Organized Oil-Consuming Countries Could Offset OPEC

  • USA Today
  • By Joseph P. Kennedy II

Recent oil news has not been good: To pay their heating-oil bills, some senior citizens in the Northeast have had to choose between heating and eating. Gasoline prices that are already straining in the budgets of working families could soar above $2 a gallon as Americans take to the roads during the summer travel season. Truckers have paid inflated diesel-fuel costs to ship products to market. The poor have been hurt the worst of all.

A significant cause of the run-up in prices is the Organization of Petroleum Exporting Countries (OPEC), which manipulates production quotas to force price hikes.

The time has come for the major oil-consuming countries, led by the United States, to form an Organization of Petroleum Importing Countries (OPIC) to offset OPEC’s power by using sanctions and incentives to force the cartel to negotiate stable world oil prices.

The 11-member OPEC cartel would think more carefully about lowering crude-oil output if faced with sanctions from the major industrial powers. Producing nations depend heavily on the United States, Japan, the European Union and other major consuming countries for an array of goods, services and credit. Withholding our resources could protect our interests.

The positive incentive for suppliers to reach price and production agreements would be the willingness of OPIC to support a crude-oil floor price of about $20 a barrel — high enough to ensure producers sufficient revenue and to attract investments in oil explorations.

In exchange, OPIC would seek a ceiling price of about $25 a barrel — low enough to prevent price shocks, but high enough to encourage alternative-energy development in consuming nations. This price ceiling and the price floor should be indexed for inflation.

Good for all

Producing and consuming nations have a stake in negotiating the demise of the oil industry’s boom-and-bust cycles. The radical price fluctuations of the past few years — down to $10 a barrel in 1998 and up above $35 a barrel last year — hurt producing countries, which have few resources other than hydrocarbons to exploit.

In the face of wild price swings, major producers face unpredictable revenue streams, skewed national budgets and social and political instability. Governments fall when they are unable to make long-term plans to invest in roads, schools, health care and other social needs.

Oil producers know that today’s boom could be tomorrow’s bust, as consuming nations cut back on oil demand and switch to alternative energy sources. OPIC’s carrot-and-stick approach would help achieve price and production stability to the benefit of producers and consumers.

OPEC represents nations that account for about 40% of the world’s crude-oil production: Saudi Arabia, Qatar, United Arab Emirates, Kuwait, Nigeria, Algeria, Indonesia, Iran, Iraq, Libya and Venezuela. With Russia, Colombia, Norway, Mexico, Kazakhstan and other emerging producers at the negotiating table as well, the world’s net producers could all be represented in discussions with OPIC.

Not discussed

Major producing and consuming nations now meet periodically as members of the International Energy Forum, but the dialogue deliberately skirts discussion of oil pricing because countries such as the USA resist the use of mechanisms other than the free market to determine commodity prices and production output.

But misgivings over participating in a body explicitly established to circumvent the free market are misplaced. The international oil industry has never been a free market. OPIC would simply give consuming nations a mechanism to ensure that market manipulations occur in concert with, rather than against, their interests.

Had such an OPEC-OPIC dialogue been in place two years ago, the price of oil would not have been allowed to fall to $10 a barrel — which in turn created the production limits that have led to prices more than tripling and record profits for big energy firms.

The world’s industrialized nations have no reason to cower before OPEC and accept the hardships of rising oil prices. An Organization of Petroleum Importing Countries could help achieve stable world oil prices — and that would benefit producers and consumers alike.