Searching For The Truth

Peak Denial

A recent National Geographic article by Brian Handwerk touts Italian oil executive Leonardo Maugeri's new book The Age of Oil: The Mythology, History, and Future of the World's Most Controversial Resource, in which the author expresses the cornucopian view that much of the world is still largely unexplored for oil and there are plenty of new oilfields waiting to be discovered.

I'm not an oil industry insider, but I think there is plenty of freely available evidence that Maugeri's book is at best irrationally optimistic and at worst intentionally deceptive.  Consider these facts:

1. Multinational oil giants have been investing billions of dollars in recent years for nonconventional deep sea and polar exploration.  Producing oil from such environments is much more expensive (and therefore less profitable) than is conventional production.  If these companies believed that significant conventional oil deposits are yet to be discovered, it would be in their best economic interests to find them and produce it rather than to rely on nonconventional sources. 
2. Similarly, the industry would not be expected to invest as it has been doing in additional production capacity for heavy oils and syncrude if there was a belief that large conventional deposits of light sweet crude oil are yet to be discovered.   
3. Cornucopians like Maugeri and Daniel Yergin predict that consumption of refined products such as gasoline in the United States is destined to increase significantly in the decades to come as it has in the past.  However, even at today's consumption levels there is a shortage in current refining capacity, particularly in the US.  Why has there been little to no investment or proposed investment in additional refining capacity by commercial energy interests?  The apparent answer is that those in the industry know that it would be an unwise investment because the volume of crude oil that will be available in the future for refining is not going to increase substantially.
4. Perhaps the most telling evidence that Peak Oil may be fast approaching is the US invasion and occupation of Iraq, which was obviously justified on false pretenses, and US efforts to gain influence in energy rich Central Asia.

    Why do people like Maugeri and Yergin spread obvious falsehoods?  If the public at large became convinced that a long term energy shortage was imminent it would change their economic behavior.  The debt leveraged world economy, which requires at least nominal economic growth to be sustained in order to avoid collapse, would be threatened.  Industries and entire economies would be expected to. This will no doubt eventually happen anyway, but our corporate and political leaders would like it put off for as long as possible while their own contingency plans are put into place.

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Why is the US Hostile to Al-Sadr?

The immediate cause of the present developments in Iraq seem to stem from the plan that was described in National Security Advisor Stephen Hadley's  November 8, 2006 secret memo (leaked to and reported on by The New York Times) to President Bush.  The memo articulated a strategy to politically and militarily neutralize nationalist Shi'ite cleric Muqtada al-Sadr by fracturing the ruling Shi'ite coalition sponsored that has long been sponsored by Ayatollah Sistani and replacing it with a new coalition made up of SCIRI and Sunni parties.  A.K. Gupta has written a terrific article that outlines the many possible outcomes (none of them good) to the Hadley strategy. 

The bigger question, though is: Why does the U.S. wants al-Sadr out of the picture?  His forces for the most part are not part of the active insurgency.  Of the two major Shi'ite militias, his is the least well-armed and has the fewest links to Iran.   While "rogue elements" of his Mehdi Army have been blamed for  some of the sectarian violence, the worst of the Shi'ite death squads has been the special police commandos of the Iraqi Interior Ministry, which since mid-2005 has been staffed with members of the Badr Brigade militia that is part of SCIRI and is heavily supported by Iran.  As Gupta reports:

Badr operates death squads under the banner of the special police commandos. Beginning in 2004, U.S. forces organized, trained and equipped the police commandos, drawing from Hussein-era security forces, to create a neo-Baathist militia and death squad that would hunt Sunni insurgents. Under the Iraq government that took power in April 2005, Bayan Jabr, a former high-ranking commander in the Badr Brigade, took control of the commandos as head of the Interior Ministry. Jabr ousted Sunni personnel in the commandos, putting in place up to 3,000 Badr militiamen, and they quickly began a reign of terror against Sunnis in general.

