Increase oil production to achieve energy independence?

Someone on TV last week blamed the current Russian threat of using oil to blackmail European countries on government policy to fight climate change and transition to renewable energy. Their rationale is that oil production has been reduced and now can’t meet the demand. That’s why we are under Russian’s mercy.

Oil drilling is very capital intensive while the oil price is very volatile. It is very challenging for the oil industry to plan. It takes time to scale up the production and the executives might hesitate to do so. Especially now many predict the upcoming recession given the interest rate hike to suppress demand and flight historic inflation. During recession, the energy demand would be naturally much lower. It is very risky to invest now to increase oil production.

Some could argue the exact opposite. If the world has transitioned to renewable energy much sooner, Russia might have a different political leader now. 😊 Russia’s economy relies heavily on oil. If oil price declines before Russian can find substitute industry, the Russian economy might collapse.  It is always difficult to make such big economy structural change.  Putin might be overthrown by Russian people due to economic woes. It is healing to daydream a bit sometimes considering the flood in Pakistan, Hurricane Ian, and natural disasters everywhere.

The seemingly powerful argument against divesting from fossil fuel is to protect the workers and communities that rely on the oil industry. That is political will to transition those workers to a new industry so that a community won’t become a ghost town. That would be the priority of government investment.

Here is a good case in point. Child poverty in US has decline meaningfully from 9.7% to 5.2% thanks to the government Covid relief programs. This is not charity but investment. They are the future taxpayers and consumers.  Also, who can argue that a child should ever go hungry? It makes both economic and moral sense. The point is that it is all about political will. Why should we wait for a pandemic to reduce child poverty?

Anyhow, oil stocks might be only suitable for short-term trade rather than long-term holding. I could be totally biased.

Published by Worthfy

Financial literacy and counselling

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