If the strain of all the good will, cheer and generosity of the season has left you thoroughly exhausted, I offer relief: a few minutes of sweet, unmitigated vindictiveness. OPEC is "dead. Time for rejoicing.
Astute observers detected the first sign of the end of the oil era not in the financial pages, but in the sudden disappearance from TV screens of the Santa Gertrudis cattle. You remember: the Exxon ads that, years ago, showed the happy herd milling about in peaceful coexistence with a Texas refinery, living proof of Big Oil's neighborliness.
When oil was king, ads could disdain anything so crude as product promotion. No more tigers in the tank. Ads were for image. Seen the ads lately? The Santa Gertrudis are gone. And the tiger, promising better performance and symbolizing good old grasping competition, is back. So is the oil market.
For almost 10 years OPEC was the market. No longer. Earlier this month OPEC collapsed as a cartel. The beauty is that OPEC destroyed itself. The massive oil shocks of 1973 and 1979- 80 stimulated so much energy conservation and non-OPEC production that OPEC now sells only a third of the free world's oil, down from almost two-thirds in its heyday. Thanks to its greedy formula of curtailing pro OPEC gratuitously forfeited much of its market share -- the measure of economic power -- to others, such as Mexico, Britain and Norway.
Ah, greed. A recent analysis by the London- based Economist shows that had OPEC raised prices merely non-extortionately, say, in accord with GNP increases in the West, it would over the past six years have accumulated exactly the same total income ($1.3 trillion). But it would now have 1)a steadier and higher price, 2)a one-third greater, and probably controlling, share of the world market and 3)reason to smile. Instead of being at the edge of a rising income curve, it is now at the edge of a cliff. Who says there is no justice in the world?
OPEC, of course, has another word for greed. At the December OPEC meeting, Tamunoemi David-West, Nigeria's oil minister, said, "Nigeria has made enough sacrifices to promote the ideals of OPEC." The beneficiaries of past OPEC idealism -- the battered economies of the West and the ruined economies of the oil-poor Third World -- welcome OPEC's retreat from highmindedness.
The news, however, is not unequivocally good. Oil prices, now at $28 per barrel, are perched for a free fall. Since Persian Gulf crude costs about $2 per barrel to produce, there is no telling how great the fall could be. That is very good news for the world's economies, but it carries a threat.
Chevron Chairman, George Keller, once called it the Velvet Trap scenario: a sharp drop in oil prices leads to an increase in consumption, a slowdown in energy substitution out of oil, and a decrease in marginal prosive non-OPEC wells, such as those in the Arctic and the North Sea. Gas is guzzled, wells shut down, the market tightens, and, in the 1990s, the trap closes: a crisis, a panic, another oil shock.
What to do? The solution is an oil import fee. Let it go into effect only if the price falls below the current $28. If the world price is $18, the tax is $10. If it is $23, the tax is $5. If it is $28, the tax is zero. That way no one pays a penny more for gas or heating oil than he does today. Adjusted, say, every three months to reflect the average world price, such a tax would soak up windfall only.
The effects are clear. It would keep consumption from rising. (In 1984, with prices falling, U.S. oil consumption rose 3.2 percent.) And, by maintaining at $28 the price offered domestic producers, it would keep a lot of marginal wells from shutting down. (Already the expectation of lower oil and gas prices has caused the number of U.S. rotary drill rigs in operation to fall to the lowest level since 1976.)
Why would anyone oppose such a boon? The president because he has a tax allergy and supply-siders because they don't want to take away the stimulative effect of an oil price drop.
Tax allergies are incurable, but perhaps one can reason with supply-siders. An oil import fee does not abolish the stimulative effect of an oil price drop. It merely reallocates it. The money -- at $10 per barrel, $15 billion per year -- is not lost. It simply gets collected by government instead of being passed on directly to oil users as a reward for energy waste.
The point of an oil import fee is to raise the relative price of oil. The windfall does not disappear, nor the stimulative effect. In theory, the oil tax money could be refunded in the form of lower income tax rates. The Gramm- Rudman era, even the most starry-eyed supply-sider will concede, is not a very good time for that. Well, then, an oil fee could narrow the deficit and obviate the need for corresponding -- anti-stimulative -- spending cuts.
If there ever was a best-of-both-worlds idea, this is it. The last time it was broached in Congress was by Senate Budget conferees in July. One colleague put it to Sen. David Boren: "The oil import fee makes so much sense that Congress probably won't pass it." It didn't. It should.