Neocon Ignorance, Iraq, OPEC, and World Oil Markets

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From:	info at economicdemocracy.org
Subject:	Neocon Ignorance, Iraq, OPEC, and World Oil Markets
Date:	23 Jan 2005 14:04:59 -0800

OPEC - the non existent cartel
Production; Extraction; ExplorationAMK writes: OPEC and Bush2 New
Economy rhetoric

Andrew McKillop

Providing yet more 'justification' for what UN Secretary General Annan,
and millions of others call an illegal war in Iraq, the American
neoconservative house magazine, the 'Wall Street Journal' had this to
say about OPEC in a 29 July 2003 article by its editorial writer
Claudia Rosett. She wrote: (OPEC is) "a gang of price-fixing oil-rich
thug regimes (which) meet to reinforce assorted terrorist-sponsoring
tyrants at high cost to world consumers".

At the time, in 2003, it was important for the US hard right to drum
out that a 'liberated' Iraq would firstly inundate the world with cheap
oil, and secondly quit OPEC. This would be the end of what Rosett, in
the same article, called "One Purely Evil Cartel".

The high oil price of 2003, around 35 USD/barrel, would according to
American neoconservative thinkers, brought up with New Economy slogans
instead of baby toys, inevitably 'bust the cartel' with Iraq providing
the detonator. As Rosett said in her rollicking prose: "OPEC members
are currently fussed that a rehabilitated, free and oil-pumping Iraq,
with oil reserves second only to Saudi Arabia's, might ultimately bust
the OPEC cartel which jacks up prices by limiting supply".

As with almost any New Economy myth the basic rationale is upside down
- cartels do better, stand firmer when prices are high, not low. With
more cash at hand, cheaters can be bought out or beaten down, as John D
Rockefeller proved a long while back. One of the key price fixing
entities set when Rockefeller's oil cartel was busted, by the US
courts, was the Texas Railroad Commission. This was the de facto and de
jure oil price fixer, for the US and the world for over 60 years. When
this Commission announced in the spring of 1971, that it would for the
first time allow 100% production by US domestic producers, the marginal
price of crude oil was no longer set in the USA, but only in apparence
by OPEC, or what Rosett calls the "Outrageously Predatory Energy
Cartel". Real OPEC price setting power can be placed in a narrow period
of at most 15 years, from the 1973-74 oil crisis, to the 1985-86 oil
price collapse and, shortly after, the takeoff of 'free market'
pricing, that is price fixing by the NYMEX.

It is therefore atavistic to claim OPEC still 'fixes prices', which is
normal for New Economy aficionados chanting slogans derived from the
writings of Adam Smith or David Ricardo - of nearly 200 years ago. It
is even more atavistic to imagine that Iraq, which at its peak in the
early 1980s perhaps exported 3.5 Million barrels-per-day (Mbd) on a
sustained basis, but no more than that, could one day 'inundate' the
world market. World oil demand increased by 2.7 Mbd in the 12 months
Dec 2003 - Dec 2004.

Cartels also break down and disappear when their merchandise or service
disappears, like whale oil supplier clubs or cartels of the early 20th
century: today's de facto and real upstream oil price fixers are the
totally untransparent, state controlled oil and energy entities of
Russia and Saudi Arabia. Either of these can decide a big rise in oil
prices overnight by withdrawing supplies. Conversely, they can do
_little_ to drive prices down by 'overproducing', assuming they wanted
to, because they are and will remain very close to the limit of
production capacity.

Some optimists claim that Iraq's oil reserves may exceed 95 Billion
barrels; others (such as the US Geological Survey) put the figure
closer to 75 Bn bbl. World oil consumption in 2005 will likely exceed
30 Bn bbl. According to the OECD's IEA, world oil demand by 2015-2018
will be running at around 37.5 Bn bbl-per-year, and may attain 40 Bn
bbl-per-year.

Iraq's so-called 'immense' oil reserves should be related to this
somber reality.

No amount of 'therapeutic bombing' or 'liberation' through destroying
civil infrastructures and fomenting civil war will change this reality,
or the effective reality that OPEC no longer controls, fixes or sets
oil prices.

http://peakoil.com/article2207.html

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