Oil & Money

Oil is still so important. Look all around your room and you’ll see multiple objects made fully or partially from oil. In this weeks, episode, Marcus and Paul discuss the impact of the globe’s 97 million barrels of oil used each and every day, in Chapter 10 of Paul's new book, “A Politician’s Guide to Finance and Money”, to see how vital oil remains in the global economy and its impact on geopolitics and wars such as Gulf War 1 & 2.  

Warning: This podcast does not constitute financial or tax advice.  Please contact a financial advisor or tax advisor to discuss your own individual circumstances, taking into account your needs and objectives, knowledge and experience and financial situation.

Transcript

SPEAKER_00 0:01

Welcome to Catch Lads. My name is Paul Malloy from BoxcoverTax.aue, and this is Marcus Doyle from Clear Financial. We're here to take the mystery out of money and finance with some history, some stories, and plenty of humour too.

SPEAKER_01 0:20

Hi there everyone. How are you getting on today, Marcus? I'm good. I'm good today. Today we're going to talk about oil and how important how important oil is. It really is the lifeblood of the world economy, and we're going to be trying to explain how how exactly why it's so important. And people are concerned that at some point there's always been this concern, certainly since the 70s, that we're going to run out of oil at some point. And we'll have a little bit of a chat about that. But I would like to start today with Easter Island. It's an island in the Pacific. And back then, maybe possibly 200 years ago, we don't have exact records because I don't think they had writing. Um they became obsessed with these things called obelisks. So imagine kind of Stonehenge. If anybody can think picture Stonehenge in your mind, just these enormous stones. And the more stones I have, the more you know, uh status I have. And it just became this race. They have the ones with the faces on it, and they use the ones with the faces on it. You know, if you if you put if you stick it into Google, uh you'll you'll you'll see on the images that it comes up pretty quick. And um what happened was what what what um uh the experts believe has happened is they ran out of trees because they the only way to move uh the obelisks was by uh rolling them on trees. So they became very skilled at you know uh manipulate you know knocking down trees, putting them on the ground, and then moving the obelisks using the the trees and they ran out of trees. And the what happens if you've no, I suppose, coverage like that. You have the the elements, it's it's quite it's quite an exposed island and they ran out of topsoil and they basically ran out of food. They'd no way to have any agriculture anymore. And uh it well without knowing the exact details, it's understood that they re b resorted to a primordial conflict of the most horrific nature over maybe a span of a few years and uh where the popul the population couldn't support um or couldn't be supported by the amount of food that they had. And uh there is that concern that someday we might we might run out of oil. And just to give you uh an idea, uh today we have 8 billion people on planet Earth. Uh we may get to 10 at some point or maybe 11. And back in 1760, it was only 250 years ago, there were 770 million people. So the the population has gone from uh has has increased tenfold in in only 250 years. And whilst in the 19th century there was a lot of use of coal by by Britain at the Industrial Revolution was driven driven by uh British access to coal, although there's a lot of debate on that. We now use oil, and we still use oil a lot, and we have a lot of electronic vehicles. Do you have electronic vehicles? I'm fully electric, yeah. I'm living in the planet. You know, Marcus is doing his best. He's divided at the planet. I know it goes back to where's electricity come from, but I like the veneer oil rights. I do follow, we do get a lot of renewables for the Irish grid per day, so I'm I'm not doing too bad. We're definitely, I think, I think there's being a huge effort that is being made. But the facts are that on planet Earth, we go through 97 million barrels of oil every day. Every day, close to 100 million barrels of oil, which is 35, yeah, 35 billion a year. So we estimate with with proven oil reserves at 1.34 trillion that we have 47 years left of oil. And what happened on Easter Island won't happen in the last year, it'll happen much, much earlier than that. And it it could be why that we were looking at Donald Trump wanting Greenland with you know the resources. It's the resources, you know, and so we could be heading for this kind of you know, we've got to secure what we've got. But um you better start building our wind turbine, so so we'll sort it. I mean, oil the price of oil has been stable enough over the over recent times. Um, I mean, I remember back