Here’s a happy thought about higher oil prices: maybe if the price goes high enough the military forces of the world will not be able to afford to go out and fight each other.  Of course this won’t happen at $120 a barrel or even $200.  But in five years the price could be $500 - and that could be enough to give some generals second thoughts about going to war. 

Conventional thinking is that oil shortages will cause military conflicts.  But I wonder if just the opposite might happen  If a $1 oil price increase costs of the U.S. military by $180M a year, then $500 oil would cost them $68B a year.  Hmmm.  That seems like it might not be high enough to make a difference to the warriors.  But consider the fact that at $500 oil the U.S. economy will be in a shambles; tax revenues will be down significantly and spending to support the poor will be up; there could be a financial crisis going on.  In that environment, maybe the extra oil costs of a war might actually be too high for the country to stomach.

Of course a war with Russia could be a special case.  How might a war between a major oil importing country (U.S.) and a major oil exporting country like Russia be decided?  It might be over within a few days of Russia announcing that it will shut off exports until the other side concedes. 

Here’s the article that got me thinking about this:

WASHINGTON (AFP) - After spending 15 billion dollars on oil in 2007, the Pentagon said Tuesday it was concerned over rising prices, since for every dollar oil goes up in price, an extra 130 million has to be added to its budget.

Oil price is “a significant concern for us today,” Undersecretary of Defense Tina Jonas, the Pentagon’s chief financial officer, told a conference organized by Jane’s defense information group.

“Fuel has more than tripled in price over the past four years,” Jonas said, adding that “for every dollar increase in the cost of fuel, we end up increasing by 130 million dollars in terms of operational costs.”

Oil futures Tuesday leapt to a record close of 119.37 dollars a barrel in New York, after briefly skirting the symbolic threshold of 120 dollars.

The spiraling cost of oil is especially troublesome for the Pentagon since the “DoD (Department of Defense) is the largest consumer of oil in the United States,” David Trachtenberg, former deputy assistant secretary of defense for international security policy, said in his presentation.

Jonas said the Pentagon’s overall budget for fiscal 2009, excluding the wars in Iraq and Afghanistan, stood at 515 billion dollars and was expected to increase by 6.5 percent to 549 billion by 2013.

The increase, she added, actually translated to a 3.3 percent drop over the same period, in inflation-adjusted dollars.

Tags: peak oil energy investments

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