Saudi Arabia’s Crown Prince Mohammed bin Salman’s complicity with Russian President Vladimir Putin in violating a Saudi-US agreement to lower oil prices underscores a simple reality: OPEC+ must go. The oil cartel’s purpose was monopoly pricing. Its side effect has been catastrophic volatility. Its current mission appears to be to knee-cap the world’s last chance to avoid climate catastrophe.
By slashing production by 2 million barrels a day when oil was already at $90 a barrel, the two petro-tsars have just tipped their hand: They intend to lock in $100 oil prices, straining most of the world’s economies at a time when they’re already contending with inflation, food shortages and continued supply chain disruptions. The higher price benefits not just Russia and Saudi Arabia, but Iran’s ayatollahs and Venezuela’s anti-democratic President Nicolas Maduro.
The idea that the US has no tool except a begging bowl to influence global oil prices is absurd. OPEC+ is cutting production at a time when the world is working to reduce its dependency on petroleum products. The rising tide of electric cars and trucks will dramatically reduce demand for crude in the decades to come. A successful challenge to the OPEC+ monopoly would leave plenty of oil, much of it US shale, to meet the world’s needs.
A bill now pending in Congress known as NOPEC, the “No Oil Producing and Exporting Cartels Act,” would override sovereign immunity protections and subject Saudi Arabia and its allies to US antitrust laws. If the US and Europe initiated antitrust enforcement — such as import duties, limitations on access to public financial markets, fines and sanctions — against Saudi Aramco, Russia’s Rosneft Oil Co. and similar government-controlled oil, the cartel’s ability to engage in price gouging would crumble, and the price of oil with it.
Such potential legal action enjoys genuine bipartisan support in the US Congress. The OPEC+ alliance includes a wide variety of members — Nigeria and Iraq as well as the Saudis — and like any cartel it’s only as strong as its weakest link. If the US government had the legal tools, OPEC+ might protest but wouldn’t be able to retaliate effectively.
To replace OPEC+, the US and European Union should organize a broad anti-cartel of responsible oil producers and consumers. Such an Organization for Clean and Affordable Transportation — OCAT — would manage oil prices within an affordable but adequately profitable range — probably starting between $70 and $90 a barrel, with the range being lowered as crude demand falls. It should also require all oil exporters to reduce pollution and carbon risk. Such an idea was proposed by China, but ignored, back in 2012. We should dust it off.
In addition to antitrust sanctions, OCAT’s members would need to deploy two primary tools. First, they would develop a much larger network of Strategic Petroleum Reserves to manage oil prices. By buying oil at $70 during downturns and selling when it tops $90, the reserve would be less costly than today’s wildly volatile oil market and might even make a profit. Like any consumer’s alliance, OCAT would need to respond to changes in the underlying market, raising and lowering its price band as available — not cartel manipulated — supply warranted. But it would be oil consumers, not just producers, making these decisions. OCAT, to be successful, would need to represent responsible producers, including those current members of OPEC+ who were willing to work for a stable, market-driven oil price.
OCAT could also purchase oil to fill its strategic reserves from oil fields with the lowest climate pollution. This would reward greener oil producers and encourage effective measures to curb climate pollution. In such a market US shale would likely serve as the swing producer. US shale is highly competitive, with the ability to gear up and tamp down production quickly, making it ideally suited to help stabilize a managed oil market. But it needs to be cleaned up — particularly the Texas Permian Basin, where drilling has been going on for a century. Once a competitive global oil market has replaced the cartel, Russia and Saudi Arabia would return to become major players, only this time offering their oil within the OCAT market range.
As their most important long-term tool, OCAT members would double down on their growing investment in electric cars and trucks. This would ensure that demand for crude oil peaks, falls, and then keeps falling, as soon as possible. In particular, the US and EU would scrap outmoded policy, taxation and siting barriers that have hindered the buildout of the massive volumes of solar and wind power, advanced technology transmission grids and charging networks that a heavily electrified transportation system will require. Even West Virginia Senator Joe Manchin’s badly flawed siting bill would have helped US sun and wind outcompete oil. Congress can and should do much better next time.
Demand for oil will not vanish overnight, but by ensuring a competitive supply of petroleum at buffered prices, plus continued strong investment in electrified transport, OCAT could accelerate the end of the age of oil while maintaining a stable energy economy during the transition. This could happen fast – faster than any other fix on offer to assure both reasonable oil prices and shrinking global consumption. If the countries that have to import petroleum products — the vast majority of the world — organize themselves around the principal of fair and stable oil prices, their common interests would enable them to overcome resistance from oil exporters.
It’s not just rich nations that suffer from OPEC+ price fixing; developing economies watch their growth squeezed every time oil climbs towards $100. As Kenya’s new President William Ruto put it, “fossil fuels are the opposite of freedom” and the world needs to break those chains. It’s time for affordable, stable, transparently managed oil pricing. OPEC+ can and should be replaced — Saudi Arabia and Russia cannot be trusted to set the world’s energy prices.
More From Other Writers at Bloomberg Opinion:
The World May Need That Russian Oil Output Cut: Julian Lee
What a “Saudi First” Policy Means for Oil and Power: Javier Blas
How US and Saudis Can Get Past Latest OPEC+ Spat: Hussein Ibish
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Carl Pope is a former chairman of the Sierra Club and the coauthor, with Michael R. Bloomberg, of “Climate of Hope.”
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