in 2007 it went to close to 150. Um, and there's there's a lady called uh Carol Knack, she's a Lebanese economist, and she talks about this this a lot. Oil is her is her area of expertise, and she very much believes that supply and demand are closely, closely matched together. But you know, 97 million barrels a day is is really quite a number. And um you wouldn't think of it anything, all the vehicles, the planes, everything they all have to be fueled. This is this is exactly yeah, that's exactly why I don't want to return to markets because uh when it comes to to fuel you know, oil, we we don't realise, you know, you could be in a car, perhaps listening to this now right now. Uh you could be on public transport, um, planes, like you said, trains, all of them are you know mostly except maybe for the cars, uh, using uh you know uh carbons. And um, you know, like I said before, look around the room that you're in, like everything that you see has probably been brought, brought either by your own vehicle or you know, uh an Amazon truck or um whatever it happens to be. So it it everything is to be. And everything is made of plastic, which is all derived from oil. That's that's yeah. So the the second big area, you know, I I think people kind of generally under kind of so well, cars and all that train train. But you know, a second area is the whole area of plastics or petrochemicals, you know. So wrappers, containers, bags, laptops, your mobile phone, you know, all of these. It's not that they're all made of oil, it's just that quite a lot of them have you know a lot of oil parts. Um, and not that Marcus, I think you and I would be wearing lipstick. I hope not anyway. Um I didn't put it on this morning. It's a new world, of course, folks. Maybe who knows where it's a good one. Vegan vegan lipstick. Vegan lipstick. Um, but you know, perfume, shampoo, all all all source from oil. And then a hugely important factor is is fertilizer when it comes to to food. You know, you know, back down in Chateau Doyle, uh, with your with your 150 acres then of plum land in the organic manure. As you look out of it, your you know, your your staff uh toiling away in the fields like uh that that sounded like my my house is we're in the 1800s here. It's hard to staff. It's not the image you know it's gonna be, and I I refuse to uh to remove because I I do find it very entertaining. But you know, without fertilizers, it uh we're just not going to get the same bang for buck, you you know, so it greatly increases the amount of food that we can have and always always has had uh you know huge impact. And look, even with electric vehicles, they're still somewhat dependent on oil, you know. Um batteries, tires, parts. So oil is is absolutely so this is where the 97 billion you know million a day is going. Like, you know, we're we're going through an awful lot of this stuff. Um we have touched on this before, but I think it's it's it's worth mentioning again that the you know the the oil wars, you know. Um basically I know I know there's different countries well, but usually it comes back to the USA because they want the oil. They they they they they they do, and you know, back in the the the 1970s, early 1970s, it was oil or nothing. You know, we with there was no renewables worth really talking about, you know, it's particularly in the early 70s. It was a bit of a move actually over as as oil went high in the 70s. But the reason oil went went so high was that the the oil weapon was used back in 1973, that after Nixon had uh had bailed out Gold in my air and and Israel, um that the the the Arabs used the the oil weapon. And uh what the oil weapon is, if anyone's not familiar with it, is that the the OPEC, these countries, um which by the way includes Venezuela, um which which uh which Trump is as well, yeah, the podcast in itself, but um you know they can't control the price of oil, right? So what what gets charged for oil in in uh you know in a garage in you know in in Rathgar, Tal or wherever, wherever you happen to be, that that price is decided by the the local ad. But um they can limit the supply. And that's what they did in 1973. They literally stopped selling oil to America and to Europe, and it became very, very expensive for these countries, uh, including Ireland, to get any oil. You know, we're having scrambling to get oil. I don't know, maybe we would have gone to Russia, I don't know. We certainly wouldn't be going to Russia these days. Um so it's it's it's not just that the price is high, it's just the lack of availability and what that what that means for economic activity. So um that that that war had had had quite some impact. And um just as the world was getting kind of back to normal, back to normal, we had the Shah of Iran. So for again, for for those that may not know, in 1979, um the the Shah of Iran was effectively the king of Iran, he had pretty much a police