"This was one of the most difficult conferences I have ever attended," Kuwait's Sheik Ali al Khalifa blubbered after adjournment of OPEC's meeting in Geneva last week. What was it that had vexed the sheik? Was it the food, Geneva's high prices? No, it was human nature, and back in the 1970s when OPEC became a predatory pack, Milton Friedman predicted this day would come.
Do you recall the gloom back when OPEC had us by the neck and was giving us a dreadful shaking? Its members had raised oil prices to truly exorbitant heights. Then they cut production. Then they increased it. Then, bestriding their 19th century economies, they began admonishing the United States against waste. All in all, they were having a very jolly time, and here at home a chorus of quacks and doom-sayers took center stage. The world was running out of oil, they dirged. It was time to invest in alternative energy sources: windmills, cow manure, the sun. That was the good news.
The bad news came from those who had somehow been made privy to the whereabouts of every last quart in the world's oil reserves, and their reports were not sanguine. Some thought we had but a few years of oil left: drip, drip. Others believed we could bring the internal combustion engine into the next century, but after that it would be back to pedal power and sail. Moreover, there was all that grim news about still more cartels beginning to form in the Third World. There were reports of a powerful new coffee cartel. Coffee prices had soared, and, it was predicted, so would all commodity prices in the future.
Thinking back on it now in light of the present oil glut and Sheik Khalifa's bum time in Geneva, those pathetic years in the middle 1970s do look a little ridiculous. Not that there was no one around trying to inspirit us with wisdom rather than grim orotundities. For instance, there was the Kapitalist, Milton Friedman.
Professor Friedman took leave from all the Age of Scarcity Mountebanks and reminded us that the market keeps tugging at us all, and eventually all cartels break up when different partners break ranks to pursue different interests. Price controls, rationing and all the other government disruptions of the market would only put off OPEC's eventual fragmentation. The Saudis, now selling their oil at $32 per barrel, broke ranks with the more rapacious OPEC members some time ago, and in Geneva they showed that they are not about to be moved by the demands of such illustrious highwaymen as the Algerians, the Libyans and the Nigerians.
What are the different interests of the Saudis? "Our concern is for the world economy and the interest of mankind," Saudi oil minister Yamani explained. There are some adults who will believe this, just as there are some adults who will believe that the United States harassed North Korea last week.
Then, too, some will believe that the Saudis are keeping oil prices down so as to ingratiate themselves to the West and thereby obtain our military hardware, specifically those AWACS. Yet if these speculations were true, it is doubtful that the Saudis would have threatened, as they did at Geneva, to cut back oil production in the event that oil prices drop below their sacred $32 per barrel. After all, at $32 per barrel, they are still depositing something like $31 in the bank. How's that for a handsome profit?
The reason that Yamani is so adamant about keep ing the price of oil in the moderate range of $32 per barrel is that his country is a raft floating on a sea of the stuff. Its interests differ from those of the price gougers. The extreme gougers have limited reserves. They want every dime they can grasp before their reserves dry up. The Saudis fear that such gouging will drive the world into economic doldrums and away from oil toward alternative energy sources--namely, coal and natural gas. They do not want to be left floating on a sea of oil once the market has worked its magic and pushed advanced countries toward new technology.
And so once again, we see human nature asserting itself against the delusions of the quacks. The doom-sayers are banished: we pay more for oil, more oil is produced, the cartel fragments. Finally--and not accidentally--enterprising Kapitalists begin searching for alternative sources of energy: natural gas and coal today, tomorrow perhaps the sun, perhaps nuclear.