The worst of the death squad activity also suspiciously coincided with the arrival of former US ambassador John Negroponte (infamous for being behind much of the death squad activity in El Salvador during the Reagan administration).  Asia Times reporter Pepe Escobar has also hinted at this:

The Proactive, Preemptive Operations Group implemented by the Pentagon is regarded by Sunnis and quite a few Shi'ites as being the mastermind of some of the car bombings, assassinations, sabotage, kidnappings and attacks on mosques fueling the civil war. The "Salvador option" has developed into the "Iraqification option". US-trained death squads in Iraq are not much different from the death squads in El Salvador during the 1980s - subordinated to the same "divide and rule" tactics. This is the "civil war" dirty secret: let the Arabs kill one another with the US posing as "victims".

Al-Sadr, while defending his militia's right to defend itself against hardcore Saddamists and Sunni extremists that view Shi'ites as apostates, has made it clear that he deplores the bulk of the death squad activities. 

Why then is al-Sadr viewed as such a threat by the United States?  Could it be the fact that, unlike SCIRI, he opposes the presence of US troops and rejects the division of Iraq into semi-autonomous federal states?  Could it be that he opposes passage of the proposed hydrocarbon law?  Is it because he is amenable to a coalition with moderate Sunnis, which could end the sectarian strife and make the presence of US troops harder to rationalize?

It seems like the Hadley plan is to co-opt SCIRI away from Iranian influence and to ultimately place its leader al-Hakim in power in Baghdad.

Discuss this article at StrategyTalk.org
 

Iraq Update

Alternet's Joshua Holland has written a very informative two part article that chronicles the long-planned grab for Iraq's oil resources.  The second part of the article casts some light on what has been happening in the Iraqi parliament over the past few weeks and perhaps why the US media has been ramping up the invective against Shi'ite Iraqi nationalist Muqtada al-Sadr.  Holland cites a BBC article reporting on the passage of a new law that would give greater autonomy to the regions and weaken the central government.  Al-Sadr's group and the two biggest Sunni groups (a nationalist political alliance is the worst nightmare for the US and Big Oil) boycotted the vote, which the US may have felt was necessary to cement support of the SCIRI Shi'a faction and the main Kurdish parties for the soon to be introduced hydrocarbon law.

Holland thinks Big Oil's plans are on the verge of going awry..

It's possible that the administration and its partners badly overplayed their hand. Iraq's new government stands on the verge of a complete meltdown, faced with a crisis of legitimacy based largely on the fact that it is seen as collaborating with American forces. Overwhelming majorities of Iraqis of every sect believe the United States is an occupier, not a liberator, and is convinced that it intends to stay in Iraq permanently.

..and it seems like al-Sadr is the biggest fly in their soup right now.  If you Google "Sadr" and "hydrocarbon law," however, don't expect to find many articles from the US mainstream press reporting on what could be one of the more important developments in US  economic history in the past 50 years. There is no shortage of news articles, though, in which al-Sadr is labeled as an "extremist" and the leader of the "most dangerous" militia, who needs to be "brought under control."  The timing is rather obvious, isn't it?  The US considers Arab nationalists enemies, whether it is Saddam,  Assad or al-Sadr, because one can't be a nationalist and a reliable lapdog at the same time.

The Post Weighs In

The Washington Post has weighed in on the Bush plan to "surge."  Interpreting a US mainstream media source on the Iraq situation is a little bit like reading Pravda back in the 1970s.  You can't take what is written literally, but through careful analysis you may be able to figure out something you didn't previously know.  The article cryptically states:

Responding to skepticism about Maliki within some parts of the administration, the White House may make a deeper involvement in Iraq contingent on Maliki cracking down on militias and death squads while also undertaking bold political initiatives and developing a wider economic plan, U.S. officials say. The addition of new U.S. troops, for example, may be phased over several months and conditioned on Iraq following through on promised political reforms, the officials said.

