Home >> Global Organizations >> Other

     Email   Print 

OPEC Regains Monopoly Power

Prof. Peter Morici - 6/1/2008

OPEC, lead by Saudi Arabia appears to have regained monopoly pricing power, and it is using that power to drive prices higher. In recent months, skyrocketing oil prices have been much attributed to surging demand in China, India and Asian economies, but oil supplied to markets has been falling too. Much of this results from falling output outside the Middle East, but Saudi Arabia and its Persian Gulf conspirators are exploiting the situation to great profit.

Since the embargoes of the 1970s, the United States sought to diversify oil imports away from the Persian Gulf, and to some measure it succeeded.

Oil analysts expected the U.S. and EU dependence on Persian Gulf oil to ascend in ten or twenty years, because reserves in places like Mexico, Venezuela and Nigeria are not nearly as deep and production not as potentially sustainable as in the Gulf. However, governments in these places and Russia have hastened this process by shunning or placing onerous conditions on Western oil company investments of capital and technology. They tapped off to much oil revenues for government folly, starved oil field maintenance and development projects, and significantly reduced their exports as a result.

In the meantime, Saudi Arabia and other Persian suppliers are not only holding back more oil to develop their domestic petrochemical and refining industies but also pumping less for export. In 2007.

Saudi Arabia has figured out it can once again lead a cartel that can jack up prices by holding back production. By denying President Bush’s recent requests to increase supplies it showed its teeth and indifference to the economic health of its western customers.

The Bush Administration and Democratic Congress have taken only tepid steeps to address U.S. import dependence. They enjoy ideological squabble more than leveling with Americans that changes in the cars they drive that are possible, economical and quickly deployable.

Now, the Congress is weighing approaches to global warming that will further drive up U.S. energy prices, put U.S. import regulations in direct conflict with World Trade Organization rules for taxing imports, and do little to curb galloping emissions growth in China, India and other developing countries.

Whether it is President Obama or McCain, the new Administration will inherit major headaches in major energy markets, and a Congress too steeped in ideology to be a constructive partner in accomplishing solutions.