To the editor,
Is the energy crisis stemming from the war on Iran a simple matter of supply and demand?
Cheers,
Breezy.
[Sent from Substack]
Dear Breezy,
The world is staring at a billion barrels of oil lost due to military actions undertaken by the belligerent governments of Israel and the United States. This number will only go up with each passing day of disruption to maritime traffic in the Persian Gulf. To put that number into context, it is roughly equivalent to ten full days of total global consumption. This kind of supply squeeze will present itself unevenly; the higher cost of gas and transported goods can be either a nuisance or a calamity depending on the financial capacity of consumers.
Turning to Karl Marx the political economist, he himself did not live to see oil come into dominant use and it was coal that reigned supreme during his Victorian era. But he recognized fossil fuels as a foundational mean to the capitalist mode of production because their dense energy content allowed for the intensification of human labour and factory output.
The utilization of this new mean of production is what ultimately lead to the standardization of wage labour and industrial processes. Whereas water mills depended on the ebbs and flows of natural streams, the coal-fired steam engine could be plunked wherever potential workers were, with trains and ships doing the rest. Oil merely advanced the technological revolution that coal set into motion regarding production and circulation.
Because oil is so foundational to the capitalist mode of production, its presence in the marketplace cannot be reduced to the dollars and cents of each barrel. Countless wars have been fought, governments toppled, acres fracked, blockades raised—all to influence the direction that precious crude flows black. If the price is too high, economic activity will be suppressed. If the price is too low, Big Oil bleeds profits. It’s a fragility that puts Goldilocks to shame.
In Marxian economics, supply and demand “play a vital surface role in generating price movements for a particular commodity” without which “there could be no equilibrium price.”1 With the economic rise of China and the Global South, oil prices routinely clocked in over $100 per barrel as new demand pressured existing supply. While oil companies blistered with cash, high prices suppressed potential consumption in virtually all other areas of the global economy. After all, only 15 countries export meaningful quantities of oil that another 160 countries must bid on.
As the process of capital accumulation in one sphere became a contradictory force suppressing accumulation in others, the economic system demanded a way to get beyond it.2 Fracking technologies were unlocked by American public–private partnerships and they opened up vast supplies of oil in the United States and around the world. Fracking is what brought the supply and demand of oil back into an equilibrium that guaranteed both stable profits and continued future growth.
What the war against Iran has accomplished is to throw disequilibrium back into the oil markets, this time because of disruptions to shipping in the Strait of Hormuz. As many Gulf producers go toward zero, oil operations outside the region see their profits soar. The sudden scarcity of oil and its byproducts has led to the cancellation of tens of thousands of planned flights, MRI screening is pressed by helium shortages, semiconductor manufacturing in Asia is throttled and a lack of fertilizer is scarring agriculture in Africa and South Asia.
Disruption to supply inevitably leads to destruction of demand. Free market orthodoxy dictates that price adjustments alone bring about equilibrium in commodity markets. But it will be shown that the value of oil to labour processes and capital accumulation transcends the spot price of each barrel. The oil market is an artifact of economic planning carefully designed to keep the downstream tributaries trickling outward. With those plans now buried under Middle Eastern rubble, capitalism is confronted with yet another “constantly overcome but just as constantly posited” barrier.3
In sols.
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