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The oil oligarchy

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From the way it gets covered in the press, you would think that OPEC was one of those mystifying but harmless international something-or-others like the IMF or the World Economic Forum. It holds meetings periodically, men in foreign-looking garb (Arab robes or European suits) bustle about and make gnomic remarks to reporters about demand in the third quarter of next year, decisions are announced and cautions are issued and everybody seems to be having a jolly time feeling global and important. But no harm done.

InsertArt(2023857)THIS WEEK it’s a sort of stuffy gentlemen’s club or honorific academy of nations, which confers respectability along with membership. You imagine the delegates conversing from deep leather arm chairs. “I see that this new governmental thingy they’re trying to put together in Iraq is up for admission. Uncle Sam says it’s very sound. What say we give the young rascal a shot?”


Meeting in Vienna, the Organization of Petroleum Exporting Countries made two bits of news. First, it welcomed the new Governing Council of Iraq to reoccupy the seat once held by such distinguished predecessors as Saddam Hussein. The Bush administration takes paternal pride in this development, as a father might on The Sopranos when his son becomes a “made man” of organized crime. Imagine: not even 6 months old, and already a member of OPEC!

Second, the members of OPEC agreed to reduce the amount of oil they offer for sale by 900,000 barrels a day. Oil prices immediately shot up by 4 percent, or $1.11 a barrel. The stock market showed its appreciation by taking a dive.

Many opponents of Gulf War II have thought all along that President Bush’s motives must involve oil in some way. It would be silly to suggest that the war has been a secret plot to get Iraq back into OPEC. But it is so insane for the U.S. government to regard this development as an American triumph that paranoid speculation is hard to resist. At the very least, the Bush administration has succumbed to the widespread impression that OPEC is just another acronym on the high-minded diplomatic circuit.


As Slate’sTimothy Noah reminds us, OPEC is a conspiracy to fix prices. It is a textbook example of how to violate the Sherman Antitrust Act. As sovereign nations meeting in far-away luxury hotels, rather than American business executives exchanging furtive messages across state lines, OPEC’s members probably can’t be prosecuted. But we shouldn’t forget the true nature of the organization. And we certainly shouldn’t be legitimizing and strengthening it by nominating members.

This is not just a matter of respecting the principles behind our laws even when the laws can’t be enforced. There’s a reason we’ve made it illegal for competitors to conspire: It costs the rest of us money. And we can do a back-of-the-envelope calculation of how much money this American diplomatic triumph is going to cost.

OPEC controls only about a third of the world oil market. But because a barrel of oil is a barrel of oil, OPEC’s machinations affect the price of all the world’s oil. The United States imports over 9 billion barrels of oil a year. That $1.11 price-per-barrel increase that followed this week’s announcement of tighter OPEC supply restrictions equals $10 billion a year added to America’s oil-import bill.

When the oil fields and pipelines are restored, Iraq could be pumping as much as 5 million barrels a day. But Iraq’s OPEC quota is traditionally the same as Iran’s, which is currently under 4 million barrels a day. So, it is not unreasonable to suppose that Iraq’s rejoining OPEC could reduce oil supply and raise oil prices at least as much as the OPEC supply restrictions announced this week.

And $10 billion a year is just the beginning. Oil is oil: When import prices go up, the price of domestic oil goes up too. America imports about 60 percent of its oil. Consumers would pay American oil producers another $7 billion or so for oil it won’t cost a penny more to pull out of the ground. And when oil goes up, other energy sources follow. Oil is less than 40 percent of our total energy consumption.


So, add another $25 billion or so in higher prices for natural gas, coal, and so on. We’re up to over $40 billion a year. And that’s ignoring the effects on the rest of the world — as we usually do. Despite our best efforts, Americans can’t manage to consume more than a quarter of the world’s energy.

Put it all together, discount heavily for safety, add a dab of tendentiousness, and you can easily come up with a figure like, oh, say $87 billion a year as a modest estimate of what Iraq’s restoration to OPEC could cost. Eighty-seven billion? Why, isn’t that the amount Bush wants for Operation Iraq Et Cetera? Why, yes, it is.

Now, it’s true that America’s interest is not necessarily in the lowest-possible short-term energy prices. Higher prices encourage conservation and new sources, which may keep energy costs lower in the long run. It’s a complex and uncertain calculation. But however you figure, America’s interest as a net energy importer and OPEC’s interest as a collection of exporters are diametrically opposed. There is no formula for stability or middle ground that serves both.

What we pay for oil, a dead resource, is like a tax on the productive elements of the economy — human labor and ingenuity, and financial capital. Only this tax goes into the treasury in Riyadh and bank accounts in Houston, instead of the treasury in Washington. To the Bush folks that makes it better, I guess.

Michael Kinsley is Slate’s founding editor.