state, very close relationship with with the states. You know, he had par he was very fond of Paris, he could speak French, he was very westernized, very but he his his regime was quite quite brutal, and the uh the Ayatullah Khamei came back, and that was the end of the Shaq. So he had to go, and Iran, uh which has you know enormous amounts of of oil. Um that's why uh America was probably keeping your man sweet. Yeah, suddenly the Americans realize we've got a big problem here, and um they talked what are what are we going to do? And it's it's it's just I just was listening to something about this the other day, and some of the ideas because the what the Iranians did was they grabbed the American hostages that were in the American embassy. You know, it's one of those things. You you don't go into someone's embassy, but you know, if you're if you have the Italy command, you can do what you want, you can do whatever. So so they were uh captured and it really weakened um Jimmy Carter desperately, and they came up with the rest of the. He just was uh the president at a bad time. You do you know what, Marcus? You can simply come at a wrong time politically. You can just arrive I think he was a good president, but he just had so many problems to deal with. Yeah, he he was uh human rights was uh was was something big that he wanted to do. But you know, when the economy when inflation is high like that and the economy is bad, you know, that's your starting point politically. You know, if the economy isn't good, the voters will always be against turf you out, you know, and and and and obviously that's uh that's what happened to him, but there was a a botched attempt that failed to get the the hostages, and and the Iranians actually handed them back the day that Reagan became president, just so the Carter couldn't claim any credit for getting them back. They held it back, they held it back literally for a day. He thought he was gonna get them back in his last day. They went no just to really uh twist the noise. So so this the the the price of oil to give you an idea, like the price of oil went from something like depending where you are, uh Texas the uh what crude crude oil, so$14 a barrel to$39. Jeez, that is a big increase. So like the pr the price just has such because oil is everywhere, we've talked about that. It's a it's a foundational product in the economy, and when you run out of oil, uh or when oil is that expensive, everything else then becomes expensive. So why has my milk gone up? Well, it's because the truck bringing the milk is paying more, and it's passed on to the customer, it's passed on to the customer, every time. So total um total disaster. Um but you know, um that's what the that's what OPEC had. It had that was the power that it had. It had control of the world oil supply, or more or less control of the world oil supply. And uh normally the guys in the guys in OPEC will I mean like like any group of people, they all have their different their different interests or different wants, but in the 1980s, um there was almost a 10-year war between Iran and Iraq. So Saddam Hussein had had come to power reasonably shortly before that. And he was backed by the Americans against the world. Backed by the Americans. There's a picture of Donald Rumsfeld, the uh future uh Secretary of Defense, uh shaking hands with Saddam sometime in the early 1980s. Because, you know, after the the the hostage crisis and everything like that, uh you know uh Iran called America the great Satan, and um, you know, relationships were strained. So my enemies, the enemy of my enemy is my friend. I think that's I think the Americans knew that Saddam wasn't particularly pleasant. Um they just wanted to beat the Iranians, they just wanted to beat and and the the like you know there's uh an enormous Shia. You know, there's two parts of the the Sunnis and the Shia, and there's an enormous Shia the population in uh Iraq, and you know the Iran is predominantly a Shia uh country. So that war went on, and and look, neither of them really did terribly well out of it. You know, it eventually ended. And so after the Iraqis claimed victory, did they in the end? They they they they may have, they may have, but both sides had badly damaged their economy, you know. You would imagine that each side was targeting the other's oil oil source with weapons and you know, um SCUD missiles. Oh, the old missiles in the 1990s. So the pri the price of oil um uh towards toward you know around that time was actually quite low. And uh because the the world economy in the 80s had had had struggled to recover. It had recovered from the the I suppose the interest rate shocks of the early 1980s, but it was still a grim time. And Saddam needed higher prices, simple as. He needed higher prices because his economy was in a mess. But there was if you imagine Ireland and uh Wexford, now not to pick Wexford out, but