Oil ministers meet at OPEC headquarters in Vienna, Austria on Nov. 30.
I never much liked the OPEC oil ministers.
Years ago when I periodically covered the Organization of
the Petroleum Exporting Countries, they were the 800-pound gorilla in
the room. In every room, in fact.
The ministers acted like they owned the world because, with
everyone desperately depending on what they produced, they did. They
were imperially pompous and demanded deference. Not just from
journalists like me who reported on their meetings from Vienna to
Algiers, but from nations that feverishly bought the barrels of oil they
fervently filled. Including the United States.
So I don’t shed tears now that the price of oil has gone so
low, the nations that produce it are just as desperate as the ones that
use it. Nor that the deal OPEC will enact Jan. 1 to trim petroleum
production — to shrink the surplus and force higher prices — is destined
to disintegrate. As soon as some producers calculate that lower output
at higher prices makes them even less money than higher output at lower
prices, they will cheat and the united front will fail. That’s not a
wild prediction; it’s a fact from history. What could stop them from
undermining the deal? Like the Pope, OPEC has no army to enforce its
will.
The 800-pound gorilla has grown weak. Saudi Arabia has taken
such losses from the low price of oil (and from waging war in its
region) that it has cut subsidies to its citizens for the first time
ever — for water, electricity, even gasoline — and is contemplating
taxation for a population that has heretofore never paid a penny in tax.
Sanctions cost Iran so much that it’s eager to pump every barrel of oil
it can, not to mention regaining its once-impressive market share and
shoring up its rivalry with Saudi Arabia (and waging its own wars). And
Iraq? Already ravaged by war, it needs every dollar it can earn to keep
from sinking into irreparable anarchy.
OPEC countries have an ominous complication, though: they
don’t even produce half the world’s oil any more. Saudi Arabia is still
the biggest, but do you know who comes next? Russia. Although not part
of OPEC, Russia has agreed to also make small production cuts, but it
has its own problems, namely that almost half its undiversified economy
is funded by petroleum. It’s even contemplating a dip into its version
of Social Security to bolster its federal budget. Russia cannot afford
to reduce its revenue from oil.
And who comes next? The United States. Thanks to increased
efficiencies in extracting our own home-grown energy and to our growing
reliance on renewable energies, we are on the verge of energy
independence. Back in the 1970s, out of political pique, OPEC embargoed
oil to the United States and we looked like a Third World lackey,
waiting in long lines to fill our cars with gas. Today, OPEC can no
longer hold that noose over our heads.
One last ingredient to allay the impact of the OPEC
agreement: almost all the OPEC countries the past few months have ramped
up their production to near-capacity. Which means reducing their output
will basically bring it back to where it already has been.
Make no mistake, some of our most important European and
Asian allies still deeply depend on OPEC oil. If they get hurt, we get
hurt. And, as the price of oil goes a little higher because of the
coming cutbacks, the price of a tank of gas will, too (although,
relative to the price of gas back in 2014, not much).
But even against those prospects, OPEC’s production cuts
shouldn’t be appallingly painful. In fact they might even be helpful,
because when the world price of petroleum trends up, producers in our
own country have new incentives to restart their drills and reopen their
wells. Which ultimately enhances our own economy. And our energy
independence.
Greg Dobbs of Evergreen is an author, public speaker, and former foreign correspondent for ABC News.
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