By Ariel Cohen, Ph.D.
In the State of the Union address, President Bush called a spade a shovel. Building on his earlier statement that
For too long, our Nation has been dependent on oil.
The President called on Congress to double the capacity of the strategic petroleum reserve and for
A Strategic Threat
The President is right about this threat. Today, the
So are the virulently anti-American policies of the Venezuelan President Hugo Chavez, who embarked on Marxist-style nationalization of foreign-owned energy assets, including those of Chevron, Conoco, Exxon Mobil, BP, Norway’s Statoil Arlington, and American Energy Systems. Chavez, a self-proclaimed Marxist and Trotskyite, has called President Bush the “devil” at the U.N. General Assembly and told Yankees to “go to hell.” He recently rolled out the red carpet for Iranian president Mahmoud Ahmadinejad, a long-term friend and ally. Vladimir Putin’s
Not a single oil producing province is stable and at peace. It is only a matter of time until a major conflagration in the
Monopolistic Price Controls
Since its creation in 1960, OPEC, which is dominated by
Most OPEC member countries and other oil producers have high levels of government economic regulation and corruption, as documented in the Index of Economic Freedom, published by The Heritage Foundation and The Wall Street Journal. Thus consumers are effectively paying two premiums on oil: one for security and one for its suppliers’ economic inefficiency and monopolistic behavior.
Several times, OPEC’s supply-fixing strategy has brought devastation to the
- The 1973-74 Arab oil embargo resulted in a worldwide economic recession, lasting from 1974 to 1980.
- OPEC’s 1980 failure to increase production in the face of the Iranian revolution resulted in historically high oil prices of $81 per barrel in 2005 dollars.
- OPEC’s refusal in 1990 to increase production sufficiently to keep prices stable when Saddam Hussein occupied
caused another spike. Kuwait
- OPEC’s resistance since 2004 to add productive capacity has sent oil prices to over $70 a barrel, once again endangering the world’s economic growth.
Transferring Wealth, Enabling Terrorism
The only serious challenge to the organization came in 1978 when a
That decision was wrong. Government-owned companies that engage in purely business activities do not warrant sovereign immunity protection, according to prevailing legal doctrines.
High oil prices, which OPEC facilitates, serve to transfer wealth from Western consumers to petroleum producers. This wealth transfer, among other things, funds terrorism through individual oil wealth and government-controlled foundations. It also permits hundreds of millions of dollars to be spent on radical Islamist education in madrassahs (Islamic religious academies).
Furthermore, the oil-cash glut in the
Congress Gets Into Action
Growing concerns over energy prices have at last prompted the 109th Congress to examine the legal hurdles that prevent the
Recommendations for Congress
Building on President Bush’s initiatives the U.S. Congress should:
- Defend American businesses and consumers. Congress should send a strong and long-overdue signal to OPEC oil barons that they must stop limiting production and investment access. Any legislation should allow private suits against OPEC. If OPEC is to be reined in, individuals and companies that it has damaged must also be allowed to bring suits against the cartel. As the IAM v. OPEC decision made clear, it is up to Congress to amend the Sherman Act rather than rely upon the courts.
- Remove tariffs on imported ethanol. Making fuel-flexible cars viable will require lifting the
tariff on imported ethanol (currently 54 cents per gallon). The U.S. ethanol industry relies on corn and grain sorghum, which yields much less ethanol per pound than the sugar cane that is used abroad. U.S.
- Call on major energy consumers to expand energy policy coordination. While European countries have a joint petroleum reserve and national petroleum reserves that can withstand up to 12 weeks of a major oil market disruption, Asian countries' SPRs (with the exception of Japan's) have insufficient capacity. Congress and the Bush Administration should call on Asian countries to cooperate in building a system of SPRs to supply major consumers, including
China, India, and . The Administration should encourage the European Union countries to coordinate their energy policy, especially vis-à-vis Japan Russiaand the Middle East, on which they are woefully dependent. The U.S.should also initiate a global effort to coordinate the energy policies of major energy consumers, including Chinaand . This can be done under the aegis of International Energy Agency (IEA). India
President Bush sounded a clarion call to promote
Ariel Cohen, Ph.D., is Senior Research Fellow in Russian and Eurasian Studies and International Energy Security in the Douglas and Sarah Allison Center for Foreign Policy Studies, a division of the Kathryn and Shelby Cullom Davis Institute for International Studies, at The Heritage Foundation.