"Deeper involvement" could mean Maliki survives, or it could mean that the US will send in more troops in an attempt to rout Sunni insurgents that have been encircling Baghdad.  "Cracking down on militias" means using Iraqi government forces to attack Muqtada al-Sadr's Mehdi Army, but it doesn't necessarily mean a similar crackdown against al-Hakim's Badr Brigade militia.

"Bold Political Initiatives" means dumping al-Sadr, forming a new coalition that will be compliant with US goals, and amending the Constitution to give oil companies more assurance that the contracts they are awarded will hold up under future legal scrutiny.  A "wider economic plan" mainly means passing the hydrocarbon law that will hand control over Iraq's oil resources over to US/UK oil companies.

The centerpiece of the political plan is the creation of a national reconciliation government that would bring together the two main Shiite parties with the two largest Kurdish parties and the Sunni Iraqi Islamic Party, according to Iraqi and U.S. officials. The goal is to marginalize Moqtada al-Sadr, the leader of the largest and most powerful Shiite militia and head of a group that has 30 seats in parliament and five cabinet posts.

In reality, al-Sadr is feared by the would-be Western hegemonists not because he is an extremist, but because he is an Iraqi nationalist who desires a unified Iraq that is free from foreign occupation and influence.

To ensure participation of Sunni moderates, the Bush administration is pressing the Maliki government to take three other major steps: Amend the constitution to address Sunni concerns, pass a law on the distribution of Iraq's oil revenue and change the ruling that forbids the participation of former Baath Party officials.

"Amending the Constitution" in fact has as much to do with the concerns of Big Oil as it does with the Sunnis.  It seems that the existing Constitution never clarified whether it is the central government or the  regional ones that have the power to award oil development contracts. 

It remains to be seen how the Constitution could be amended to simultaneously satisfy SCIRI, the Kurds and the Sunni Iraqi Islamic Party.  The Kurds have already awarded some oil development contracts on the own, and the Kurdish regional government is working on its own energy law that is in conflict with the proposed national hydrocarbon law.  They want autonomy.  SCIRI has previously expressed a preference that the regional Shi'ite government in the south control the oil resources of Southern Iraq.  These positions are antithetical to what the oil-poor Sunnis want, which is central government control of the oil industry and an even distribution of the revenue throughout Iraq.  Their position is far more consistent with that of al-Sadr, who supports national control of the oil resources and revenue.

More on al-Sadr and the Proposed Iraqi Hydrocarbon Law

The heat against Muqtada al-Sadr has obviously been turned up in the US media within the past few weeks.  Al  Sadr's militia is unfailingly labeled as "extremist," as opposed to the presumably more "centrist" Badr Brigades, even though the latter has reportedly been more heavily involved in the sectarian violence against Sunnis than the Sadrists have.  The more cynical among us may take this as a sign that the US has reason to believe that al-Sadr is going to stand in the way of the proposed new Iraqi hydrocarbons law.  Al  Sadr recently met with Ayatollah Sistani and it is a safe bet that the proposed law figured prominently in the discussion.

Several weeks ago, the United States reportedly tried to arrange to have SCIRI and other compliant political parties leave the United Iraqi Shi'ite list in order to form a new coalition with Sunni elements in the Iraqi parliament.  Sistani reportedly used his influence to prevent this from happening.  At the same time, however, the Sadrists were exploring a coalition of their own with Sunni parties that share the Sadrist’s nationalist goals of having foreign military forces leave Iraq and for a strong central Iraqi government that has complete control over future oil revenues.  Reporter Pepe Escobar, writing in Asia Times, explains the significance of this:

The crucial development in the next few weeks is Muqtada's fine-tuning of a stunning Shi'ite counterpunch to demolish once and for all the US-created pro-sectarian strategy: a nationalist, pan-Islamist, anti-occupation coalition of the Sadrists and the neo-Ba'athists,plus any other religious or secular anti-occupation group. Transcending the Sunni/Shi'ite divide, this would preempt any threat of all-out civil war - not to mention decide the fierce Shi'ite family feud between Hakim and Muqtada in the Sadrists' favor. No wonder US Senator John McCain wants to "take out" Muqtada as much as the Pentagon does.                        

