US pays the price of relying on foes for oil

Opec, the cartel of most of the world’s oil producers, meets in Vienna on Tuesday. Every indication is that the producers will refuse the request of consuming countries to open the spigots so as to bring down oil prices. “You cannot convince any member to add more crude to the market,” Abdalla el-Badri, Opec secretary-general, told the press.

Venezuela can’t: its production is sinking as Hugo Chavez replaces Petroleos de Venezuela’s highly regarded technocrats with political hacks. He wants more for each barrel he produces, especially if high prices threaten American prosperity. Iran, suffering from falling output as the American embargo denies the country the know-how and equipment needed to update facilities, is also a price hawk.
The key player, Saudi Arabia, will talk the talk of moderation and friendship to the West, then whine that prices are already down from their summer peak, that a slowing American economy will reduce the demand for oil, and that the weaker dollar means the kingdom is getting less real purchasing power for its oil. Unsaid is the fact that the Saudis need the money to fund the lives of thousands of indolent princes, and the terrorist madrasas it continues to finance.

Best of all, Opec now knows that it can count on Vladimir Putin to help it in two ways – one intentional, the other unintentional. Putin will cooperate with Opec because high oil prices make it easier for him both to provide Russia’s people with butter and his military with guns. He is also inadvertently helping to maintain prices by allowing Russia’s oil output to fall as his former KGB and other cronies take over the country’s oil companies, and reduce foreigners to minor roles. As The Economist magazine pointed out, KGB-trained thugs “know how to grab assets and jail foes, but not how to run real businesses”.

In short, there is little likelihood that any of the major producers will permit the foreign investment they need to step up production sufficiently to make a significant dent in the current price of oil. The Saudi royal family doesn’t want to antagonise the bin-Ladenites by inviting American companies in, although it relies on the American military to keep it in power. Mexico won’t allow American capital in, but wants to ship unlimited numbers of its workers out to the United States. The Bush administration acquiesces.

Any downward pressure on prices will have to come from a reduction in the demand for traditional petroleum. A recession would accomplish such a cutback, but that is neither likely nor a goal of American and European policy.

Sunday Times