What's the US hullabaloo over Opec?

Joseph A. Kechichian

With the price of an oil barrel hovering around $120, and a gallon of petrol approaching $4 throughout the United States, American parliamentarians want to leverage US arms sales to members of the Organisation of Petroleum Exporting Countries (Opec) with price reductions.

In short, what the argument boils down to is for Washington to sell weapons only to countries that will distance themselves from Opec.

Since this is unlikely to occur, I propose that Opec member-states extend an invitation to the US to join the Vienna-based organisation, offer to move the headquarters to an American city, change its name into USOPEC to honour its newest associate, and offer to abide by whatever conditions lofty congressmen and senators may envisage. Maybe then will the Opec bashing stop.

Before assessing the USOPEC option, let's summarise the latest hullabaloo, and dissect ingrained prejudices against anyone who pretends to follow an independent course.

Unable to do anything concrete about rising oil prices, including conservation or even requiring higher mileage for automobiles and trucks, several democratic senators stepped up their criticisms of Opec oil producers last week.

They bullied the executive branch with potential multibillion-dollar arms packages to major oil exporting countries in the Arabian peninsula, if Washington failed to persuade oil producers to curb record prices.

New York Senator Charles Schumer and his North Dakota colleague Byron Dorgan called on the White House to use its leverage on Riyadh and Abu Dhabi in particular to boost output or "risk Congress holding up ... arms deals".

According to a statement from the astute but impeccably biased lawmakers, "the Bush administration has refused to be tough with so-called Opec allies and in fact continues to provide huge arms deals, despite the economic pains taxpayers are feeling."

In fact, this latest advisory followed a 2007 bill, which proposed to empower the federal government to sue Opec, allegedly for price manipulation. At the time, the Bush Administration threatened to veto the so-called NOPEC bill, though the legislation never made it past committee.

Then as now, senior officials warned that oil producers could simply seek alternative exporters, from Europe to Russia, even China. Actually, coupling weapons contracts to higher oil production probably harms Washington far more than Opec producers but that is not the primary concern of anxious lawmakers ready to jump on emotionally driven initiatives.

Though Schumer and Byron, among others, blame the assumed "cartel" for every imaginable ill, Opec never qualified as such because a cartel must control prices, production as well as markets.

Opec certainly controls prices and production but it never gained sway over markets as oil was and remains a fungible asset that can be exchanged on the high seas even before it reaches a particular destination.

Reaping solid incomes

Still, in many minds, Opec is a 'cartel', and a bad one. It must be tamed because its members do not deserve anything, especially reaping solid incomes from $120 per barrel prices. A linkage is therefore necessary to recoup higher remittances.

Under the circumstances, how can one get out of such a messy situation?

First, and no matter how often the argument is made - that arms sales to allies are made because they are in the national security interests - every American president repeatedly nudged Opec oil producers to boost output, because the US wanted higher production rates ostensibly to lower prices. Moreover, an indirect linkage with higher prices started with the Nixon Administration, when Washington looked favourably to such increases as early as 1972 to sell Iran some of the latest wherewithal then available.

Second, Washington's latest notifications to Congress - to sell Saudi Arabia bomb-guidance kits worth about $120 million, and advanced anti-missile systems worth $10 billion to the UAE and Kuwait - were absolutely necessary to keep several military-industrial facilities operating in Texas, California and elsewhere.

Third, current high oil prices seem to be the result of a combination of reasons, especially additional demand from China, India and many developing states. Moreover, there is also the issue of little spare refining capacity, as well as speculation and price gouging.

All of these issues are bound to become secondary, however, when Opec amends its membership. By re-branding Opec into USOPEC, oil producers will put an immediate end to nauseating initiatives coming from the likes of Schumer and Byron. The good senators will not be against oil producers when the US would lead such an august body.

They might even applaud the initiative since USOPEC would thus truly become a cartel, determining which markets its product will flow into, in addition to fixing prices and production.

Finally, and this is an existential issue, Opec will cease to be perceived as a four-letter word because it will cease to exist. Somehow, it is difficult to imagine anyone being against USOPEC, and nearly impossible to draw imaginary red lines to lucrative arms sales that keeps millions employed.

When opportunists make repulsive linkages, one cannot but shake one's head, not in disbelief but in awe at their audacity. One is astounded at their deep-seated hatred, which denies anyone the right to prosper, or acquire the means to defend oneself.


* Published in the UAE's GULF NEWS on May 1, 2008. Dr Joseph A. Kechichian is a commentator and author of several books on Gulf affairs.