A recent interview with US Secretary of State Condoleezza Rice on PBS NewsHour seemed to confirm that the United States is preparing to escalate hostilities against the Mehdi Army if the Sadrists stand in the way of the passage of the proposed hydrocarbon law:

MARGARET WARNER: Now, you've been speaking with some of those leaders. They've come to Washington in the last couple of weeks. After those discussions, how feasible does this idea of a new moderate coalition within the Iraqi government sound to you, that is one that splits off the more radical Shiites, the ones allied with Sadr, and the more moderate Shiites go in with the Sunnis, some Sunnis and Kurds? Is that feasible?

CONDOLEEZZA RICE: Well, the definition is: Are these people who are now willing to have a plan for national reconciliation -- which means hydrocarbons law, for instance, the sharing of resources -- and are they willing to stand by the Iraqi armed forces, the Iraqi prime minister when he goes after the people who are...

There has been a virtual media blackout in the American press when it comes to the proposed hydrocarbon law and the significance of its introduction within the Iraqi parliament, which is reportedly scheduled within the next few days. 

"Victory in Iraq" is a phrase that is being used constantly with little attempt to explain what form such a victory may take.  However, passage of the hydrocarbons law, which would essentially obligate Iraq to hand over control of its oil resources to Big Oil for the next 30 years would likely constitute such a victory in the eyes of the US political and industry leaders who pushed for the Iraq invasion in the first place.

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Petrodollars, al-Sadr and the Proposed Iraqi Hydrocarbon Law

It has been obvious from the outset that the invasion of Iraq had a lot more to do with the geopolitics of oil than it did with any humanitarian concerns about Saddam Hussein's regime.

In the early 1970s oil production in the United States peaked, and a whole host of related economic problems began to surface.  President Nixon had to take the United States off the gold standard, inflation started to rise and the long-term economic future of the United States appeared in doubt.  The United States rescued itself from this situation by striking a deal with Saudi Arabia in which Saudi Arabia was guaranteed protection by the United States, but in return most of the petrodollars that were created by Saudi oil sales would be recycled back into United States economy.  In the following 20 years, hundreds of billions of petrodollars made their way back into the United States as a result of long-term service contracts, construction contracts, arms sales and other transactions.

In addition, the discovery and exploitation of the North Sea and Prudhoe Bay oilfields had much to do with the economic growth that the United States and United Kingdom have enjoyed over the past 20 years.  By the beginning of the second Bush administration, however, it was clear that both of these oil-producing regions were in an advanced state of depletion and that their production would soon began to quickly decline.  In fact, their production has declined markedly within the past few years.  This represented a significant threat to the economy of the United Kingdom in particular.

The single most important goal of the Iraq invasion was to ensure that Iraq ended up on a petrodollar recycling arrangement like the United States has had with Saudi Arabia, where much of the money is sent back to the US through service contracts, and the much of the rest is invested on Wall Street. In fact, President Bush's advisers may have been telling him that literally the economic future of the United States hinges on long term success (and by success I mean the recycling of petrodollars back into the US economy) in Iraq. The US is already on a precarious economic footing with its budget deficit and current account deficit both spiraling out of control.  This would explain the uncharacteristic behavior of officials such as Vice President Dick Cheney over the past five years.

Making the economic situation even more critical is the fact that that the major Western oil companies are already having a big problem with reserve replacement that is going to get a lot worse in the years to come. Many have likely been fudging their books for years as Royal Dutch Shell was caught doing a few years ago. The market capitalization of the oil companies, which is critical to Wall Street, ultimately hinges on their ability to replace the oil that is being produced and sold to consumers with new reserves. They have been frustrated in being able to do this by the fact that they are for the most part frozen out of the best areas of the world by national oil companies, which dominate OPEC.

