MARKET COOPERATION'S NEXT STEP

If the world's oil producers and consumers hope ever to fashion a formal system for cooperation, now is the time to try. Memories remain fresh of the Persian Gulf crisis and its effects on the petroleum market. Iraqi President Saddam Hussein's sphere of mischief has shrunk. The notion has become prominent that oil prices have a comfort range, below and above which everyone suffers in time, and that cooperation might somehow keep prices out of the harmful extremes.
July 1, 1991
3 min read

If the world's oil producers and consumers hope ever to fashion a formal system for cooperation, now is the time to try. Memories remain fresh of the Persian Gulf crisis and its effects on the petroleum market. Iraqi President Saddam Hussein's sphere of mischief has shrunk. The notion has become prominent that oil prices have a comfort range, below and above which everyone suffers in time, and that cooperation might somehow keep prices out of the harmful extremes.

Moreover, the idea of producer-consumer cooperation has received increasing attention since Venezuelan Pres. Carlos Andres Perez proposed it last year. It was the subject of a late May international conference in Iran. And it's the focus of a ministerial level meeting sponsored by France and Venezuela this week in Paris. Officials of a heretofore reluctant International Energy Agency are expected to attend.

Producer-consumer cooperation thus enjoys considerable ideologic momentum. Results of the Paris meeting will determine whether it advances toward practical development or stagnates as a perennial topic of wishful discussion. The meeting cannot be expected to produce a clear blueprint for producer-consumer cooperation. It can, however, pursue statements of principle and definition that begin to bring the idea into useful focus.

ACKNOWLEDGING LIMITATIONS

Conferees must acknowledge the limitations of their quest. Cooperation is not an end in itself. Ultimately, countries and companies behave in their own interests. A useful product of this week's meeting would be some definition of "cooperation" that recognizes the inevitability of conflict in international politics and trade and that envisions some formal way of dealing with it.

Another useful outcome would be a commitment not to try to set oil prices by committee. Important market participants, notably the U.S. and U.K., have shunned discussions of cooperation and market stability because they see them as precursors to price collusion. Conferees can blunt those fears by acknowledging that the market alone sets prices and that some degree of instability is part of the process.

They also should call publicly upon the U.S. and U.K. to participate in the discussions. Cooperation between producers and consumers means little if it excludes two worldwide leaders in both roles. Conferees should acknowledge their importance. They also should not hesitate to point out discord in the Anglo-American market incantations. Both countries have dabbled in oil price controls and feel no shortage of political pressure to indulge in more of the same whenever prices rise anew.

MORAL QUESTIONS

At the same time, conferees should try to suppress the inevitable claims by developing oil producers upon the moral obligations of developed consumers. There are indeed legitimate moral questions to be raised over dislocations of natural endowment and economic circumstance. But pioneering meetings on producer-consumer cooperation aren't places to raise them. It would be a step toward higher morality, not to mention global economic development, if cooperation simply induced all parties to perform under their contracts in the long term and to pay their bills on time.

Efforts like those last May in Iran and this week in Paris deserve the support of oil companies and governments of all producing and consuming nations. Market participants can discuss their interests and aims without sullying market freedom. If they do, politics and misunderstanding might have less influence on oil prices than they have had in the past. Cooperation, in other words, can make the market work better than it does now. Cooperation needs-and has-no other justification.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.

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