With a little effort from the major players, the political dimension of petroleum economics might soon progress into a new era more constructive than the past.
This gleam of hope was not easy to see last week. A cut in production quotas by the Organization of Petroleum Exporting Countries drew angry responses in consuming countries. The higher oil prices presumed likely to result aggravated economic jitters greeting a new US president.
Yet much good can come out of all this. The major players-namely the US and Saudi Arabia-just need to look beyond anxieties of the moment.
Welcome foresight
Last week, news reports in the US described OPEC's Vienna agreement to cut production as intended to "prop up" the price of oil. While that's partly so, it's not the whole story.
Led by Saudi Arabia, OPEC actually demonstrated welcome foresight in its difficult role as the oil market's balancing mechanism. In the past few years it has waited too long to adjust quotas in response to market reversals. Its tardy production responses have aggravated subsequent swings, cycling prices through harmful extremes. This time, with a wary eye on a seasonal demand slump in the second quarter, it acted preemptively.
That the organization was willing to look ahead, anticipate surplus, and act to prevent a repeat of the 1998-99 price crash is, therefore, a welcome sign. The output cut might, in fact, preclude another price gyration.
The remedy, as always, is open to question. With worldwide oil demand weakening and economies beginning to sputter, a quota cut of 1.5 million b/d might be too much. So it was reassuring to hear OPEC Pres. Chakib Khelil say that it would "probably be necessary" later this year for the group to "put back on the market" what it had taken off.
Consumers with short memories will find no silver lining in what they see as a dark cloud. They notice high prices but not low ones. Their reaction against the OPEC cut will be harsh. OPEC should ignore it and produce enough oil to meet demand at a price that keeps producers healthy and allows the market to grow. The task is never easy.
For its part, the US government should acknowledge the progress OPEC has made in this role. The US public still views OPEC an antagonist, incorrectly remembered for having quadrupled oil prices in 1973 with a politically motivated, targeted export embargo. In fact, it was a group of Arab exporters, not OPEC, that imposed the embargo. And about the only thing that hasn't changed since then is US stereotyping of the group and its motives. US energy policy would improve if the government would work to dispel this dated image.
For all its political and other imperfections, OPEC responds much more to economics and much less to international politics than it did in the 1970s. The stereotypical OPEC would have tried to use oil to influence international responses to the recent surge in fighting between Israelis and Palestinians. The modern OPEC kept oil out of the fray-although Arab members had much to say about the conflict and the US role in it. Compared with the OPEC of a quarter-century ago, this is progress.
It's not easy, however, to demolish convenient stereotypes. Here the new president has a chance to lead. Early in his young administration, George W. Bush must address energy and its influence in the economy. He will have to decide whether to treat imported oil as the essential dimension of supply that it is or as an evil force against which to leverage domestic policy-making.
Demonizing imports
He will be tempted to demonize US oil imports and to thus predicate energy-policy proposals on the pain they might inflict on exporters. Such nationalism finds easy traction in domestic politics. But it doesn't often lead to sound energy policy.
A good start on energy policy would be to take the antileasing locks off federal land, to ease the tax burden on domestic producers, and to rationalize environmental regulation of refiners. But Bush should promote those steps for what they would do for the US, not what they would do to other countries.
Energy in the 21st century is business. Energy policy-making in the 21st century suffers when debated with the rhetoric of war.
