Can OPEC save the world from oil addiction?

The word “cartel” has been used to describe OPEC, a union of some oil producing countries. Perhaps a better word would be “association” as the effectiveness of this “cartel” over the years is questionable.

From a low of $10 in 1999 to over $100 a barrel today, price stability has not been one of its success stories. There are good reasons why this has happened – The close relationship between the Saudi Arabian and US governments, and the lack of a long-term vision and solidarity of the member states. There are recent indications that OPEC is becoming more effective and gaining more respect.

The oil age started with discoveries in 1859 and will be effectively finished by 2059, a period of only two hundred years. Even if we go along with the optimists and give it another 50 years, perhaps to 2109, the era of abundant oil will have only been a blink in the history of mankind.

A common human quality around the world is to search for peace and prosperity. Those with a long-term view can see dark clouds on the horizon. Unfortunately, the coming years will be a time of war and deprivation unless we find an efficient way to reduce our usage of oil and transition to other forms of energy in a calm and well planned sequence. Lately, oil has risen to $110 a barrel but still provides great value to customers. There are some preliminary indications that price has slowed the growth of oil usage. One of the contradictions of life is that a lower price of a product makes life easier but will lead to increased usage.

In the case of oil, do we still have the option of wasting this resource on SUV’s, poorly planned communities, and huge homes? How will our morality be judged when we utilize a valuable resource and leave nothing for future generations – our children, grandchildren and beyond? Can we find a way to decrease our usage to a “sustainable” level?

The nature of capitalism is to utilize all resources that are available without regard for the longevity of the reserves. We only have to look at the fish stocks in the world’s oceans to understand the dangers of uncontrolled harvesting. In the same way, we need a method to reduce the volume of oil usage such that efficiency is encouraged and the resource will last for centuries instead of decades.

Good long term planning is generally undertaken at the nation-state level. We would like to think so. In certain cases involving multiple countries, the United Nations can be useful. However, in a case as delicate as the price of oil, there is some doubt that the UN could act effectively when the short-term effects on multiple states, including the US would be negative.

The only group with the necessary tools is the Organization of Petroleum Exporting Countries (OPEC). To undertake such a mission would require vision and solidarity on the part of its members. It would also require an education campaign on why decreasing production is an environmental necessity – to reduce CO2 and to provide long-term resource planning for future centuries, avoiding “generational injustice”.

A reasonable target might be a reduction of 1% of the daily production of roughly 86 million barrels of liquids. This means that a cut of roughly 860,000 barrels a day would come from the OPEC members.

While OPEC would cut production, OPEC members would not lose overall revenue as the price would drift upwards to $150 a barrel or perhaps higher on a transitory basis. Obviously, rationing by price is not the ideal solution as those least able to pay are forced out of the market. The ultimate goal is to drive efficiencies into and wastage out of energy processes. At some point, countries will realize the necessity of cooperation in energy use by rationing on a country by country basis.

Why should OPEC be asked to show leadership at this particular moment?

First, the world is addicted to oil and no effective remedy is presently underway. Both OPEC and non-OPEC countries are the suppliers of the product going into the world’s veins. As addicts, we will exhaust the supply and future generations will be deprived and impoverished. Reduction of oil supply is the only sure way to ensure that CO2 levels will decline.

Secondly, OPEC is the only organization that has actually cut supply in the past, admittedly for much different reasons, in 1973 and 1979. There are excellent prospects for success today as little surplus supply capacity exists, public support for environmental initiatives can be found and a 1% reduction is a fairly mild cut.

George Bush is now playing the “economic” card to place blame on OPEC if they don’t raise production levels and therefore cause an economic slowdown in the US. Luckily, King Abdullah and other OPEC spokesmen aren’t buying into the guilt fantasy. George’s management of the US economy speaks for itself. Deficit spending due to tax cuts and an expensive war in Iraq are just the tip of the iceberg.

We all need OPEC to put a heart de-fibrillator on the speeding world economy and restart it at a slightly lower rate. Would this be an act of brotherly love for the planet and its inhabitants? Absolutely.

The price of oil has to remain high on a permanent basis if we are to find productivity or technological solutions to our energy problems. Countries who prosper will be those who use oil wisely and with more efficiency.

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