April 8, 2017 by Paul Hogendoorn FreePoint Technologies
Apr. 8, 2017 – Over the last 50 years, the price of oil has had a direct affect on the stability of the world. When the price of oil is high, we see the rise of threatening leaders and regimes. When it’s low, we have periods of more stability.
Muammar Gaddafi was in power from 1969 to 1977, a period of time when the price of oil nearly tripled. The Middle East, with the exception of perhaps Saudi Arabia, produces aggressive and peace threatening regimes, when the price of oil is high. The revenue from oil flows in very quickly and funds the building of armies and entrenchment of hostile regimes. Another example is Idi Amin, who ruled Uganda from 1971 to 1979. Saddam Hussein may not have come to power until 1979, but he helped orchestrate the coup in 1968. As part of the new regime, he nationalized the country’s oil industry, shortly before the oil boom. The country’s coffers filled rapidly.
Conversely, a low price of oil is argued to have been the cause of the dissolution of the USSR, at that time, a threatening world power. As one of the world’s biggest oil producers, the price of oil through the 70s was a boon to its economy (at $50 to $60 a barrel, up from the low $20s), and then even more so in the first part of the 80s when oil peaked at $120 a barrel. By the mid 80s, it plummeted to about $25, and then hovered for many years around $35. The spending appetite of the government couldn’t be adjusted as fast as it grew, and the USSR dissolved due to bankruptcy.
With over 60 per cent of the world’s oil produced by Russia and Middle Eastern countries, (and about 15 per cent produced by China), a high price of oil tilts the balance of power in favour of countries that have often been a threat to western democracies and western democratic values.
Limiting the supply of oil by itself is not the right answer to the environmental issue, limiting the demand for oil is. A secure supply from a responsible, safe source is important to world stability, and who better than Canada for this?
And here’s where I lose even more friends: the other half of the answer to the complex balance of world stability and long-term sustainability is higher taxes — far higher taxes. If prices between $80 and $120 a barrel helped place more emphasis on developing and purchasing more fuel efficient vehicles, we should take the prices up there again, but through taxes, where we all may benefit, rather than foreign countries or big oil companies. The difference is that rather than streaming all the extra revenue to the middle east (or Russia), that extra revenue could go against our deficit, or perhaps even our debts. It could even be used to help automakers develop more efficient vehicles or green technologies. Either way, it would be a dampening of demand with zero additional revenue going to unfriendly or unstable powers. To the argument that a high price of oil hurts the economy, I point to Europe. They have had a high tax on oil for decades and it certainly has encouraged fuel economy without hurting the overall economy. The question shouldn’t be on the need or validity of the higher taxes, but what the government does with that additional tax revenue.
I have to admit I do not know about all the other issues surrounding the pipeline debate, but when I think about the two biggest ‘macro’ issues (stability and sustainability), we have to limit demand without flowing all of the extra revenue out of the country. The answer to that is the XL pipeline, and higher taxes for fuel for automobiles.
This column was originally published in the March/April 2017 issue of Manufacturing AUTOMATION.