Busted Pump

The most under-reported story of late March was the run-up of crude oil and gasoline prices due to supply disruptions in Nigeria and the Gulf of Mexico, with further threats to the world supply emanating from Iran and Venezuela.

Because the price of fuel affects the price of everything else, crude's quick runup toward $70 a barrel is an unwelcome jolt to an American economy already worried about inflation. Oil closed slightly above $67 a barrel on March 30.

American companies' production in the Gulf of Mexico is still 343 thousand barrels a day below normal because of damage to drilling and refining facilities caused by last summer's Hurricanes Rita and Katrina. That's 23 percent below normal.

In Nigeria, various rebel organizations have vowed to cut that country's oil exports in half. It's difficult to tell whether these shadowy armies are political organizations or merely groups of bandits motivated by the expectation of ransom money, or possibly a combination of both, but they have certainly made good on their threat. Royal Dutch Shell has suspended activity at half its production sites in the country, causing a loss to world markets of over half a million barrels daily. The company says it will not resume production at the affected facilities until it can guarantee workers' safety.

A potentially even more serious threat to world oil supplies is the possibility of an embargo or production interruptions which might be caused by war in Iran, which is second among OPEC oil exporters only to Saudi Arabia. On March 30, all five members of the U.N. Security Council plus Germany strongly urged the Iranians to halt their uranium enrichment program, but Iranian government spokesmen in Tehran rejected the plea. The Bush administration has said it will not accept a nuclear-armed Iran.

The most recent development portending potentially serious oil supply problems is a dispute which culminated with the government of Venezuela ordering Exxon-Mobil, which holds long-term leases there, to vacate the country.

The company did not respond directly to the Venezuelan government or its president, Hugo Chavez, but in an e-mail to the Associated Press said "ExxonMobil de Venezuela continues to have a long-term perspective of its activities in Venezuela," which is corporatespeak for "We're not leaving."

The stand-off is the result of Chavez's clashes with corporate leaseholders during the past few months as he has moved to "re-nationalize" Venezuela's oil production by bringing in government-controlled oil companies from friendly countries to replace the multinational corporate leaseholders working there now, whom he accuses of looting Venezuela's oil wealth over the years.

Since Chavez took office in 1999 he has moved relentlessly to limit the role of the multinationals in the Venezuelan oil industry. He has overseen legislation requiring a majority government interest in all production, raised taxes, and demanded higher royalties on every gallon of crude that's pumped by foreign oil companies. He has also collected millions of dollars in what he claims are back taxes owed to Venezuela.

On March 30 the Venezuelan Congress approved new measures which will turn 32 privately run oil fields over to state-controlled joint ventures.

Among the terms faced by companies like Royal Dutch Shell PLC, France's Total SA, and Exxon-Mobil are a minimum 60 percent stake for the state oil company Petroleos de Venezuela SA (PDVSA) in each field, Venezuelan control of the boards of these joint ventures, an increase in income tax from 34 percent to 50 percent, and an increase in royalties from 16.6 percent of product value to 33.3 percent.

Exxon-Mobil was the only company to outright reject Venezuela's new rules and regulations, and signaled its displeasure in December by selling one of its largest fields in the country, Quiamare-La Ceiba, to its joint venture partner, the Spanish-Argentine company Repsol YPF.

The American corporation's belligerent refusal to comply with Chavez's government has now resulted in its expulsion from the country, but it's an expulsion Exxon-Mobil has thus far refused to acknowledge.

Some observers worry that continuing friction between Chavez and the U.S. might result in a Venezuelan embargo against U.S. markets. The country is the world's fifth-largest oil exporter, and would probably not have too much trouble finding other customers.

The United States consumes slightly more than 20 million barrels of oil a day, of which six million barrels is supplied by domestic production. The rest is imported.

The Jeremiah-like commentator James Howard Kunstler has surmised for the past several years that any kind of disruption in the U.S. oil supply, especially one involving multiple breakdowns in the supply mechanisms of several different sources simultaneously, would spell economic and social catastrophe for the United States. He explores this subject in some detail in his book, "The Long Emergency."

The world now appears to be in danger of potentially playing out Kunstler's darkest predictions.