Once again Opec has US over a barrel,
Times (UK)
10/6/01
PERHAPS we should blame God. After all, He put the oil
where nobody can use it, and then put the need for oil at
places far distant from where it flows from the earth - or almost
so.
For many years there was enough oil in America to fuel the
growth of one of the most efficient and productive economies
the world has seen. No longer. America now depends for most
of its oil on Arab countries that, along with Venezuela and a
few other nations, have formed the Opec cartel to keep prices
at many multiples of the level that would be set in a free
market.
Worse still, one of those countries, Iraq, is run by a dictator
who is perfectly willing to shut down production and impoverish
his people if doing so will press America and its allies to dance
to his tune. Another, Iran, is controlled by mullahs who view
America as a satan, to be exploited to the maximum extent
possible. And the South American partner in the cartel,
Venezuela, is now run by a former putschist whose hero is
Fidel Castro.
Little wonder that Vice-President Dick Cheney, who drew up
the new energy policy that President George Bush hopes to
push through a hostile Congress, views America's dependence
on foreign oil as more than an economic problem. As one
White House staffer put it to me: "To Cheney, energy policy is
merely a subset of security policy." That is not to say the
vice-president is unaware of the threat that high oil prices pose
to America's prosperity, especially at a time when it is an open
question whether the economy will resume its growth or lapse
into recession.
Unfortunately, there is little that Cheney or anyone else can do
to pry Opec's fingers from America's throat. The
administration's energy plan calls for the construction of
nuclear plants. But little oil is used to generate electricity these
days. So even if private-sector companies were to gamble on
the technology that only recently brought many of them close
to ruin, these plants cannot cut America's oil consumption.
Nor can many of the other measures suggested by the Bush
administration have sufficient effect on American reliance on
imports to remove pricing power from Opec.
Opening up new areas to domestic drilling will help, but a
hostile Senate is likely to kill such plans. Conservation can cut
usage, but not enough to enable America to tell Opec
members to peddle their barrels somewhere else.
Mandated increases in fuel efficiency, unpopular with motorists
who know that smaller cars are uncomfortable and less safe
than the sports utility vehicles they prefer, are also unlikely to
make America sufficiently independent of imports to make it
immune from Opec price pressures.
There are no long-term solutions on the horizon and, worse,
even if the administration could somehow wrest control of crude
oil from Opec, America does not have sufficient refining
capacity to turn that crude into petrol and heating oil.
Last week Opec refused to increase output to offset the
production cuts ordered by Saddam Hussein to demonstrate
his displeasure with America and the United Nations.
The Opec planners argued that America has ample crude oil to
meet its needs. Current tightness in the petrol market is due
not to a shortage of crude oil but to a shortage of refinery
capacity. That, said Opec, is a self- inflicted wound for which it
cannot be held responsible.
Eventually, a relaxation of environmental restrictions might
increase refining capacity - but not soon, and not certainly, as
the powerful green lobby is intent on forcing America to rely
solely on cutting energy demand rather than increasing supply,
to cope with shortages and consequent rising prices.
The answer to Opec lies in diversification. Non-Opec sources of
oil are being developed in response to the $30- per-barrel prices
that the cartel is maintaining, and there are sound
national-security reasons for America to encourage further
exploitation of these more secure supplies.
In line with such a policy, America might persuade Mexico,
which is not an official Opec member but is acting in concert
with the cartel, to abandon its refusal to fill the supply gap
created by Opec's cutbacks. After all, Mexican prosperity
depends on exports to America and the remittances that
Mexican immigrants send home to impoverished families.
Canada, too, can be enlisted in what might be termed a
continental energy policy. In combination with Mexico, our
northern neighbour supplies 27% of our imported oil - and could
supply more, especially if its ample reserves of "heavy" oil can
be developed at reasonable cost.
But in the end, God has put the cheapest and most abundant
reserves of oil under the sands of Opec's Arab members. So
far, in the words of Cheney's National Energy Policy
Development Group, Saudi Arabia, the world's most prolific
producer, has provided "effective assurances that it will use its
capacity to mitigate the impact of supply disruptions".
But if Palestinian-Israeli hostilities heat up, pressure on the
Saudi regime to express its displeasure with American support
of Israel will mount, increasing the danger of a supply cut-off.
And in any event, the Saudis prefer a cartel price of $30 per
barrel to a free-market price of $10 or less.
So Bush is in trouble. At least for now, he can do nothing to
get the producing countries to bring down the price of oil. In the
longer term, he has to rely on a combination of stepped-up
domestic production, increased diversification of the nation's
sources of imported oil, and, if he can bring himself to it, a
quiet word with the Saudis and Kuwaitis about the
consequences for them of withdrawal of the American shield
that protects them from Saddam. That's the sort of tough talk
that his father always shied away from when dealing with oil
sheiks. |
