clock menu more-arrow no yes

Filed under:

OPEC NOT THE THREAT IT ONCE WAS

At one time, the meetings of OPEC, could make oil-importing countries tremble and motorists brace themselves for painful price hikes at the gas pump. But that clout has diminished drastically in recent years as the oil cartel has been riven by internal disagreements and an inability to control production and prices.

The OPEC meeting this week in Geneva, Switzerland, is a case in point. While a majority of members managed to hammer out a production quota agreement that might raise prices to $21 a barrel, a $1.50 increase, there were signs of serious dissent in the ranks.Ecuador, the OPEC member with the smallest production now pegged at 320,000 barrels per day, says it needs more income for its struggling economy. When OPEC members refused to raise that limit, Ecuador said it would drop out of the cartel.

That probably won't make a serious difference, but it is a crack in OPEC. Others may follow. Iran, also citing economic difficulties, rejected the accord and, while remaining in OPEC, may significantly raise oil production.

All of this leaves the impact of the OPEC plan in doubt. If prices rise, the difference at the gasoline pump may be too small to notice, given the seasonal gyration in prices anyway.

OPEC has never been the same since the 1970s, when it stunned the world with price hikes and production cutbacks that held industrial nations at ransom and sent oil prices soaring to an unheard-of $40 a barrel. But that price eventually reduced demand and eager producers suddenly found themselves in the midst of an oil glut and crashing prices.

In the years since, OPEC has been unable to shake the supply glut, even when an oil embargo was imposed on Iraq and Kuwait's oil fields were set afire in the Persian Gulf war. Saudi Arabia has been a consistent violator of production quotas and dramatically boosted output during the gulf war. And someday, Iraq's oil will re-enter the market.

In real terms, the current average of about $20 a barrel is worth less than the price of oil before the 1973 OPEC embargo.

However, despite OPEC's shaky condition and fairly low prices, oil importers like the United States should be doing everything possible to reduce imports. First, it makes economic good sense. Why pay tens of billions of dollars to foreign producers when the money is badly needed at home? Second, conservation makes sense because the oil glut eventually will disappear on its own as oil reserves shrink around the world.

In a few decades, the United States could find itself dependent on Middle East producers for nearly all of its oil. That disturbing prospect should be postponed as long as possible by reducing oil consumption whenever possible.