that's how big Kuwait is compared to Iraq. It's a tiny part, and it had always been traditionally a part of Iraq, but uh our our friends in the United Kingdom had carved out a little bit for Kuwait that was facing into the Gulf. So Kuwait has massive, massive oil at that time Kuwait was considered to have 10% of the world's oil. Tiny, tiny little country in the Middle East, and um Kuwait had had uh had uh had uh had said to the Iraqis, we don't care if you want uh higher oil prices. We don't need them, we don't want them. We want to make we you know we want to pump we want to pump them out. And this is always the the the the fight within OPEC. Some will want, look, I need the money now, so I need to push out uh supply. And they're like, well you do that and the price will go down. So Saddam tried to negotiate, and there's he said she said that this is the ultimate. So there was the American ambassador in Iraq at the time, a lady called Avril Glasby, and Tariq Aziz, who was kind of the cuddly Iraq face of Iraq, he was a foreign minister with the the white hair, and he he he he I think he'd good English. And uh he was you know the night the nice one. He he went he went to see her and said, Listen, we just we've got to do something about Kuwait. In fact, we're thinking about uh invading Kuwait. What do you think about it? And uh seemingly she went, I don't mind. You know, now subsequently everybody, you know, rolled back on what they actually said, but I do get the sense that she probably said, Look, we don't really care. Yeah, who would you want to go for it? So um in they went. So Iraq went in, and Iraq had far superior military to um far superior population and far superior military to to to Kuwait. I think the the the um the emir of Kuwait had to go to Saudi Arabia. So over the next six months, quite different to Donald Trump, to say the least, uh, old man Bush, which is what my dad always calls uh George Bush uh the first, he went to the UN, he got the Allies on board. We were talking about this earlier, that was a time that the Russians were kind of weak, weakened after the fall of communism, and he managed to get agreement at the Security Council. Actually, the Russians supposed to be because you would have to be a UN decision. Yes. There may have been abstentions. So it's possible that Russia and China abstendent. It would be an interesting one to check out. But anyway, he got the green light from the UN support all around the world, you know, and in they went, and it was not. I mean, Saddam was saying it was going to be the mother of all battles. It wasn't. It was a very, very, very, very straightforward one. But again, it shows the impact that oil has on our world. I mean, that would that that I was quite young at the time, and you know, I remember my my my mom asking my dad at the time, do you think Reagan would have gone into Iraq at this stage? You know, and dad's like, oh, Reagan would have gone in much, much sooner. But um it it it it does affect our world. So I hope I don't know if we have anything more to talk about um on our oil. I hope you've all learned that I'm not suggesting that we have 47 years to live, but I am suggesting that um the world does need to try to get away from oil because it is it is running out and they're not making any more of it. And you know, the Western world has been industrialized for a long time, and it's very unfair, I think, for us to turn to India, China, places like this, and say, Oh, you have to do something good for the environment. We screwed it all up, by the way, but now you need to help us out. So I just don't see consensus around the world on on what's going on with oil, and you know, the Americans don't believe climate change. Well, that's the thing. I think we I know we're all trying to do it now. I know the Americans don't want to get involved, but if you have to switch, I know there is there is a case we need another source, but I think we get all renewables and batteries and everything, and there'll be another kind of biofuel that we can use. We can definitely switch away from we're going to need one. We don't want to go back to Easter Island. No. Hope you enjoyed today's show. Marcus, thanks very much for your time today. And uh we'll see you all next time. Just a quick shout out to my mother, Elma Meloy, who is our most loyal fan, and contacts me every Thursday to say that she enjoyed the show. So thanks, Mom. Is she our only fan? Um, well, she she she has a new cat that I think is higher up in the food chain in terms of the the will. Um but cat's a big fan as well. Felix, yeah. Felix can be a bit, she's a bit uh bit possessive, actually. Mom has to kind of what you know, go into her room to listen to it. I'm not joking. He loves interest rates, Felix, I believe. You know, he's not keen. Felix is not keen on the podcast. So thanks, thanks for everyone, um, and uh we'll see you next time.