OPEC

The , OPEC, was founded in Baghdad in 1960. The function of OPEC is to regulate oil production, and thereby manage oil prices, in a coordinated effort among the member countries. Membership is open to countries that are large exporters of oil. The ultimate goal of OPEC, as stated by the organization, is to stabilize oil prices in their effort to stabilize the geopolitical environment.

The member countries of OPEC are: Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Of course it should come as no surprise that there has been a lot of international involvement in the affairs of these countries over the past 100 years.

There are many issues that revolve around all of these countries, almost all of which have been recently released from colonial Western rule within the past 80 years. All of these countries are considered developing countries and many of them have had tumultuous political environments over the past 50 years, and still do.

Despite these conditions OPEC has done an outstanding job at promoting global economic stability.

Collectively OPEC member countries hold about 75% of the global oil reserves. OPEC members currently supply about 40% of the world’s oil.

I think that many people would agree that OPEC has generally done an exceptional job in its undertaking of the task of promoting global economic stability in recent times. I think that many would agree that allowing the “free market” to control the oil market could be disastrous. However, not everyone does agree.

I would like to highlight a few speeches from OPEC that underscore the significance of OPEC to the world economy, and the role of the organization in the economy.

Geopolitics of the International Oil Industry and OPEC:

http://www.opec.org/NewsInfo/Speeches/sp2001/spAraqueViennaOct5.htm

OPEC’s perspective on Europe:

http://www.opec.org/NewsInfo/Speeches/sp2002/spAraqueOxfordFeb07.htm

The impact of price fluctuations on the world economy:

http://www.opec.org/NewsInfo/Speeches/sp2001/spAraqueLondonSep14.htm

Many though, blame OPEC for high fuel prices and there has been increasing pressure on OPEC to increase its quotas, which it has done recently, though many call it simply a PR exercise because most of the member countries were already producing over quota.

President George Bush has been particularly vocal about pressuring OPEC to increase production over the past 2 years, even during his presidential campaign. Many people call OPEC a cartel, and even accuse OPEC of being a terrorist organization or at least helping to fund terrorist organizations. Looking at the list of member countries its easy to see why this is the case.

For a history of Bush’s remarks on OPEC see:

http://www.grandoldpetroleum.com/openspigots.html

Interestingly, as the link points out, Bush’s line on OPEC softened after he came into office.

The issue with OPEC itself is that by controlling such a large part of the oil market OPEC has a significant influence on the price of oil even for non-OPEC producers. Publicly Bush complains that OPEC is keeping prices too high and has proposed to open up reserves in Alaska for drilling to help “combat” the OPEC effect. However, it costs more for Americans to bring Alaskan oil to market then it does to import it, even at the prices that are set by OPEC. In fact, if OPEC did not keep the price of oil artificially inflated (and note too that there have been cases where OPEC has kept the price of oil artificially low as well) there would be no market for American oil at all because if Middle Eastern oil dropped to a free market price it would go under $20 a barrel, which would shut down American oil pumps and actually increase the trade deficit.

On January 31^st, 2001

http://www.house.gov/defazio/pf_013101EGLetter.shtml

No lawsuit has been filed by the administration.

Bush later responded to questions in a similar lawsuit that was filed by someone else privately by saying:

“Steve, it is very important for there to be stability in a marketplace. I read some comments from the OPEC ministers who said this was just a matter to make sure the market remains stable and predictable. Obviously, if it's an attempt to run the price of oil up, we'll make our opinions very clear and known, that that would hurt America and hurt the marketplace. Our economy is bumping along right now and a run-up in energy prices would hurt. And, surely, the OPEC leaders understand that. I think they do.”

Ari Fleisher was later asked to clarify Bush’s statement, to which he replied:

“The President thinks it's important to have stability, and stability can come in the form of lower prices; stability can come in the form of moderate prices. But the President thinks it's important that the nation doesn't go through giant price fluctuations as it has for the last two or three years.”

Basically this is stating what we should all recognize, that the domestic oil market is dependant on regulated oil prices by OPEC. So, while many may try to claim that OPEC should increase production to lower prices, all that would really do is hurt domestic producers. The fact is that the OPEC countries have 75% of the world’s oil and there is nothing that the US can do through diplomatic policy to change that fact. Increasing domestic production by drilling in Alaska isn’t really going to do much to bring down prices either, or ensure a much larger degree of domestic security from the international market. The international market is still going to be what set’s prices for oil. We simply don’t have enough oil to affect the market enough to make a significant difference in prices.

Representative DeFazio may want to urge the President to put pressure on OPEC, or even try to break up OPEC, the real truth is that breaking up OPEC or getting OPEC to increase production to lower prices would only hurt domestic oil producers, such as those that Bush and Cheney have close ties with.

It’s also important to recognize too that bulk of the cost of fuel is comprised of taxes and transport fees. Another factor behind fuel prices is new environmental regulations that require new tankers to be double hulled, protecting against oil spills. It is currently estimated that about 40% of the world’s tanker fleet is outdated and is in immediate need of being replaced. Yet one more important factor is the trading of oil futures, which can be a significant factor in driving the price of oil up by increasing demand beyond the needs of the consumer market.

The OPEC Fund for International Development:

http://www.opecfund.org/