<This is hardly trivial and will both highlight and exascerbate OPEC's key weaknesses - geographic disparity and lack of police power. >
Actually, OPEC has got some police power. They use the USA. The USA has very powerful interests who benefit from high-priced oil, namely, the oil producers. They have a direct feed into the White House. As an example of USA police power, look how the USA tricked silly Saddam into attacking Kuwait, then booted him out and cut off his oil.
Saddam can forget about any oil sanctions coming off any time soon, even if he grabs a bible, coverts to Judaism and does everything the USA tells him. GeorgeW and Senior do NOT want oil flowing under freely traded conditions. The market price would be the long run marginal cost of production which is nearer $5 a barrel than $25. Something like $10 a barrel is about right for a decade or two. Anything above, and the price will slip and slide as new wells and increased production from old, not to mention competition from insulation, gas, nuclear, coal, wood and photovoltaics will make inroads, reducing oil's market share.
Of course, if OPEC, Saudi Arabia, or whoever, don't toe the line [whatever the line is], the USA can always ease up on sanctions on Iraqi oil to make them behave.
Even without a big new oil field, prices will go down again.
Mq |
