The Impacts Of Shale Oil On The Political Economy In The Developed Countries (Essay Sample)

Shale Oil Name: Institution: Shale Oil Shale oil is extracted from a sedimentary rock that contains organic matter, which is utilized in the production of petroleum energy. The extraction of shale oil has been accelerating in the U.S. at a tremendous rate. Oil barrels from 2004 to 2011 increased from 111,000 to 553,000 per day. Such production has reduced U.S. reliance on oil imports from other countries. The popularity and the rate of market entry of shale oil prompted the Energy Information Administration (EIA) to estimate the production of the oil. The results indicated that shale oil production in the United States would increase to 1.2 million barrels daily by 2035. For this case, shale oil will have a significant impact on the economy of the United States. It is estimated that shale oil could displace waterborne crude oil imports to the United States by 30 to 45 percent (PWC, 2013). The production of shale oil has resulted in various political economy effects, impacts on national competitive advantage, and adverse consequences on the environment Impacts of Shale Oil on the Political Economy The oil market is experiencing significant turmoil since the introduction of shale oil and its utilization as the primary source of energy by the U.S. OPEC strategy, economic conditions, and conflicts in the Middle East are known to bring difficulties in the oil markets. The entry of the shale oil poses a significant threat and impact in the political economy of oil-producing countries and the OPEC at large. The financial crisis of 2008 has led to the fluctuation of oil prices over the last six years, which led to the rise of alternative energy sources, and the use of latest technologies in oil drilling and extraction (Aggrawal, 2014). Shale oil has been trending in the United States and has caused some political impacts. For instance, shale oil has changed oil process at a dramatic rate affecting the global competitiveness of the oil market. The increased competition for market share had led to the relative increase in output from the political volatility of Libya and Iraq despite their ongoing political instability. Shale oil has led to the rise of Libya’s supply of oil to over 800, 000 barrels produced daily. A similar trend has also been recognized in Iran where the country has also increased its oil production to leverage the competitiveness of shale oil. The United States has significantly increased its crude oil production, especially since the introduction of shale oil. Shale oil has led to the reduction of U.S. oil imports from OPEC countries from over 10 to seven million barrels per day. The decreased rate of U.S. imports has forced Middle East countries to turn to China, which relies on energy imports to sustain its economy. Other nations have pursued a similar approach such as Venezuela, which has started to rely on loans from China for future oil exports. Besides, the trending nature of shale oil has encouraged the United States to pursue political and military withdrawal from the Persian Gulf (Westphal, Overhaus, & Steinberg, 2014). Changes in the energy markets and domestic economic problems will shape policies of the Gulf States in the coming years. The United States has been an importer of Oil from the Middle East region. Now, with the rise of the Shale oil revolution, leaders from the Persian Gulf would start to worry that the United States will withdraw its military support and leave these countries exposed to attacks from their enemies, which the U.S. have protected them from for many years. The perception the U.S. might withdraw its support has led Saudi Arabia to pursue an aggressive regional policy to save its citizens from dire consequences. Other countries such as UAE and Qatar are also looking for foreign policies that could provide them with subsidies to sustain their demanding populations. Leaders from the Persian Gulf fear that the United States might take an offensive stance against them since it is now an independent oil producer. However, economic elites in Saudi Arabia are not impressed by shale oil because they view it as an unconventional reserve, which has arisen due to the natural consequences of high prices. The perception by Saudi Arabia’s bureaucrats has also led to OPEC taking a similar stance regarding the future of shale oil and terming it as a boom, and an unconventional oil that will flat off very quickly before 2020 (Westphal, Overhaus, & Steinberg, 2014). Although these countries are viewing shale oil as a boom, its political effect is still evident. Prince Al-Waleed bins Talal Al Saud posted on Twitter urging Saudi Arabia’s government to stop relying on oil production and diversify to other industrial sectors to sustain its citizens. The Prince further argues that the economy of Saudi has been left vulnerable by the intense competition of United State’s shale oil. The post by the Prince was notable