I am not the first person to note the irony, but let me say it again: if we went to war in Iraq for cheap oil we got screwed. The price for a barrel of oil just topped $72 and it doesn’t seem to be going down significantly any time soon. As a result, the price of gasoline is increasing just in time for summer vacations. Economists are worried that these high prices will slow economic growth. Throw in uncertainty surrounding Iran and things don’t look so pretty.
So who is to blame for all of this? (Besides Bush, Cheney and the rest of the Blood for Oil gang, of course!) In his book, Over the Barrel: Breaking the Middle East Oil Cartel, Raymond Learsy argues that OPEC (The Organization of the Petroleum Exporting Countries) bears a good deal of the blame and yet avoids facing the anger and frustration these prices engender. While Learsy believes there is plenty of blame to go around – including the President and his friends in the big oil companies – he saves his real ire for the powerful oil cartel. He sets out to detail the history of this powerful organization and to explain how we can work together to destroy it.
While almost everyone will find something to disagree with in terms of Learsy’s various arguments, the subject is critical and the history is fascinating and important. If you are interested in the intersection of geopolitics, business, and energy this is a book you should check out.
Learsy’s argument can be broken into three stages: where we are, how we got here, and how can we get out. The first stage is rather simple: we have rising oil prices with no end in site. We have unstable and unfriendly regimes getting rich off of these higher prices and our own consumers suffering. Ironically, the oil wealth has done nothing but undermine the economic foundations of the oil producing countries and, to make matter worse, many of these countries are using the wealth to fund terrorism.
Learsy argues that this situation is not simply the result of normal economic factors like supply and demand but rather of ignorance, deception, and intentional manipulation – with the collusion of many in the West – to keep prices high. He argues that scarcity is a myth that is promulgated by those who have an interest in high oil prices (oil companies and environmentalists alike) and that the rest of the world is kept in the dark by the oil producing countries. Not having verifiable numbers (on true production capacity, known reserves, etc.) prevents the market from functioning efficiently. Instead, hysteria rules the day and pushes prices every higher.
The big oil companies are always treading a difficult balance between increasing profits and pushing prices high enough to cause significant decreased demand and the search for alternative fuels. In a normal market this tension helps keeps prices down. Competition also dampens prices as producers and others along the supply chain compete to increase efficiency so as to lower the cost but not their profits. But a lack of transparency, a high level of ignorance about the industry, and savvy public and government relations by OPEC has dampened these natural push-backs.
Learsy outlines the history of this organization and how they have always managed to take advantage of the West’s greed and weaknesses. OPEC came into existence when the big oil companies â€“ the so called Seven Sisters – were attempting to squeeze more and more profits out of their product without giving any more back to the country from which the product originated. Throughout the 70s and 80s OPEC survived because the oil companies didn’t take the threat seriously. And OPEC has grown in strength because Western governments are afraid to take on the supposed stability that member regimes bring and because the domestic oil business lobbies to keep prices high.
The basic cost of producing oil is remarkable steady and yet the price keeps getting pushed higher. Despite the fact that they only represent 40% of worldwide oil production, OPEC is able to leverage its clout and keep applying the upward pressure. They constantly talk as if they are only interested in stability and that they will do whatever it takes to keep the world economy supplied with the oil it needs. But in reality, every chance they get they push for more profits and higher prices.
So what does Mr. Learsy propose to do about it? A lot of conventional things mostly: cut demand; tap the Strategic Petroleum Reserve; go after OPEC in international courts; invest in energy efficiency; further develop and deploy the use of alternative energy and fuels; etc. Some of his recommendations are more creative. He recommends a government controlled gasoline purchase permit program that works like an emissions cap and trade program but for gasoline. But most of his recommendations are just the standard strategies for weaning ourselves off fossil fuels.
As I noted above, there are plenty of nits to pick about Learsy’s arguments. I am sure some will want to argue the relative scarcity of oil. Others will want to argue about how much influence OPEC really has given that they don’t control a majority of world oil production. Some will argue the science, some will argue the economics, others the politics.
I don’t want to get into the weeds of those arguments as I have neither the expertise nor the time to do so. But I think it is clear that OPEC’s influence mostly comes at the expense of US economic and national security interests. Our coddling of Saudi Arabia and our refusal to stand up for consumers means more money for corrupt dictators and not only less money in American pockets but less economic development for the oppressed people of the oil producing countries.
The point is that these issues are important and need to be addressed. Over the Barrel is a readable and thought provoking look at the power of a corrupt and secretive cartel whose very purpose undermines the economies of the West. Politicians of both parties seem unwilling to do anything about it. The only way they will is if more people are made aware of the situation and take steps to change it.
Anyone who is interested in the intersection of politics, geology, economics, and energy will want to read this book and wrestle with its arguments. You might not agree with them, or all of them, but you should think about the consequences of the issues raised. This issue is not going away. The sooner we take action the better.