OPEC isn’t the mar­ket-mov­ing force it once was

The Denver Post - - OPINION - By Greg Dobbs Greg Dobbs of Ever­green is an au­thor, pub­lic speaker, and for­mer for­eign cor­re­spon­dent for ABC News.

In­ever much liked the OPEC oil min­is­ters. Years ago when I pe­ri­od­i­cally cov­ered the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries, they were the 800-pound go­rilla in the room. In ev­ery room, in fact.

The min­is­ters acted like they owned the world be­cause, with ev­ery­one des­per­ately de­pend­ing on what they pro­duced, they did. They were im­pe­ri­ally pompous and de­manded def­er­ence. Not just from jour­nal­ists like me who re­ported on their meet­ings from Vi­enna to Al­giers, but from na­tions that fever­ishly bought the bar­rels of oil they fer­vently filled. In­clud­ing the United States.

So I don’t shed tears now that the price of oil has gone so low, the na­tions that pro­duce it are just as des­per­ate as the ones that use it. Nor that the deal OPEC will en­act Jan. 1 to trim pe­tro­leum pro­duc­tion — to shrink the sur­plus and force higher prices — is des­tined to dis­in­te­grate. As soon as some pro­duc­ers cal­cu­late that lower out­put at higher prices makes them even less money than higher out­put at lower prices, they will cheat and the united front will fail. That’s not a wild pre­dic­tion; it’s a fact from his­tory. What could stop them from un­der­min­ing the deal? Like the Pope, OPEC has no army to en­force its will.

The 800-pound go­rilla has grown weak. Saudi Ara­bia has taken such losses from the low price of oil (and from wag­ing war in its region) that it has cut sub­si­dies to its ci­ti­zens for the first time ever — for wa­ter, elec­tric­ity, even gaso­line — and is con­tem­plat­ing tax­a­tion for a pop­u­la­tion that has hereto­fore never paid a penny in tax. Sanc­tions cost Iran so much that it’s ea­ger to pump ev­ery bar­rel of oil it can, not to men­tion re­gain­ing its once-im­pres­sive mar­ket share and shor­ing up its ri­valry with Saudi Ara­bia (and wag­ing its own wars). And Iraq? Al­ready rav­aged by war, it needs ev­ery dol­lar it can earn to keep from sink­ing into ir­repara­ble anar­chy.

OPEC coun­tries have an omi­nous com­pli­ca­tion, though: they don’t even pro­duce half the world’s oil any more. Saudi Ara­bia is still the big­gest, but do you know who comes next? Rus­sia. Al­though not part of OPEC, Rus­sia has agreed to also make small pro­duc­tion cuts, but it has its own prob­lems, namely that al­most half its un­di­ver­si­fied econ­omy is funded by pe­tro­leum. It’s even con­tem­plat­ing a dip into its ver­sion of So­cial Se­cu­rity to bol­ster its fed­eral bud­get. Rus­sia can­not af­ford to reduce its rev­enue from oil.

And who comes next? The United States. Thanks to in­creased ef­fi­cien­cies in ex­tract­ing our own home-grown en­ergy and to our grow­ing re­liance on re­new­able en­er­gies, we are on the verge of en­ergy in­de­pen­dence. Back in the 1970s, out of po­lit­i­cal pique, OPEC em­bar­goed oil to the United States and we looked like a Third World lackey, wait­ing in long lines to fill our cars with gas. To­day, OPEC can no longer hold that noose over our heads.

One last in­gre­di­ent to al­lay the im­pact of the OPEC agree­ment: al­most all the OPEC coun­tries the past few months have ramped up their pro­duc­tion to near-ca­pac­ity. Which means re­duc­ing their out­put will ba­si­cally bring it back to where it al­ready has been.

Make no mistake, some of our most im­por­tant Euro­pean and Asian al­lies still deeply de­pend on OPEC oil. If they get hurt, we get hurt. And, as the price of oil goes a lit­tle higher be­cause of the com­ing cut­backs, the price of a tank of gas will, too (al­though, rel­a­tive to the price of gas back in 2014, not much).

But even against those prospects, OPEC’s pro­duc­tion cuts shouldn’t be ap­pallingly painful. In fact they might even be help­ful, be­cause when the world price of pe­tro­leum trends up, pro­duc­ers in our own coun­try have new in­cen­tives to restart their drills and re­open their wells. Which ul­ti­mately en­hances our own econ­omy. And our en­ergy in­de­pen­dence.

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