Bush, OPEC, and oil prices

Businessworld

Omkar Goswami

OPEC was formed as a permanent inter-governmental organisation in September 1960. From its inception, OPEC’s objectives have been explicitly cartel-like; OPEC has 13 member countries. It began with five: Iran, Iraq, Kuwait, Saudi Arabia and Venezuela. Subsequently, others joined the organisation: Qatar, Indonesia, Libya, the UAE, Algeria, Nigeria, Ecuador and Angola.

As I write this article, the OPEC’s weighted average basket is quoting at $111.66 per barrel. More ominously, on 28 April, OPEC president Chakib Khelil, Algeria’s oil minister, warned of the prospects of crude at $200 per barrel.


In fact, until 2007 the OPEC was not viewed as a price-gouging cartel. Barring 1973 and 1979, it has see-sawed between cutting and raising quantities. Till September 1999, crude was below $20 per barrel; and it remained below $30 right up to March 2004. So, what has made the OPEC so successful in not only maintaining hard prices, but steadily stepping these up to over the $110 mark?

Economists will tell you about the rising demand from India and China, uncertainties in supplies, and the role of commodity speculators. These are valid reasons. But to my mind, the biggest factor of them all is a man called George W. Bush.

If Bush had only alienated Hugo Chavez of Venezuela, the oil-consuming world would have breathed easier. But he has put off Iran, the UAE and, most importantly, its biggest oil-producing ally, Saudi Arabia. Gone are the days when the President of the US could have a quiet word with the King, and have the Saudis exercise restraint on the OPEC. Not so long ago, Bush’s father, George W.H. Bush, was welcomed as an honoured guest of King Fahd at Riyadh. Today, King Abdullah doesn’t feel the same about the son or his emissaries. For instance, Dick Cheney’s last avisit to Saudi Arabia was only politeness. The Saudis are irritated with Bush’s confrontational style; the US upsetting their neighbourhood, and not bothering to consult with them.


Thus, Thanks to Bush’ bellicose body language, the Saudis watch from the sidelines. Not once since September 2007 has the largest producer in the OPEC spoken of increasing supplies to dampen prices. With the Saudis remaining quiet, every other producer is making hay, including US-haters like Mahmoud Ahmedinejad of Iran and Hugo Chavez.

The US has become public enemy number one in the Middle East. And we are all paying the price. Long live Dubya!

But Saudi Arabia has resisted attempts by OPEC members to discuss the declining value of the American currency and thus decoupling Oil and the Dollar.