar production level of 1.5 million barrels per day is, within a factor of two, the rate of production in ANWR. The impact of war in Iraq -- of the cessation of production of 1.5 million barrels per day, was next to nothing. Yes, there was a temporary spike in the price of oil, most of which can be attributed to fears of the war spreading to other oil producing countries; however, the spike was temporary. By compensating in their own export quotas, OPEC was able to maintain its price bracket on oil. Yes, drilling in ANWR is substantially different from war in Iraq; however, the analogy does hold here.

          The impact of American oil drilling in the wildlife refuge will be more than the simple number of barrels of oil. The US will have sent a message that it is willing to do anything to preserve its oil-driven economy. As drilling in ANWR will lead to a slight decrease in OPEC and Mideast oil production, the situation for purchasing oil on the European continent could be negatively impacted. That coupled with the strong enivronmentalism present in European countries will lead to tenser relationships between the United States and Europe.

          In short, drilling in ANWR will have a negligible impact on the economics of the world oil market. In turn, that means that its political impact will be neglibible. The United States will be in no stronger a negotiating position with OPEC; Europe will still have negative feelings towards the United States for its environmental policies, and the member nations of OPEC will have no harder a job to control the world's oil production.

Sources:

  • Ajami, Fouad. "How oil fueled the Middle East's rage." The International Herald Tribune . October 18th, 2003: Online. LexisNexis Academic. 22 October, 2003.
  • Congressional Record (April 1st, 2003). H2567-2569: Online, GPO Access. 19 September, 2003.
  • Congressional Record (April 9th, 2003). H3032-3039: Online, GPO Access. 19 September, 2003.
  • Congressional Record (April 10th, 2003). H3078-3128: Online, GPO Access. 19 September, 2003.
  • Congressional Record (May 6th, 2003). S5747-5753: Online, GPO Access. 19 September, 2003.
  • Jean Jacques, Bozonnet. "En Alaska la victoire du caribou" Le Monde June 14, 2003: Online. LexisNexis Academic. 21 October, 2003.
  • Igbikiowubo, Hector. "World Oil Demand to Average 79.33 M B/D in 2004." Global News Wire - Asia Africa Intelligenc Wire September 30th, 2003. Online. LexisNexis Academic. 20 October 2003.
  • "Les Combustibles Fossiles Questions-reponses" Le Monde . December 24th, 1996: Online. LexisNexis Academic. 21 October, 2003.
  • McCartney, Robert. "OPEC may feel pressure with return of Iraqi oil." The Washington Post. April 27th, 2003: Online. LexisNexis Academic. 20 October, 2003.
  • "Monthly Oil Market Report." Organization of Petroleum Exporting Countries. October, 2003: Online. LexisNexis Academic. 20 October, 2003.
  • "OPEC and the voice of doom." The Economist. September 9th, 2003: Online. LexisNexis Academic.
  • "OPEC's oil shock." The Economist Septmeber 26, 2003: Online. LexisNexis Academic. 20 October, 2003. 22 October, 2003.
  • "OPEC grappling with postwar Iraq questions." Oil and Gas Journal. May 19th, 2003: Online. LexisNexis Academic. 20 October, 2003.
  • "UK: Will oil prices fall sharply in 2004?" Oxford Economic Forcasting: UK Weekly Brief September 26, 2003: Online. LexisNexis Academic. 20 October, 2003.

Preliminary research: Team nine being of the opinion that our topic deserved further scrutiny into its background, each member agreed to research and present one facet of that background. My research focused on federalism in America and on Congressional opinions on ANWR.

Federalism: The American democracy is like no other in the world. It is a haphazard conglomeration of the confederal and the unitary, where power is divided on such odd lines that after two hundred years of court precedent, it is still unclear exactly who controls what. Written into the United States Constitution that the federal government is to be supreme in its sphere of influence, but that said sphere of influence was expressly detailed in the Constitution, it seems that there would be no conflict. However, as the Constitution offered the Federal government the power "To make all Laws which shall be necessary and proper for carrying into Execuiton" its powers, there has always been a conflict on exactly what is necessary and proper, on how elastic this elastic clause really is. (US Constitution, Article I, Section 8).

          Federalism is critical to understanding the politics of ANWR as there is federal authority over land completely contained in geographic Alaska. We learn that in practice, it is the right of Congress to legislate over ANWR's future. However, the state of Alaska has strong interests in the matter and because of the looseness of the federal system, also has a powerful influence over the decision. A short case study: in the last half century, the drinking age in America has risen from 18 to 21 by a federal mandate. The power to set the drinking age, however, is completely within the bounds of state governments. How did the federal government accomplish this? They tacked a drinking age of 21 as required in order to receive (necessary) federal highway money. Thus, even though officially drinking is within the bounds of the state governments, the federal government now regulates it. Can the same happen for ANWR? Alaska must be kept on board in any decision-making.
          The ramifications of said federalism are too numerous to elaborate in anything short of a doctoral thesis (and perhaps too much for that as well). I offered here only a hint of where my research led. For further information on federalism, feel free to contact me at MShaw@MIT.edu or peruse the following source materials (the documents I used in my research as well):
  • Fletcher v. Peck, 10 U.S. 87 (1810)
  • Hamilton, Alexander, James Madison, and John Jay. The Federalist Papers, ed. Clinton Rossiter (New York: Penguin Books, 1961).
  • Madison, James et al. The Anti-Federalist Papers and the Constitutional Convention Debates , ed. Ralph Ketcham. (New York: Penguin Books, 1986).
  • Marbury v. Madison, 5 U.S. 137 (1803)
  • Maxwell, James A. The Fiscal Impact of Federalism in the United States. (Cambridge, Ma: Harvard University Press, 1946).
  • United States Constitution, http://www.archives.gov/national_archives_experience/constitution_transcript.html
  • United States v. Lopez, 514 U.S. 549 (1995)
  • U.S. Term Limits, Inc. v. Thornton, 514 U.S. 779 (1995)

International Oil Community: My next research focuses on the international oil community and its role in the situation in ANWR. As we could only speculate as to the effects of drilling in ANWR on the international oil community, I focus much of my attention on a case study: that of Iraq.

About Me

Name: Michael Shaw

Mission 2007: Team 9

Education:

  • Undergraduate: MIT, Class of 2007
  • High School: Stuyvesant High School, Class of 2003
  • Middle School: United Nations International School, Class of 1999

Major:

  • Courses 8 and 18
  • For the uninitiated, thats physics and math.

Last updated: November 11th, 2003 Back to top E-mail: MShaw@MIT.edu