Washington editor Maureen Lorenzetti notes, "Unless the White House decides to bomb Iraq in the near future, it's likely the energy price 'crisis' is temporarily over for American consumers" (OGJ, Feb. 18, 2002, p. 24). This implies that if Iraq is bombed, oil prices will spike and another energy price crisis will be upon the world. This implied outcome is pure balderdash.
Doesn't anyone pay attention to history? Every time the US has acted against Iraq, oil prices spiked temporarily and then collapsed, unless, of course, Iraq deliberately manipulated them higher by suckering the White House into attacking Iraq on Iraq's schedule, as in 1998.
Iraq began "the oil price crash of 1986" in mid-1985 with OPEC permission. The goal was to punish Iran for cheating on OPEC production quotas and prices; what the oil world got was permanently volatile and mostly lower crude and product prices in a permanent restructuring of oil economics.
Iraq invaded Kuwait Aug. 2, 1990, and an energy price crisis was on us: $100/bbl, supply-short oil and $5/gal gasoline for sure, said OPEC, big oil, and virtually every "expert."
Price stability in the future? Iraq doesn't want it. Doesn't fit Saddam Hussein's strategies. Iraq from 1991-98 kept prices gyrating by alternate threats to return to selling oil outside of UN approval, with UN approval, and not to return at all (to keep volatility active). Then on Dec. 16, 1998, Iraq suckered President Clinton into attacking Iraq by air. Crude went from $10 to $35 quickly.
What did Iraq gain by suckering President Clinton? In December 1998, Iraq was selling a UN-permitted 100,000 b/d of oil at $5/bbl. By March 2001, Iraq sold 2 million b/d at $25/bbl, said sales coming right out of the market shares of fellow OPEC producers, whose production "cut" in 2001 nearly equaled the boost in Iraqi sales, legal and illegal. Iraq 2, US 0, OPEC minus 1.
This outcome was part of Iraq's strategy for suckering President Clinton. In 1985, from June-December, Iraq's OPEC-approved price cuts reduced Iran's oil sales by 50%-and Saudi Arabia's by one-third, an unintended consequence Saddam neglected to mention when seeking OPEC approval to sell cut-rate oil. It was the Saudi response to this, a production boost and price cut, in 1986 that made the oil price "crash" permanent.
The world of oil will not be able to correctly define, much less witness, oil price "stability" until it pays attention to history.
It has suffered 17 years of low and/or highly volatile crude and product prices because it would not learn reality. It now will have 34 more years of "crisis" to learn it.
Norman P. Higby
President
WMP Forecasts
Menlo Park, Calif.
