"An End to OPEC,"
S. Fred Singer and Stephen Stamas,
Foreign Policy, No.
45, Winter 1981/82.
In the winter 81-82, after the second oil crisis, Foreign Policy asked two oil experts to comment on whether there was still an oil crisis going on. So there are actually two articles, from different point of view, taking stock of the situation then.
Main point: OPEC will completely lose power over the energy issue because industrialized countries are going to shift for new energy technologies.
In 1973-1974, the oil crisis created a shift into the oil market structure, the production decision passed into the hands of OPEC. After the second oil crisis, the structure of the market was still the same (the oil market continued to be controlled by the producers) but the perception of OPEC had changed.
Singer argues that the oil weapon was proved to have no impact and therefore never really existed. He uses three steps to make his point:
Then Singer goes on describing the causes for the coming drop in oil price. First, Saudi Arabia fears that oil will be replaced by new energy technologies. Indeed, if the price of oil stay up, it will not be long before people invest in substitutions technologies. Second the monetary environment is in favor of the dollar; at the time the dollar is growing stronger. Therefore, with a steady nominal price, the real price for the U.S. is declining.
Singer argues that this situation puts an end to OPEC because it divides Saudi Arabia, which thinks in long-term revenues and therefore want to bring prices down, from the other producers, who think in short-term revenues and want prices up.
Singer foresees a huge decline in oil consumption by industrialized countries (lower than 20mmb/d) and a dramatic decline in oil prices (bellow 4$ to be able to compete with nuclear fuel). The beneficiaries of this would be third world countries, unable to invest in new technologies, they would benefit from low oil prices.
Main Point: The oil crisis is not over, it only brought the energy issue on a bigger scale where there is a lot to be done. The author refers to this as the “energy challenge”.
There was a significant overall drop in oil consumption by western countries since 1979. The result was a drop in production followed by a fall in prices. Some people draw the conclusion that those facts mean the end of the energy crisis, Stamas argues that this is too easy of a conclusion. The reduction in oil consumption comes part from oil prices and part from low economic growth. Besides, importers have bought less and used more of their stocks.
Stamas points out four important “realities of energy”. First, oil remains the world’s single most important fuel (the article was written in 1982). Second, the oil reserves are going down. Third, the major oil consumers (that is western countries) import most of their oil; they are therefore dependant on OPEC countries for their supply. Finally, the Middle East dos not show any sign of growing stability. Those realities highlight the difficulty of bringing on new technology.
The last oil crisis has brought new changes to the energy market by offering alternatives. Adjustments need to be made but the author argues that countries need to be open to this challenge politically as well as economically in order to minimize the cost of such adjustments. According to Stamas there are signs of adaptation of the world to the energy challenge but he argues that most of the challenge remains.
The first author argue that the oil weapon is almost inexistent because of the rise and spread of new energy technology whereas the second author argue that those new technologies have not been developed yet (1982) because of the challenge they represent. Over the past twenty years, the facts have talk for Stamas, what Singer argue with seems mostly irrelevant today. Besides, for those interested in reading the articles, a lot of contradictions already lied in Singer’s article at the time he wrote it.
Twenty years later, oil is still the first single most important energy produced and consumed. Events in Middle East continue to affect the energy market. Prices are still fluctuating along with Saudi Arabia policies.
You could even find an article in the New York Times, this April 9, 2002, titled “The third oil crisis?” where Paul Krugman argues that Western economies have indeed improved their energy efficiency after the second oil crisis but have not decreased their dependence to OPEC oil. Therefore, one cannot rule out the possibility that the diplomatic issue we are facing today with Middle East countries breaks out into a third oil crisis.
Summary by MARIE-CAROLINE KESZLER