Leon M. Bodevin

Economics 357L

Professor Cleaver

April 15, 2002

 

SUMMARY OF “THE OIL STORY: FACTS, FICTION, AND FAIR PLAY”

            This article is about the true nature of the oil shortages of the 1970s.  The author (Jahangir Amuzegar) says that too much attention has been paid to the role of OPEC in the current crisis. Too much time has been spent demonizing OPEC and its role in the oil shortages.  The real roots of the oil crisis are the previously artificially low price of oil (kept low by the oil-exporting countries themselves or by US cheap oil policy) and by our inefficient use of oil.

            Amuzegar says that the first cause of the current oil crisis is a supply shortage.  Since the end of World War II, the miraculous growth in the United States and Japan has been fueled (at least in part) by cheap oil.  This has been accomplished not only by the United States actively implementing cheap oil policy, but also by the oil exporting countires themselves, who keep oil below its true price by subsidizing oil exports.  In Amuzegar’s eyes, cheap oil has led the world to consume much more oil than it should, lending to the impression that the supply of oil is limitless.  This has also led to the introduction of insignificant household appliances and less energy efficient cars.

            Amuzegar outlines four distinct results of under priced oil: A) It has discouraged oil suppliers from searching for new sources of supply; B) It has held down the price of substitutes (like coal and hydroelectricity) and otherwise dampened their development; C) It has discouraged more efficient use of energy; D) And it has contributed to reckless waste of fossil fuels.

            The emergence of OPEC marks the end of cheap oil says Amuzegar.  Western leaders have thought up many “solutions” to decrease the power of OPEC (some have even suggested invading the oil exporting countries), but OPEC’s main goal is to price oil closer to its scarcity level.  Many see this price adjustment as a necessary evil (something that we detest in the short term but we will praise in the long term).  And environmentalists have heralded the rising price of oil to its scarcity level as better for the environment So we may just have to get adjusted to paying the true price for oil.

            Amuzegar also questions the stereotypes of all Arab countries as enriching themselves at the cost of the West.  First of all, for every inhabitant of an “oil rich” Arab country there are eight Arabs living in impoverished, oil-less countries in the Middle East and in North Africa.  Second, even with the trade surpluses they receive from oil, many Arab countries will not have the money they need for economic development (such as trying to diversify their economies) and much needed capital investment.  Instead of demonizing OPEC countries, Amuzegar suggests that we should encourage the investment of their surplus US dollars into our economy.