The world's most important issue in the post-Cold War era is international trade, which also happens to be the most significant factor in future demand for oil and natural gas.
Where once a balance of nuclear terror enforced stability in international relations, trade now does the job by creating networks of mostly benign dependencies among diverse countries and cultures. It's an imperfect tool. Trade, or lack of it, cannot stop fanatics from committing acts of terrorism. It cannot by itself settle historic ethnic or religious disputes. And it cannot always keep commercial competition from degrading into international antagonism and the threat of war.
What trade can do is bring together people and peoples in mutually helpful ways, balance comparative advantages so that the global economy gains efficiency, and, by promoting efficiencies, raise living standards worldwide. As a stabilizing mechanism, trade certainly beats the bomb. And, by making economies grow, it raises demand for energy.
Contentious issue
To deliver these benefits, however, trade needs to develop naturally. Countries must have the freedom and incentive to do business with one another. When they do, economies at large grow even as specific businesses shrink where comparative advantage does not exist. This is why free trade has become so contentious an issue in international and domestic politics.
For the international oil and gas business at large, free trade is good. It fundamentally stimulates demand for the industry's products over time. That is the best possible outcome for most producers, transporters, and processors of fluid hydrocarbons in the long run. It hurts industry participants lacking comparative advantage and operating at costs exceeding global norms. Free trade will never receive universal support in the oil industry.
For that part of the industry that stands to benefit over time from free trade-which is most of the industry worldwide-a potentially important champion has just moved into a position of leadership in an interesting place. On June 1, Donald Johnston, a former member of the Canadian Parliament, became secretary-general of the Organisation for Economic Cooperation and Development (OECD) in Paris.
Johnston strongly advocates free trade and has been quick, since moving into his new role, to raise concerns about current trade trends. His credentials on the issue glitter. While serving in Canada's Parliament, he ran afoul of his Liberal Party by supporting the free trade agreement with the U.S., ultimately finishing his term as an independent rather than compromising his belief.
Last week Johnston expressed worries about protectionist leanings among industrialized countries, formation of regional trading blocs, and absence of an agenda by the World Trading Organization for progress toward international trade freedom. The international oil and gas industry should share his concerns. Energy demand is an early casualty in most trade fights.
Johnston's term begins at a pivotal time for OECD. Long viewed as a statistical reporting club for countries with developed economies, the organization lately has been expanding. Mexico, the Czech Republic, and Hungary have become members since 1994. And now, says Johnston, international free trade will be an OECD priority.
Challenging goal
The oil industry should welcome his determination. Global free trade is a challenging goal. Progress depends on collective allegiance to an abstraction: that free trade promises benefits transcending immediate commercial pressures. Political hazards abound.
Yet abandoning the goal for political reasons is no option. The world moves toward free trade or trade anarchy. One course means maximum possible economic growth, the other something less than that-perhaps ruinously less. At stake for the oil and gas industry is nothing less than future business growth.
Copyright 1996 Oil & Gas Journal. All Rights Reserved.
