On Thu, Apr 13, 2000 at 08:40:50AM -0400, Michael S. Lorrey wrote:
> Ok, point taken. Now counterpoint: OPEC. OPEC is a monopoly.
No it isn't; OPEC is a cartel. There's a fundamental difference. In
principle any of the members can quit whenever they feel it's in their
best interests to do so. Moreover, OPEC adjusts its prices down as well
as up, in reaction to variations in demand. What OPEC does is allow
the oil producing nations to avoid getting into a cut-throat price war.
Which will rapidly turn into a shooting war, in case you hadn't throught
about the determinants of conflict in the Gulf War of 1981-88.
> It is
> outside the US, and it exercises quite a bit of control over pricing in
> many nations, but not in the US, however those prices have significant
> effects on prices in the US. The US does nothing about this monopoly.
> Looks like capricious enforcement to me..
No; looks like you've got your definition wrong. Consumers in the USA
are free to buy oil from non-OPEC producers like the UK (world's sixth
largest oil exporter at one point) or Nigeria or Venezuela or Russia.
In fact, they do. The reason OPEC decisions affect the price at the pump
in the USA is because (a) the US government has sod-all by way of energy
taxes (which is why your cars, domestic appliances, and so on are so
inefficient -- there's no incentive to improve them) so minor tweaks in
the price of crude get passed on directly to the consumer, and (b) OPEC
countries amount to a large proportion of global oil production, so the
non-OPEC producers shadow their pricing.
If you remove OPEC, bad things happen:
Firstly, the price of oil crashes. Each oil producer in the middle east will
start pumping like crazy in an attempt to maximize revenue, because everyone
will be trying to undercut their neighbour and when you cut your prices you
have to make it up on volume.
Secondly, not long thereafter there'll be a horrendous oil
shortage. Because of the price crash, oil will stop being a profitable
business. Tankers will be laid up because it is too expensive to operate
them. Wells will close; places like the North Sea/Shetland fields will
be mothballed.
Basically, prices will yo-yo violently. The whole process will be aggravated
by the diminishing reserves -- wildly fluctuating prices will discourage
oil companies from exploring for new fields, too.
Basically, OPEC stabilizes the marketplace. It's not a monopoly, so it
is forced to take market forces into account -- that's why oil prices
are currently lower (in real terms) than they were before the OPEC price
hike of 1973.
For a Microsoft analogy, to give you a feel for how Microsoft looks to
the outside world -- meaning, anyone not native to the USA -- imagine
Microsoft was based in Saudi Arabia. Microsoft has 90% of the operating
system market. Your country is at their mercy. They behave weirdly at
times, adding the Bible and other un-Islamic texts to the files deleted
by their built-in virus checker. They hike their prices whenever they
feel like it and swear at you if you protest. And their government thumbs
it's nose at you. Not exactly the world's best neighbours, no?
-- Charlie
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