Iraq has the second largest conventional oil reserves in the world (five times more oil than in the United States), and they are largely undeveloped. This is shown in the scatter chart that is depicted below. It would have been clear to any sophisticated observer of the oil industry back in 2001 that Iraqi oil production was destined to increase significantly within the next few decades, simply because that is where the oil is.  As Saudi production declines (it may be beginning to decline right now), within a decade or so Iraq will almost certainly become the world's leading oil exporter.  It is clear that the US/UK saw Iraq as a ripe plum for the picking back in 2003. What we don't know is whether they thought control of Iraqi oil was a dire necessity to US interests or that it would just be nice to have. We are going to find out in the next year, I think.

The US occupation of Iraq has failed to quell the insurgency, and continued occupation has become politically unacceptable in the absence of another event that galvanizes public opinion such as the attacks of September 11, 2001. Given the stakes involved, though, it is unlikely that the United States is prepared to give up its ambitions for control of Iraq's oil resources. Recent events suggest that the end game for the control of Iraqi oil has begun. The opening gambit on the part of the United States is the introduction of the proposed new hydrocarbon law to the Iraqi parliament that is planned within the next few days.  This new law would give Western oil companies a very lucrative long-term deal at over twice the standard industry profit level through profit-sharing agreements (PSAs) and would preclude the Iraqi government from nationalizing its oil industry in the future as most of the other OPEC nations have. The Independent has been doing some excellent reporting on this in the past few days.  From that article:

"Three outside groups have had far more opportunity to scrutinise this legislation than most Iraqis," said Mr Muttitt. "The draft went to the US government and major oil companies in July, and to the International Monetary Fund in September. Last month I met a group of 20 Iraqi MPs in Jordan, and I asked them how many had seen the legislation. Only one had."
 

Clearly, this legislation was written by and for the major Western oil companies. The proposed legislation also provides insurance against possible future policy changes by Iraqi governments that may not be as compliant as this one is to foreign interests:

Iraq's sovereign right to manage its own natural resources could also be threatened by the provision in the draft that any disputes with a foreign company must ultimately be settled by international, rather than Iraqi, arbitration.

In other words, if Iraq tries to nationalize its oil industry and kick the oil companies out within the next 30 years an arbitrator will rule against it and the United States will have a pretext to invade again.

The hydrocarbon legislation is just the first step in implementing the US plan. The oil fields and pipelines will of course need "protection" from insurgents that is paid for out of Iraqi government funds to US/UK mercenary/security companies such as Blackwater. The Iraqi government will need "guidance" investing its oil revenues. Bechtel and Halliburton will be given billions of dollars of contracts to provide reconstruction from all of the damage caused by US bombing and years of sanctions in the 1990s. When all is said and done, billions of new Iraqi petrodollars be recycled back into the US and British economies in order to offset the loss of revenue from domestic oil production.

Of course, questions remain as to whether the Iraqi parliament is actually going to pass the proposed legislation. Beyond that, there are also questions as to whether the Iraqi people are going to stand for the law even after it passes the parliament (the overwhelming majority of Iraqis are in opposition to long term US involvement in Iraq). The key group of lawmakers within the Iraqi parliament would appear to be the supporters of Muqtada al-Sadr.  Originally part of the pan-Shi'ite United Iraqi List supported by Ayatollah Sistani, the Sadrists have been boycotting parliamentary sessions and there have been rumors that they have been contemplating leaving the Shi'ite bloc in favor of a coalition with Sunni legislators.  This has caused a great deal of concern, both in Washington and Iran.  Despite a low level of armed conflict between al-Sadr's Mahdi Army and certain Sunni factions (possibly exaggerated by elements that would like to drive them apart), the Sadrists and the Sunnis have certain positions in common, such as favoring a strong central government and opposition to the continued presence of foreign troops within Iraq.   A successful Sadr-Sunni alliance would  be a disaster for US neocon policy makers.

