Issues & Insights
Wednesday, February 18, 2004
The Other War
INVESTOR'S BUSINESS DAILY
Energy: The U.S. is at war with OPEC, the oil cartel. Don't laugh. That's what one influential Saudi Arabian newspaper believes. And it's not entirely wrong.
The newspaper in question, al-Riyadh, last week wrote that the U.S. has "made no secret of its strategy to rob OPEC of the right to protect its interests." In fact, America is waging "an open war on OPEC and oil producers, especially Arab countries which represent the strength of OPEC."
There's a war all right. But OPEC, using its oil weapon against the West, is the aggressor. As the chart shows, OPEC has kept prices near or above the top of its own target range for some time. Last week, the cartel delivered another low blow, cutting its official output quota by 1.5 million barrels a day to keep prices high.
We know the economic reasons why this shouldn't matter: The price should be set by the market, and the market is being driven by demand in booming China.
Fair enough. But OPEC doesn't play by those rules. And with about a third of the world's total oil output, its 11 members have big clout.
If its latest price hike is a political message, then message received. U.S. Treasury Secretary John Snow called the price-boosting move "regrettable" and correctly noted that it amounts to a tax on American consumers.
Still, you might wonder: What's behind OPEC's rage? The one-word answer is Iraq, where the U.S. is demonstrating the means and will to change an entrenched, dictatorial regime. This is problematical for OPEC because that describes nearly all its members.
None of the cartel's Arab contingent, including swing producer Saudi Arabia, is a democracy. And all want to stay that way — as medieval-style autocracies conferring minimal rights to citizens while reserving the region's immense oil wealth for an elite few.
In a little noted but highly important speech last week, President Bush outlined his plan to bring democracy to the benighted nations of the Mideast. For OPEC's autocrats and despots, that's very bad news: no more business as usual.
Let's not kid ourselves. Oil is one of the forces driving our actions in that part of the world. Without it, we have no economy. And until a replacement is found, it will be an important element of our foreign policy. Of this, we should not be ashamed.
Democracy is a threat to the autocratic regimes in the Mideast — and also to OPEC. It is not only a moral good. It has practical consequences — a freer market for a vital resource.
In the 1970s, we saw what can happen when OPEC's market tyrants want to twist the West's arm. Now they'll get to see what happens when we twist back.
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