Daniel Yergin, chairman of Cambridge Energy Research Associates and author of the seminal history of oil, writes a thought-provoking piece in yesterday’s FT. It’s not that prices are soaring due to an increase in the demand, he argues, as much as that the oil companies are facing steeply increasing costs for bringing oil to market. He reasons, therefore, that

the impact of rising oilfield costs and the importance of encouraging investment need to be taken into account when considering a “windfall profits” tax or other new taxes. However attractive politically, the effect would be to constrain investment and to lead to lower production levels than would otherwise be the case.

Crude and blunt measures to help out the little guy at the expense of the big guy often bring more pain on for everybody. It’s an important lesson that never gets learned thoroughly enough.

From the Post’s headline piece this morning on the possible repercussions of an American strike on Iran:

Asked whether the companies he worked with had contingency plans, he said, “The oil industry does not have contingency plans. We are not military people.”

Fair enough in this scenario, I suppose. Screwed up oil markets due to an attack on Iran is not something one should have had to plan for until earlier this year, when it became distinctly possible that the U.S. was keen on escalation.

But one gets the sense that this kind of mentality runs rampant at oil companies and governments alike. It makes articles such as this one in the Guardian (via Sullivan) far more unsettling.

Jeremy Leggett, one of Britain’s leading environmentalists and the author of *Half Gone*, a book about “peak oil” - defined as the moment when maximum production is reached, said that both the UK government and the energy industry were in “institutionalised denial” and that action should have been taken sooner.

Peak oil is a notoriously controversial subject mostly because it’s so opaque. Are the oil companies withholding information to soothe markets? Are they spreading panic to drive up prices? Or are they just asleep at the wheel?