Outside View: Is $60 A Barrel OPEC’s Fault?

Such a law could mean freezing of assets of OPEC countries in the United States or measures against Arab officials, including oil ministers and ministries. It is such a serious matter and at the same time ridiculous as high prices have virtually nothing to do with OPEC and mostly the responsibility of oil consumers.

OPEC, which produces less than 40 percent of the 84 million barrels a day the world needs, is not in a position to produce more, but world consumption keeps increasing.

In addition the price of oil is affected by military, political and economic actions of huge consumers, especially those of the United States spreading chaos in the world of oil refining, shipping and production.

The invasion of Iraq alone crippled Iraqi oil production. Simply put, Iraq exported 3.5 million barrels a day to the world before the U.S. invasion. With sabotage, war and insurgency it is exporting only 1.5 million barrels now. In other words: we have lost a full 2 million barrels of oil per day at a time when the world needs it more than ever, hence prices of $60 per barrel.

Furthermore, the continued refusal of the U.S. government, unlike all other governments, especially all those of Europe, to impose taxes on gasoline that would discourage consumption especially by the huge sport utility vehicles so prevalent on the U.S. automobile market has encouraged unrestrained consumption by the one country that is already the world's largest consumer of oil, the United States.

The consumer in Europe has to pay as much as $8 per gallon, much of which is tax that goes back to governments and discourages consumption. By contrast, the consumer in America pays at most $ 2.50 dollar for the same gallon.

The continued chaos, wars, conflicts in Iraq and the Middle East region have nothing to do with OPEC but are contributing a "fear tax" of at least $10 per barrel to oil for which OPEC seems to be getting the blame though it is purely an economic organization not a policymaking body.

The reason for the focus of blame on OPEC is the sight of tons of money coming into its treasuries right now at those high prices. OPEC revenues, for example, are projected this year to reach a total close or more than $450 billion.

If we factor inflation in the value of the dollar the only time such peak in OPEC income occurred only once in 1980, but it retreated quickly ever since. This time the new price will be with us for a long time for reasons that have very little to do with OPEC and everything to do with others, primarily the world's biggest oil consumers including the United States and China. But in between those years, oil prices fell as low as $8 a barrel and hovered mostly under $20 a barrel. OPEC countries without exception are all developing nations in need of money for education, healthcare, development and infrastructure and most rank among the world's poor nations.

Right now, oil prices are being pushed through the ceiling by the advent of huge new consumers of world scale class at the same level of the U.S., especially China and India, and the industrial tigers of Asia. All want more oil. This year alone, China will use 4 million barrels of oil more than last year. That is more than any increase that OPEC may add to the market if it had the capacity.

For all the talking, OPEC does not have the capacity to produce any more oil than the 30 million barrels per day (repeat 30 million barrels per day) it is now pumping. Suing it will not solve this problem. To produce more, OPEC has to invest hundreds of billions of dollars to energize oil fields, discover new ones, put them into production, build the infrastructure of ports and pipelines and this process takes a minimum of 10 years before you can see the new oil flowing. Suing OPEC will not speed this process. In fact it will slow it down.

Finally for all the talking of substitute energy sources -- such as solar energy, hybrid engines etc.-- the world's industrial nations have not made a single effort to subsidize these new energies with infrastructure, subsidies, investments and laws. And in the meanwhile we have yet to find a substitute to oil as the main fuel for transportation. Nor have we found any new huge oil discoveries on the scale of the North Sea or Alaska. More importantly, the West has stopped building refineries because of the maze of laws governing clean fuels which makes refineries a loosing proposition for oil companies. Every state in America has its own requirement for what goes into gasoline which makes producing gasoline a nightmare.

It is easy to make OPEC the villain. But it is in fact a minor player with very little power in this game.

(Youssef M. Ibrahim, a former Middle East correspondent for the New York Times and energy editor of the Wall Street Journal, is managing director of the Dubai-based Strategic Energy Investment Group. He can be contacted at ymibrahim@gulfnews.com)

By terraDaily