because of the power and recognition of the Prince in the country. For this case, the penetration of shale oil in the market has some political effects on Middle East countries such as Saudi Arabia. Impact of Shale Oil on National Competitive Advantages The discovery of shale oil has placed the United States at a significant competitive position against a majority of oil competitors. The U.S. is likely going to benefits from the extraction and selling of the oil without an impactful interference by the other states. The shale oil industry is producing an approximate of three million barrels per day. If the cost of production of shale oil is conducted below the prevailing price for oil, then oil shale will result in economic profits in the United States. The revenues obtained would be distributed among workers, investors, shareholders, and the government through taxes and royalties (Bartis, LaTourrette, Dixon, Peterson, & Cecchine, 2005). The United States is also at a competitive advantage since it will not import oil from outside countries, which is sold at a higher rate because some of the costs are directed to the employees who participated in the oil production process. With the introduction of the shale oil, the U.S. is at an advantage of hiring its own workers and utilizing the profits obtained from the sale of the shale oil appropriately. It is said that the three million daily productions of shale oil will enable the United States to higher more than 5000 workers. According to Bartis, LaTourrette, Dixon, Peterson, and Cecchine (2005,) the United States also stands at a competitive advantage because shale oil will likely reduce the global cost of oil. This means the U.S., will benefit since it is the producer and the seller of the product; therefore, the competitors will be cornered and forced to lower their prices. Consumers from foreign countries would benefit from lower oil prices (Bartis, LaTourrette, Dixon, Peterson, & Cecchine, 2005). If competitors such as OPEC and other oil producers do not reduce their oil prices, businesses and consumers in the United States will benefit from shale oil significantly. High oil prices enable oil-producing countries to obtain massive profits that they use for different purposes. Some of the oil-producing states have used the surplus derived from oil to fund terrorists and hinder attempts of democratization. If the United States produces more barrels of shale oil more than its three million mark, it will shake the economy of these countries by making them lack the proper funding of their activities as well as affect their oil markets. Such a situation will put the U.S. at a competitive advantage. Environmental Impacts of Shale Oil The industrial production and expansion are characterized by the consumption of raw materials and energy resources. The industrial activities that are meant to satisfy the needs of the population result in depletion of earth’s most valuable resources. The depletion results in degradation of natural ecosystems and environmental pollution. Shale oil production is not exempt from these causes, and it has led to various adverse effects on the environment. Shale oil is a mineral fuel recognized for its high ash content (Strizhakova & Usova, 2007). The drilling companies face challenges in gas cleaning, removal, storage, and disposal. The waste materials find their way to the environment and cause negative effects on the ecosystem. In the Soviet Union, shale oil was produced and consumed in large quantities. At the time, environmental conservation was not a concern, and this led to the production companies emitting large amounts of waste irresponsibly. The complete procedure for extracting shale oil, especially the hydraulic fracturing has been identified to cause adverse environmental effects on the environment. One side effect of shale oil extraction is extensive land consumption. In the United States, one well of shale oil should be dug in a 640-acre piece of land. In the Barnett shale region, over 15,000 wells were drilled by the end of 2010 (Lechtenböhmer, Altmann, Capito, Matra, Weindrorf, & Zittel, 2011). Roads are also built around the wells to enable transport via trucks. Wastewater ponds also consume the surface area. The massive consumption of land makes it impossible to be reclaimed for other purposes such as farming. Moreover, the production of shale oil has been identified to cause air pollution. In the U.S. people living in the city of Dish, Texas have raised their complaints to the mayor over increased human illnesses and animal deaths. A commission was set to investigate the causes, and it was found that the atmosphere in the region contained carcinogenic and neurotoxin compounds. The drilling shale oil company in the area was identified as the one disposing gases into the air. The extraction of shale oil also results in water contamination. Spills of drilling mud, accident that cause oil leaks, and the availability of leaks through the ge...