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Hat in Hand in Saudi Arabia
January 16, 2008
There is something unseemly about the president of the United States asking a Middle Eastern despot, pretty please, to open his pumps and push down the global price of crude oil.
In politely asking Saudi Arabia to open the taps a wee bit, President Bush reminded the kingdom that high oil prices are weakening the U.S. economy.
The Saudi oil minister, Ali al-Naimi, appears to have brushed off the president’s plea. Al-Naimi said, apparently with a straight face, that production would be ramped up only “when the market justifies it.”
Well, Ali, that’s a disingenuous wagonload of hypocrisy if anyone ever heard it. The oil market would work a whole lot more efficiently and transparently if there weren’t a cartel at its center manipulating prices and production.
But even if Al-Naimi and his bosses at the House of Saud were inclined to go along with Bush’s request, it wouldn’t solve the underlying problem. As long as the U.S. is a heavy consumer of oil, it will be subject to the decisions and considerations of a cartel that pursues its own interests, not America’s.
For example, national oil companies, such as Saudi Aramco, have little interest in allowing Western oil companies to tap their reserves, which could conceivably lower the price of oil through expanded production.
As the CEO of Total, France’s leading oil company, told The Economist recently, making life more convenient for Western oil companies is not the lodestar of decision-making in oil exporting countries.
So, to meet rising demand and to offset declining production in older fields, the Western majors must look for oil in ever more difficult places – in seawater thousands of feet deep or polar regions – or from sources that are ever more difficult to produce – the viscous goo of the Alberta tar sands, for example.
Oil from such places or in such forms is costlier to produce. That, along with rising demand, puts upward pressure on oil prices. As demand increases, the market, manipulated as it is by the cartel, will continue to communicate the difficult geology and vexing geopolitics of oil through prices.
Rather than going to the Saudis, hat in hand, asking for favors, the president and his successor would be far better served helping the folks back home find new and cleaner ways to move people and goods.
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