The principal rival to the Sadrists within the Shi'ite bloc is the Supreme Council of The Islamic Revolution in Iraq (SCIRI), which like the Sadrists possesses an armed militia, the Badr Brigades.  SCIRI appears to be more compliant with the Western agenda at this point than the Sadrists are.  SCIRI has not publicly taken a position on the proposed hydrocarbon law, but it is extremely unlikely that the United States would be pushing the bill's introduction at this point without its strong support.  In the past, SCIRI has taken positions that would seem to indicate that it would be supportive of regional rather than central control of the oil industry, meaning that the Shi'ites of southern Iraq would end up controlling the lion's share of the Iraqi oil revenues.  It is unclear at this point whether the proposed hydrocarbon law has been drafted with SCIRI's preferences in mind, but it is probably a good assumption.

Does the United States have enough votes within the Iraqi parliament to ensure passage of this law?  It is realistic to expect that widespread bribery and extortion is going on to turn as many votes as possible in favor of the legislation.  Would the United States ease pressure on Iran in exchange for Iran using its influence to support the passage of this law in the Iraqi Legislature?

The hasty recent execution of Saddam Hussein may have been arranged in order to placate the Sadrists and have them return to the parliament, not because they would be likely to support the law, but in order to give it greater legitimacy should it pass.  Al-Sadr has not made any public statements on the proposed legislation, but his history as a strong Iraqi nationalist makes it likely that he will strongly oppose it.  Will the Sadrists be upset enough over the proposed legislation to leave the pan-Shi'ite list and join forces with the Sunnis and other minor parties such as those representing the Turkish minority?  If they do so, will they have enough votes to thwart the plan?  If the legislation passes, will the Sadrists actively join the insurgency?  Is the threat of this the reason that the Bush administration is proposing a troop surge within the next few months?  If the South of Iraq erupts in insurrection, will the United States be able to adequately supply its troops using ground convoys when the sandstorms of spring arrive?

The next few months will be very interesting.

Discuss this topic at Strategytalk.org

Is the IEA Overreporting Global Oil Production?

Iranian oil industry expert Ali Samsam Bakhtiari made an interesting statement in a recent lecture that he gave in Sydney Australia.  The lecture received a fair amount of publicity because Mr. Bakhtiari averred that world oil production is presently at its peak.  Hidden in the details, however, was a very interesting statement.  Mr. Bakhtiari alleged that present global oil production is significantly lower than the figures that are being published by the IEA.  He estimated that world production is now about 81 million barrels per day, which is substantially less than the approximately 85 million barrels per day estimated by the IEA for the first quarter of 2006.  This caught my eye, because I have not come across any similar statements in the fairly extensive reading that I have recently done on the topic.

Has Mr. Bakhtiari disclosed a closely held secret known only to oil industry insiders, or is this something that he is divined on his own?  Is it credible information, or a misstatement of fact?

Iran has very good reasons for wanting the world to think that oil production is and will in the future be in short supply.  It benefits from higher oil prices that are being goosed by peak oil concerns and the present geopolitical standoff between the United States and Iran over Iran's nuclear program.  The greater the reality of depletion is, the more leverage Iran has against international sanctions or a US attack.  It is possible that Mr. Bakhtiari statements are influenced by such considerations.  However, he is also a highly respected expert on the field of oil production and depletion.

I will be watching closely in the weeks to come whether there is additional data that would tend to corroborate Mr. Bakhtiari's statement.  If anyone happens upon such data, I would appreciate it if you would bring it to my attention.

Iran: Euro to Replace Dollar as Oil Currency

Well, it looks like the Iran war is on for certain now..

