There was a time when the Organization of Petroleum Exporting Countries
(OPEC) controlled by Saudi Arabia and under the pragmatic thumb of
Sheik Ahmed Zaki Yamani, would have opened wide the oil spigots in the
face of sky high prices and a looming U.S. economic recession. The
kingdom's wily old minister wanted to maintain a balance, siphoning off
just enough out of consumer's pockets to keep the kingdom in opulent
palaces and extravagant gift items for U.S. Presidents -- all without
strangling the egg-laden Yankee goose that made the royal family's
life both fabulous and secure. Then too, no one in the oil patch
wanted prices so high as to make the search for alternative fuels economical.
How quaint such reasoning seems today with Ali-al Naimi running the
Saudi oil ministry. The U.S. economy is tanking (literally) with oil prices
having hit an unthinkable new high of $126 a barrel all the while with
OPEC thumbing its nose at George W. Bush's lame plea to his very dear
friend, Saudi King Abdullah to pump more oil. This in spite of being
the recipient of the showy piece of neckwear that comes with
the King Abdul Azziz Order of Merit and all the kissing and hand holding
and weapons package procuring during his last swing through the
Middle East.
The Saudis account for about a third of the cartel's overall production and
are considered its defacto leader. Furthermore based on updated information
from those certainly in the know, namely senior Saudi Aramco officialdom,
reserves may be as much as three to four times the generally recognized 260
billion barrels (please see "Oil Innovations Pump New Life Into Old Wells"
NYTimes 03.05.07). Current Saudi pumping capacity is understood to be at
least 11 million barrels, perhaps a great deal more depending on whom you
ask, or achievable in relatively short order were there a willingness to do so.
Yet no help has been forthcoming from our dear old friends. Actually the
market is being supplied with some 200,000 barrels less a day than was
pumped and shipped in January.
We have all been endlessly informed by the oil producers and their allies
why prices are where they are. The dollar, peak oil, geopolitical tensions,
booming world demand, difficulty in accessing oil, refinery capacity.
The litany has become familiar. We hear less about a teetering
American economy, slowdowns in other industrialized countries
weighing on oil consumption, the potential impact of new discoveries
such as those in Brazil, warmer winter weather and on. The background
music on both sides of the issue continues unabated.
The truth is much simpler. OPEC is manipulating the global oil supply
just to keep prices high. It does it by taking oil off the market. Whether it
is also actively impacting the price of oil by manipulating trading in oil
futures either directly, or by individual members, or through surrogates
and/or straw men on otherwise opaque commodity markets is an open
question. What is known is that the cartel pulled back 1.7 million barrels
a day of supply early last year after the Bush administration, in effect, gave
producers its implicit blessing to push prices up from their then languishing $49.90
a barrel. The high sign came in our oilman president's 2007 State of the Union
address when he announced his plans to double the size of the Strategic
Petroleum Reserve to 1.45 billion barrels thereby signaling that the
administration would do nothing of meaningful consequence to counter
OPEC's tactics. In terms of restraining the price of oil, in terms of the well
being of our economy, this policy shift has been an unmitigated disaster.
All was further exacerbated by President Bush's stated opposition to the
NOPEC legislation, Congress' attempt to remove the sovereign immunity
exemption which placed OPEC's collusionary tactics outside the reach of
American law, the Justice Department and the Federal Trade Commision.
He made it clear to one and all that he would veto he such legislation
if came to his desk. Reasons? You would probably have to go to a pretzel
maker to untangle the twists and turns sorting out the reasons why. Perhaps
it has much to do with a predilection to being helpful to his oil patch
comrades in arms.
As the price of oil shot up subsequent to the Bush announcement, OPEC,
perhaps more as gesture, "reinstated" 500,000 barrels a day effective
eleven months later during November of last year (though 200,000 of this
quantity mysteriously disappeared after January), not nearly
enough in quantity nor early enough in time to bring prices
down, witness the continued and steepening upward spiral of oil prices.
Now the talk has been of further cuts or at best the status quo by OPEC. Why?
Because a U.S. recession and a world economic slowdown would lessen
demand, and prices might actually retreat, cutting into the producer's
enormous profits. This past weekend the Financial Times quoted Abdalla El-
Badri mouthing OPEC's now oft repeated mantra that the market was well
supplied, "There is clearly no shortage of oil" he said, perpetuating a
smokescreen of obfuscation behind which OPEC has chosen to hide and
a rationalization for doing nothing.
To add insult to injury the administration's resident "Heckuvajob Brownie!"
Energy Secretary Sam Bodman stated unequivocally
only a few days ago that he would continue to fill the Strategic Petroleum
Reserve (STP). Then with further studied insight advised us after heart to
heart discussions with that other dysfunctional government agency, the
Commodity Futures Trading Commission (CFTC), that he was convinced
there was no reason to suspect manipulation was the cause in whole or
in part in determining the price of oil and its derivatives as traded on
the commodity futures exchanges.
Meanwhile, the United States continues to pick up the $100 million
plus-a-day tab to protect Gulf oil shipments and Saudi Arabia. Just days
ago Defense Secretary Gates pride fully announced sending our second and
newest aircraft carrier through the Straits of Hormuz as a "reminder" to
Iran. Reminding Shia Iran of what exactly? Certainly not least to think
twice about aggressing against Sunni Saudi Arabia. This, all the while
we are continuing negotiations with the Kingdom to permit us to arm Saudi Arabia
with our latest and most effective weaponry.
George Bush may still be enamored with Saudi Arabia and its royal family.
But, as our so-called friends immutably watch our economy sink into
recession with its growing and punishing impact on households across the
nation, and untold hardships being visited on developing economies
around the globe, it's clear that the price of Mr. Bush's friendship has
become frighteningly expensive to us and the rest of the world.