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Thu, 22 Sep 2005

Whoops ...

(Been quiet recently due to finishing a novel about six weeks late and having to start work on another right away ...)

So, Hurricane Rita looks likely to be a full category 5 storm by the time it makes landfall. And even if it misses Galveston (which was last hit by a hurricane in 1900 -- a disaster that was at least as bad, and quite possibly worse, than last month's horrors in New Orleans), it's heading for the thickest mass of oil refineries on the Gulf coast. Three of the five largest refineries in the US are square in the path of the hurricane, and the area accounts for 26% of US oil processing capability.

To make matters worse, this is happening relatively late in the season -- late September -- as demand for winter heating oil is about to surge. (Living here in the UK, I used to find it hard to appreciate just how cold it gets in winter in most of the United States. Fact is, the environs of Boston invariably get much colder, and for longer, than the Scottish highlands -- the coldest part of the UK -- despite being more than a thousand nautical miles south. That's the effect of the North Atlantic circulation on the UK.)

The storm hasn't made landfall yet, and it's already having international political repercussions.

Oil futures are already up, as are crude futures, nearing their post-Katrina peak even before Rita has made landfall. OPEC is increasing its output by up to 2 million barrels/day for three months, starting in October -- a 3% increase on its normal daily ceiling of 28 million barrels/day. But I'm unsure what effect this is going to have if a large chunk of the USA's refinery capacity is taken out by a storm. Immediately after Katrina, the US bought up a large quantity of refined gasoline on the Rotterdam market, triggering a spike in the price of oil worldwide, and a sharp spike in the cost of fuel in the UK that triggered protests (which were only prevented from causing serious shortages by immediate government and police action -- the government is paranoid about avoiding a re-run of the September 2000 fuel protests). But if the refineries and port facilities where the tankers can unload their fuel are damaged, is there any reason to buy up tanker-loads abroad?

What I am concerned about is the likely long-term economic impact of this hurricane. (Thankfully, this time there are signs of a real evacuation plan being implemented properly, so the prompt death toll will almost certainly be orders of magnitude lower.) The USA is much more oil-dependent than many other developed nations, but it's a major integral part of the global economy and if the cost of repairing the damage from Rita is comparable to that of Katrina -- even if it's only a tenth as great -- it's going to have a huge impact eventually.

We're still only just seeing the first economic signs of the effect of Katrina (other than the immediate oil supply disruption). The Fed has just upped the base rate by 0.25% -- but is that enough? They're stuck between a housing bubble where a single percentage point can batter millions of home-owners into bankruptcy -- home-owners whose debt driven spending drives the consumer side of the economy -- and the need to make credit easier for businesses trying to pick up the pieces after the storm (and consequent spike in their transport costs). This does not strike me as a good place to be, even before you take into account the backing of the current US administration for predatory disaster capitalism as an engine of "wealth creation" (at least, for their cronies at Halliburton and Brown and Root). The requirements of running a successful disaster capitalism economy seem to be at odds with those of a successful consumer economy, and in the wake of Rita I'm (cynically) putting my money on the disaster capitalists winning, as they appear to have won in New Orleans.

[Discuss Katrina]

posted at: 11:20 | path: /politics | permanent link to this entry


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Steve Gilliard ]
Frankenstein Journal (Chris Lawson) ]
The Panda's Thumb ]
Martin Wisse ]
Kuro5hin ]
Advogato ]
Talking Points Memo ]
The Register ]
Cryptome ]
Juan Cole: Informed comment ]
Global Guerillas (John Robb) ]
Shadow of the Hegemon (Demosthenes) ]
Simon Bisson's Journal ]
Max Sawicky's weblog ]
Guy Kewney's mobile campaign ]
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Meerkat open wire service ]
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Brad DeLong ]
Hullabaloo (Digby) ]
Jeff Vail ]
The Whiskey Bar (Billmon) ]
Groupthink Central (Yuval Rubinstein) ]
Unmedia (Aziz Poonawalla) ]
Rebecca's Pocket (Rebecca Blood) ]

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June 2006
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