OPEC and Bush 2's New Economy rhetoric
Providing yet more 'justification' for what UN Secretary General Annan, and millions of others call an illegal war in Iraq, the American neoconservative house magazine, the 'Wall Street Journal' had this to say about OPEC in a 29 July 2003 article by its editorial writer Claudia Rosett. She wrote: (OPEC is) "a gang of price-fixing oil-rich thug regimes (which) meet to reinforce assorted terrorist-sponsoring tyrants at high cost to world consumers". At the time, in 2003, it was important for the US hard right to drum out that a 'liberated' Iraq would firstly inundate the world with cheap oil, and secondly quit OPEC. This would be the end of what Rosett, in the same article, called "One Purely Evil Cartel".
The high oil price of 2003, around 35 USD/barrel, would according to American neoconservative thinkers, brought up with New Economy slogans instead of baby toys, inevitably 'bust the cartel' with Iraq providing the detonator. As Rosett said in her rollicking prose: "OPEC members are currently fussed that a rehabilitated, free and oil-pumping Iraq, with oil reserves second only to Saudi Arabia's, might ultimately bust the OPEC cartel which jacks up prices by limiting supply".
As with almost any New Economy myth the basic rationale is upside down - cartels do better, stand firmer when prices are high, not low. With more cash at hand, cheaters can be bought out or beaten down, as John D Rockefeller proved a long while back. One of the key price fixing entities set when Rockefeller's oil cartel was busted, by the US courts, was the Texas Railroad Commission. This was the de facto and de jure oil price fixer, for the US and the world for over 60 years. When this Commission announced in the spring of 1971, that it would for the first time allow 100% production by US domestic producers, the marginal price of crude oil was no longer set in the USA, but only in apparence by OPEC, or what Rosett calls the "Outrageously Predatory Energy Cartel". Real OPEC price setting power can be placed in a narrow period of at most 15 years, from the 1973-74 oil crisis, to the 1985-86 oil price collapse and, shortly after, the takeoff of 'free market' pricing, that is price fixing by the NYMEX.
It is thereforce atavistic to claim OPEC still 'fixes prices', which is normal for New Economy aficionados chanting slogans derived from the writings of Adam Smith or David Ricardo - of nearly 200 years ago. It is even more atavistic to imagine that Iraq, which at its peak in the early 1980s perhaps exported 3.5 Million barrels-per-day (Mbd) on a sustained basis, but no more than that, could one day 'inundate' the world market. World oil demand increased by 2.7 Mbd in the 12 months Dec 2003 - Dec 2004.
Cartels also break down and disappear when their merchandise or service disappears, like whale oil supplier clubs or cartels of the early 20th century: today's de facto and real upstream oil price fixers are the totally untransparent, state controlled oil and energy entities of Russia and Saudi Arabia. Either of these can decide a big rise in oil prices overnight by withdrawing supplies. Conversely, they can do little to drive prices down by 'overproducing', assuming they wanted to, because they are and will remain very close to the limit of production capacity.
Some optimists claim that Iraq's oil reserves may exceed 95 Billion barrels; others (such as the US Geological Survey) put the figure closer to 75 Bn bbl. World oil consumption in 2005 will likely exceed 30 Bn bbl. According to the OECD's IEA, world oil demand by 2015-2018 will be running at around 37.5 Bn bbl-per-year, and may attain 40 Bn bbl-per-year. Iraq's so-called 'immense' oil reserves should be related to this somber reality. No amount of 'therapeutic bombing' or 'liberation' through destroying civil infrastructures and fomenting civil war will change this reality, or the effective reality that OPEC no longer controls, fixes or sets oil prices.
What do you think? Leave a comment below. See our commenting guidelines.
Sign up for regular Resilience bulletins direct to your email.