An important development in the geopolitics of oil has largely escaped notice where it should be big news: in the US. Oil-exporting countries for many years have been calling for cooperation between themselves and major importers. Progress is evident. But little has been said about it in the world’s largest energy consumer.
Traditional arguments against cooperation, most of them based on righteous allegiance to market ideology, are losing their bite. Governments own most of the world’s oil reserves. National oil companies compete for investment opportunities, in their home countries and abroad, from positions of growing strength and sophistication. Private and political interests thus intertwine as never before. While market forces always prevail, many governments have new financial power with which to press their energy ambitions—and diminishing reluctance to use it.
Straining relationships
In many ways, and in many highly visible cases, this newly complex public-private dynamic strains historic relationships. But forces for cohesion also are at work. Economic development and the attendant social comforts have made major oil exporters as dependent on oil sales as major consumers are on purchases. Economic interdependency creates strong bonds.
And clear-sighted buyers and sellers can see that meeting future energy demand will be difficult. Global energy consumers will require not just more oil but also supplemental supply from other energy sources as well as mitigation of the environmental consequences. The required investments are staggering in size and duration. Timing is crucial. That the capital be committed in required amounts soon enough to make future supply available when it’s needed serves the interests as much of consumers as of investors. Like a healthy market accessible by all buyers and sellers of oil, a steady investment climate is a goal in which oil producers and consumers can find common ground.
Indeed, efforts toward cooperation are under way. Last month, a formal “energy dialog” between the European Union and Organization of Petroleum Exporting Countries held its fifth annual ministerial-level meeting. The “dialog” is addressing issues such as refining capacity, the effects of financial markets on oil prices, technology, the effects of biofuels on refining, and carbon capture and storage.
Also in June, international leaders—including US Energy Sec. Samuel Bodman—met in Jeddah, Saudi Arabia, under the auspices of the International Energy Agency, International Energy Forum, and OPEC to discuss the recent surge in oil prices. In a statement after the meeting, participants “recognized the importance” of spare upstream and downstream capacities; transparency and regulation of financial markets; the Joint Oil Data Initiative; cooperation between OPEC, the IEA, and IEF in reporting and analyzing oil market developments; aid to least-developed countries; cooperation in investment, technology, and human resource development; and promotion of energy efficiency.
It’s easy to dismiss these efforts as the endless meetings and hollow words of international diplomacy, from which little concrete results are likely. The efforts do, however, highlight tough issues in which producers and consumers share interests. They also represent a new level of cooperation between the governments of producing and consuming nations. Given the new realities of the oil and broader energy markets, that’s important.
Confrontational mood
In the US, however, the watchword is not cooperation but confrontation. Political discourse routinely treats OPEC as a demon and imported oil as economic poison rather than the unavoidable yet manageable necessity that it is. Politicians exploit baseless suspicions that all oil exporters harbor hostile intent toward the US. Too many energy discussions center on reminders that most of the US attackers on Sept. 11, 2001, came from Saudi Arabia. A confrontational mood has led the US into a blind rush after impossible energy hopes, such as economic growth without imported oil or, even more ludicrously, without any oil at all.
The US acts determined to sacrifice economic health to unreasonable wishes and thus, ironically, to squander unprecedented opportunities for development of supplemental energy supplies. The irony will be compounded if the country follows energy xenophobia down this desolate path while the rest of the world learns how to make cooperation work.