Iran: Euro to replace dollar as oil currency

In July Iran will ditch the dollar in favour of the euro as the currency in which it will accept payments for its oil and natural gas exports, Iranian president Mahmoud Ahmadinejad announced Friday. .......

Some observers beleive the Iranian move could deal a severe blow the the American currency as many central banks from oil importing nations could choose to stock up their currency reserves with euros rather than dollars.

Many commentators believe that Iraq's decision to sell its oil for Euros was a significant factor in the U.S. decision to invade and occupy that country.

Chavez: Oil for no one if Iran attacked

Venezuelan President Hugo Chavez has been supportive of Iran in many different ways, but comments that he recently made in Rome will certainly get the attention of diplomats and commodities speculators alike.  At a press conference, Chavez commented, "as Iran's President Ahmadinejad has reiterated, if Tehran would come under attack, oil would get scarce for everyone."

Chavez carefully avoided making the threat explicitly, but the implication is clear.  Venezuela might restrict oil exports in the event of an attack on Iran.  Venezuela currently exports about 2.5 Mb/d of crude oil, much of it to the United States.  It has recently been producing under its OPEC quota (which is about 3.25 Mb/d), possibly in order to pressure the United States to back off from its threats against Iran.

How will Washington react to this threat against its energy security?  We will be watching the situation closely over the next few months.

South American Energy Politics Deals Double Blow to U.S. Economy

Extremely interesting article from an oil industry trade publication..

Venezuela Buys Oil to Meet Contracts

Is Venezuela's oil production rapidly waning? One source reports that the world's fifth largest oil producer is showing signs of a rapid decrease in production, one of the key tenets of the peak oil theory.

Venezuela is buying oil from Russia in order to avoid defaulting on deliveries to clients. The situation raises serious questions about the country's oil production and the future of PDVSA as a major oil producer, and increases the risk to the U.S. oil supply should the country's oil production suddenly plummet.

According to the Financial Times: "Venezuela, the world's fifth-largest oil exporter, has struck a $2bn deal to buy about 100,000 barrels a day of crude oil from Russia until the end of the year. Venezuela has been forced to turn to an outside source to avoid defaulting on contracts with "clients" and "third parties" as it faces a shortfall in production, according to a person familiar with the deal. Venezuela could incur penalties if it fails to meet its supply contracts."

The news has so far been very much inside baseball, as it has not made the mainstream, due to competition from more sensational stories such as the illegal alien marches, and the media's obsession with oil company profits.

But, as these things go, we may be on the verge of a major developing story.

I would suspect that the reasons behind this are more geopolitical and economic than they are driven by production capacity.  Venezuelan leader Hugo Chavez wants to exacerbate the global oil supply crunch to make it impossible for the US to attack Iran.  With oil prices hovering near $70/bbl any move against Iran would cause prices to spike to a level that would have catastrophic effects on the global economy.  However, the Venezuelan national oil company PDVSA cannot afford to renege on its prior contractual obligations to supply oil to its customers.  The solution: buy it elsewhere and resell it while cutting domestic production.  Reducing domestic production even by just 10% has a significant impact on the global supply/demand balance in this tight market.

The purchase of Russian oil also would likely have been made with dollar assets that would otherwise have been invested in U.S. Treasuries or in other dollar denominated securities.  Pulling those funds out of the the United States accordingly would deal another, smaller blow to the U.S. economy.

At the same time, newly elected Bolivian leader Evo Morales has nationalized the important energy sector of that country, with the support of Chavez.

Chavez has openly supported Iran in its dispute with the United States.  If the U.S. launches an attack against Iran, Chavez could well take additional action, possibly including a cessation of oil exports to the U.S.  This would cause a bona fide state of emergency in the U.S. and quite likely lead to attempted military intervention.  With the U.S. military already being stretched thin throughout the world, a situation such as that could take some time to resolve, perhaps more time than the Strategic Petroleum Reserve could provide.