Dare a European suggest that Americans are fooling themselves in their current enthusiasm for cheap oil and the destruction of the oil cartel? Such a popular crusade is hard to oppose: surely anything that damages oil companies and banks--not to mention cartels--can't be bad. Why should we worry about oil prices falling, when we worried so much about them going up?
Yet the notion that cheaper oil must be good for everyone can become a dangerous oversimplification: and it is not only banks and oil companies that would suffer from a further reduction. In the last decade, oil has become, in effect, the world's chief currency, on which all kinds of other currencies, trades and balances of power depend. And there can be no possible assurance that the oil price, having come down, would stay down.
The greatest danger of all is that oil would first fall rapidly, bankrupting several oil-producing countries like Mexico, Venezuela and Nigeria on the way down; and then shoot up again, bankrupting several oil-consuming countries, like Brazil, South Korea or India on the way up.
It was its instability that was the curse of oil from the beginning, as it gushed out and then subsided in one territory after another, creating huge expectations and then shattering them. There was always either a glut or a shortage, which was what brought oil so rapidly under the control of monopolies and cartels, which could always threaten to bring back a glut. John D. Rockefeller knew very well how to defeat his rivals: he would simply flood the world with cheap oil, ruin his competitors, and then put the price up again.
There is no evidence to suggest that oil has changed its basic habit since those early days. In spite of all the extra incidents from the higher oil price, there is still no sign of a satisfactory alternative source of energy. The world economy floats on oil more perilously than ever. The present glut is largely the result of the world recession that the high oil price helped to induce; but an economic recovery--coupled with one big oil-producing country put out of action--would quickly transform the glut into a new shortage. With all the new oil discoveries, conservation or alternative energy, the world's oil is still running out.
Europeans suspect that Americans are still oilaholics at heart, who will seize the first chance to go back to guzzling the stuff. A period of cheap oil could easily bring back all the wasteful habits of the '60s, including monster cars, extravagant heating and neglect of alternative energy. An additional tax on imported oil, to keep up the price at the pumps, would prevent that: but can Congress stand up to the supporters of cheap oil once they have been unleashed?
Of course, the British are suspect, with their vested interest. They have their own oil, and their pounds go up and down with the oil price: they have really been honorary though hypocritical members of OPEC, taking advantage of the high price, while producing as much oil as they can, as professing to believe in market forces. But they can no longer conceal their hypocrisy: they know that a stable oil price depends on some form of control, and that the collapse of OPEC would be a calamity for the British economy.
But for many other countries, the consequences of cheap oil--with no likelihood of staying cheap--could be thoroughly demoralizing, for it would undermine all kinds of investment, from oil exploration to nuclear power plants. The rich OPEC countries like Saudi Arabia and Kuwait would obviously have to make drastic cutbacks in their own plans, including Western investment and aid to their neighbors. But even Brazilians, while their huge bills for imported oil would go down, are worried that cheap oil would undercut all their expensive investments in alternative energy. If the oil price fell below $25 a barrel, Brazil and Mexico, together with many other countries, might for once find a common cause in preventing further falls.
So there is now, I believe, a real case for trying to stabilize the oil price--not by supporting the narrow OPEC cartel, but through a much wider agreement involving consumer countries as well as producers. The old control of the oil companies, which was able to regulate the oil price during the '60s, is now ineffective and, anyway, politically intolerable. In fact, the Seven Sisters have taken the lead in bidding oil prices up and down--upward in 1979, downward in 1983. Only a much broader base of control, including governments on both sides, could permit long-term stability.
There have been attempts before, particularly in 1975 and 1975, when the West wanted to stop the price from leaping up again, and OPEC would only discuss oil with reference to other commodities. But OPEC is naturally much more interested in stabilizaing the price when its coming down; and as the price falls, many consumer countries may be interested in stoppinf it from going up again.
It will not be easy, but it would be tragic not to try to stabilize prices when there is such a unique opportunity-before rich countries increase their demand, and while OPEC is disorganized and desperate for agreement. It would be foolish to allow out hostility to OPEC and the oil companies to prevent our realizing that some kind of control is essential to prevent oil's again causing economic chaos in the world.