Oil is a liquid Fossil Fuel whose products are used primarily to power internal combustion engines used in transportation such as cars, trucks, boats and jet aircraft and propeller aircraft. Petroleum based products are also used in pesticides, consumer goods, plastics and asphalt. The process of converting crude oil into useful products is known as refining and is a key step in the supply chain. The most common fuels are what Americans refer to as gasoline, as well as kerosene used for high performance engines, and diesel.
Petroleum is a primary ingredient in plastics although it uses only a small percentage of total oil consumption. But, just as fossil fuels can sometimes be replaced by Biofuels, corn based, biodegradable plastics can be economic alternatives to petroleum based plastics which take 700 years to biodegrade in landfills, at oil prices approaching $60 dollars per barrel.
Crude oil bubbles up from deep in the earth and is trapped in underground features such as domes. Where oil is close to the surface there is an oil field. The origin of oil is the subject of some debate, for a long time it was thought to be a liquid analog to coal, produced by decaying large plants. However, there is a minority view that it is the product of the hot deep biosphere, where small heat loving bacteria convert simpler hydrocarbons into more complex hydro-carbons. In either case, the supply of oil is replaced at a far slower pace than human beings consume it.
Oil derivatives are favored for engines because of their portability, ease of extraction, standardization, high energy density, and the relatively simple technology needed to harness it at a reasonably high rate of efficiency. The world economy runs on oil, and much of the second wave of the industrial revolution is based on the application of internal combustion to older processes.
The Politics of Oil
Oil gives rise to a host of political issues, these can be divided into economic, environmental, geo-political and structural issues.
The Economic Issue of oil is its acquisition, cost, and its effect on other prices. Because energy is a basic input, and because consumers shop within their transportation range - the price of fuel determines, to no small extent the shape of working and living patterns in a particular economy. In the US the trade off has been made for an artificially low price of gasoline - with externalized costs being paid by other means - in return for a more mobile society. Most industrialized nations have higher fuel costs, in return for having lower externalzed costs of oil production. See Geo-Political issues.
The Environmental impact of an oil based economy is difficult to overstate, billions of tons of petro-chemicals, and the products of their refining and combustion have entered the water, atmosphere and soil. They dim the amount of light received form the Sun on the ground, they create global warming through carbon dioxide and methane releases, they alter the chemistry of the rainfall to produce acid rain. Combustion produces large and small particulate matter, which causes problems in the form of increased asthma and lung cancer.
Oil is a rental income - it comes from controlling a particular area of land with oil resources. This means that it must be protected by military force and through webs of intelligence, diplomacy and relationship. Much of the worlds exportable oil comes from the Middle East, a politically unstable region of the world which often suffers violent spasms as the dictatorial regimes which have risen to control oil shudder under political and economic pressures. The Islamic Revolution in Iran in 1979 touched off the single highest real spike in gasoline prices, and helped create the double dip recession of 1980 and 1981-1982. To maintain a stable supply of oil from the Middle East requires constant intervention in the internal politics of the region, and leads to tension between regimes seeking support for their own populace and the existence of Israel.
The US invasion of Iraq was billed as a means of dramatically lowering the cost of oil, and in the first months after the invasion oil prices fell dramatically. Then incompetence, corruption and sabotage hindered the reopenning of Iraq's oil business, and oil prices marched upwards, as the promised "liberation" turned into an expensive and protracted occupation.
A big picture view of the oil markets can be found here.
Since the world depends on oil, the question of when the oil economy will run out has become of increasing interest. King Hubert developed a theory of peak oil that once half of the ultimately extractable oil - called EUR, for Estimate of Ultimately Recoverable oil - poduction would begin to drop. He predicted a peak of US oil production in between 1969 and 1971. US domestic production peaked in 1970. The global EUR halfway point is, arguably, within the next decade. This means that new production will be more and more expensive, there will be less and less inexpensive production, and that new finds will be increasingly rare. This ultimate structural limitation to oil has lead many to argue for a change in the basic infrastructure of the US economy. Globally such projects as maglev trains and hybrid engines are part of this search for ways of extending or ending oil dependency.
One of the long running structural issues of oil is the means by which it will be regulated - whether government driven conservation and alternative fuels research should drive the process, or whether the market should be used to allocate gasoline as a scarce resource. The Republican Party believes that profligate energy use is a good, and that little to no interference is needed - at the same time pervasively interfering to aid both oil producing regimes and the oil business itself. The Democratic Party has a mixture of responses, but generally believes in pressing fuel MPG higher.
Another structural issue is the infrastructure tied to the oil economy - automobile manufacturing, refining and distribution all have enormous sunk infrastructure costs. These sunk costs would have to be converted or written off to move away from oil dependence.
Structurally oil profits pile up in the hands of those nations with the lowest cost of extraction and the fewest stakeholders to divide the rental income. This means that the Kingdom of Saudi Arabia wields not only influence as the world's leading oil exporter, but because of the financial power that oil profits piling up in the hands of their wealthiest elite brings. Stirling Newberry's American Thermidor theory states that the fundamental obstacle to the US economy has been the economic bind created by having an external sink for the profits of US society, the so called "paper for oil" economy.
The final structural issue surrounding oil is the patterns of growth - labelled "sprawl" - which low gasoline prices allow. This issue is sometimes framed in environmental terms, and sometimes in economic terms. Sprawl leads to pressures on older urban centers, more road building, more pollution, job flight and then taxes increasing in the new exurbs - which leads to another cycle of sprawl.
Oil has long been monopolistic, in fact the first usage of the Sherman Anti-Trust Act was to break up Standard Oil.
Oil Mergers have coincided with ever higher Gas Prices.
Gas prices temporarily fell when the Democratic Party got control of the US Senate in 2001, opening the possibility of an investigation of oil prices. In 2002 the Republican Party regained control of the Senate and prices resumed their rise.
In the US, energy companies have used their political influence to minimize royalty payments. By some estimates, they owe the US government $10 billion per year. Treasury losing tens of billions to oil companies - DailyKos diary.
History of Oil
Organized oil production began in Pennsylvania, but it was with the discovery of vast reserves of oil in Texas and later Saudi Arabia which is now the world's largest oil producer, that really spurred the growth of an oil based economy. Saudi Arabia is part of a group of countries called OPEC which tries to control production of oil and hence the price of oil. Many other nations in the Middle East have large oil reserves, such as Iraq and Kuwait. Other nations in the Middle East, such as Jordan have little oil.
Several countries outside the Middle East have large oil reserves. In the United States, Texas, Alaska and Oklahoma are all major oil producing states and many wells also produce from the Gulf of Mexico. Venezuela, Mexico and Nigeria also have substantial oil reserves.
The inflation adjusted peak price for oil in recent times in 2004 dollars was about $80 per barrel in February, 1981, when it had a nominal price of $39 per barrel. Outside the oil shocks of the Persian Gulf War and the current war in Iraq, oil prices in 2004 dollars are typically in the $30s per barrel, although increasing demand for oil from China makes it unlikely that prices will return to this norm for long.
The Bush Administration is closely associated with the oil industry, in part because of the roots that George W. Bush has in Texas politics, where he was the Governor, and in part due to long standing family ties. Many actions of the Bush Administration in domestic and foreign policy are seen by liberals as primarily efforts to serve the oil industry. This includes 2003 Invasion of Iraq.