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June 22, 2008 / Mridul

World Needs To Move Out Of OPEC’s ‘Oil Claw’

With the oil crisis straining economies of even the most financially stable nations it’s time that the world formulates & rethinks its energy security policies. For decades the western countries & the developing countries of Asia have been dependent on oil supplies from OPEC nations which have a total monopoly over world’s oil reserves. The need of a sound energy security policy arises from the fact that the oil producing nations, barring Saudi Arabia, have clearly refused to increase production even after repeated pleas from the world leaders.

With election season in full flow in the US & sharp decline in popularity of his government, President Bush & Prime Minister Brown are seeking deals with Middle east countries to make them increase oil production thus help cooling off the boiling oil prices. British PM Gordon Brown wishes to present a new proposal to the Middle east countries through which they would be entitled to hold majority stakes in the renewable energy projects in the western countries. According to the two-point ‘New Deal’:

  • Saudi Arabia and other oil producers, who are worried about the unpredictability of oil prices, which fell to $10 a barrel a decade ago, would be given the chance to take a major financial stake in the more stable market of renewable energy power in the west.
  • Britain and other western countries would help to improve the supply of oil in the long term by being given greater chances to invest in oilfields and oil refineries in Opec countries.

But the Prime Minister forgot that the deal would do nothing to end OPEC’s virtual oil monopoly. Brown plans to do the same thing which the US Congress voted against few years back. Refusing to give operational control of major seaports to a middle east company the decision caused a global diplomatic row. If even the new energy projects are placed under the financial controls of the middle east countries how will they be able to achieve the so called ‘energy independence’.

They are the same western powers which at one time were apprehensive about the huge strategic investment funds of middle east countries possibly being used to take over important sectors in their economies. Then why are the western powers now looking at them for help for development of renewable energy sectors.

Even before Brown could meet the ministers of OPEC countries the group’s chief, Chakib Khelil, said that prices have been rising solely on back of speculative trading & not due to any decrease in production.

“Asking Opec member countries to increase their offer is illogical and irrational” said Khelil. He ruled out a quota increase by Opec and said Saudi Arabia’s uniltateral decision to raise production would have no impact on world crude prices.

Commenting on reports that the Saudis were willing to increase production to its highest level since 1981, Khelil said it would have no effect on the global price of crude. “The barrel is always at $136. I do not believe that is the problem.”

Confrontation with Iran will assure that oil prices stay at high levels even if production is increased. The western powers are somehow unable to see or realize that Iran’s most effective weapon isn’t the nuclear bomb but oil. Iranian ministers & its President have made their intentions clear regarding oil prices. Even as Israeli forces conducted war games apparently rehearsing bombardment of Iranian nuclear facilities, Iran holds the upper hand only because the world cannot afford any further spike in oil prices. TIME magazine’s reporter Robert Baer looks at the worst case scenario.

If the U.S. or Israel so much as drops a bomb on one of its reactors or its military training camps, Iran will shut down Gulf oil exports by launching a barrage of Chinese Silkworm missiles on tankers in the Strait of Hormuz and Arab oil facilities. In the worst case scenario, seventeen million barrels of oil would come off world markets.

One oil speculator told me that oil would hit $200 a barrel within minutes. But Iran’s official news agency, Fars, puts it at $300 a barrel. I asked him if Iran is right, what does that mean?

“At $300, you have $12 a gallon of gasoline and riots in Newark, Los Angeles, Harlem, Oakland, Cleveland, Detroit, Dallas.”

Such a scenario would literally shut down scores of economies with in days. thus making it even more important for the world to leave the oil century behind and look seriously towards renewable energy. Subsidizing solar power for homeowners & small industrial units would be a good start. Such scheme has been running successfully in Germany which is now a world leader in solar generated electricity. Similar projects have been undertaken by governments of Scotland & Australia. Britain & the US too should look at such initiatives as it would not only cut dependence on oil but would also bring down the overall energy consumption.

As the US ponders over lifting ban over offshore oil drilling, it is important for the government & citizens to realize that oil is not the future. If the dream of energy independence is to fulfilled it is important that we don’t repeat our mistakes of remaining depended on others.

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