OPEC seems likely to become a prominent victim of the Iraqi-Iranian war, surviving only with grave wounds. Even if the war spreads no further, it had driven a new wedge among several of OPEC's leading members. But the disarray of OPEC gives no particular cause for rejoicing to Americans. OPEC isn't holding up the price of oil, and the destruction of OPEC won't lower it.
There is no OPEC price of oil today. There are only the various widely differing prices that OPEC's member governments, for their own reasons, are charging.We noted in this space several weeks ago that OPEC, unlike a genuine cartel, manifestly has no control over those prices. That observation brought heated responses from some of our readers, who insisted that the cartel was indeed the central power forcing prices to artificially high levels. The question is worth pursuing. Until the country can agree on the reason for the enormous rise in oil costs, it can hardly agree on a strategy to keep them from rising further.
When things go badly -- as they did in the 1970s for people who depend on oil -- it's always satisfying to have a villain to blame. So much the better if it's a mysterious organization run by people very different from the rest of us, wearing bed sheets instead of suits with vests.
It's satisfying, but it doesn't have much to do with reality. Several writers point out that some members of OPEC have deliberately kept their oil production lower than the possible maximum. That's true, but they have done it as individual nations for their own national reasons. There's the parallel between the markets in wheat and oil. The United States has frequently held its wheat production lower than the maximum possible, for its own national reasons. It has nothing to do with conspiracies and cartels.
OPEC, as a cartel, has never imposed production restrictions on its members. On the contrary, the Saudis raised their oil production last year to slow down the rise in prices. In any event, there is not much oil production that is currently being withheld by any nation as a matter of policy.
When people say that oil prices are artifically high, they generally mean that they are disproportionate to production costs. But that's irrelevant. Producing countries point out that oil is an irreplaceable resource and frequently their only one. When they sell it for money, they are merely trading one liquid asset for another. American exporters rarely sell their wheat for less than the highest bid. If the world will pay $32 for a barrel of oil, the producers fail to see why they should sell it for less.
It wasn't a plot that raised the price of oil. In the early 1970s the world's demand for oil, rising very fast, outran the supply. Neither was flexible in the short term. The result was an explosion of prices. Brooding about cartels and sticking pins in images of OPEC won't help. There's only one way to stabilize the prices of oil and that's to reduce the consumption of it, steadily and rapidly.