World held to ransom over oil

HOW is it possible for 11 nations that, on a combined basis, command very little more than 15 pert cent of the world’s capitalisation, hold the rest of the world to ransom? Yet, every few weeks, we allow this to happen. And we have allowed it to happen over many years.

Who are the faceless men that run these nations and can consistently have the world’s largest economies dancing to their tune? If this was a group of terrorists, the world’s largest economy would have declared a state of war against these nations. Yet, we have allowed this to continue since the early 1970s.

So what or who is this group?

It is none other than OPEC, the Organisation of Petroleum Exporting Countries. Comprised of 11 nations – Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela – this group has, at its own whim and fancy, decided when and why it was going to restrict the supply of oil so that the oil price would remain high.

November 14 2001 was no different. On that day, OPEC decided it would restrict output by 1.5 million barrels per day and also urge non-OPEC nations to restrict their output by 500,000 barrels per day. This would mean the world’s oil output would be reduced by two million barrels, although the demand for oil would not be reduced, particularly, since we are now moving into the peak oil usage period in the Northern Hemisphere.

With this imbalance between demand and supply, the natural corollary would be an increase in the price of crude oil.

OPEC’s website provides some interesting information regarding the setting of the Crude Oil Prices. It says, in part: “One of the most common misconceptions about OPEC is that the organisation is responsible for setting crude oil prices. Although OPEC did in fact set crude oil prices from the early 1970s to the mid-1980s, this is no longer the case. It is true that OPEC’s member countries do voluntarily restrain their crude oil production in order to stabilise the oil market and avoid harmful and unnecessary price fluctuations, but this is not the same thing as setting prices.

“In today’s complex global markets, movements on the three major international petroleum exchanges set the price of crude oil. They are the New York Mercantile Exchange, the International Petroleum Exchange in London and the Singapore International Monetary Exchange.”

This is a very poor excuse for the activities of the OPEC. Any student of economics, even at a very rudimentary level, will know that prices are determined as an interaction of supply and demand. If the demand remains the same and the supply is restricted, then the price will naturally go up. This has been the case with every one of OPEC’s decisions in regard to the supply restrictions.

This is a cartel that controls 40 per cent of the world’s oil output, but has 75 per cent of the world’s oil reserves. This is a cartel that acts with considerable impunity in so far as setting of the world’s oil prices is concerned.

It is these oil prices that then determine the price we pay at the bowsers for petrol when we fill up our tanks. For every dollar increase in the oil prices, we see a cent increase in the petrol price.

It also must be said that our governments are complicit in the deception that occurs at the bowser level. Despite the changes to the petrol excise, there is little doubt that, if we did not have the excises imposed by governments at a Federal and State level (even though the States have had their imposition restricted by a High Court decision from last year), our petrol price at the bowsers would be around half the price they are now.

The price of petrol at the bowsers is doubled by the imposition of taxes. It is now incumbent on all of us to rebel against these prices at two levels. The first of these is at the OPEC cartel level. This is more problematic because it is difficult for us to influence these decisions. However, a number of the countries making these decisions are dependent on the US and other developed countries for aid to run their economies. Surely, it could be possible for these nations to make their aid incumbent on these nations falling into line with our needs.

Secondly, at the level of the local governments, is to force them to reconsider the doubling of prices by their taxes. This is not a lot different to the decisions that are being undertaken by OPEC. We are repulsed by OPEC’s decisions, so why are we not similarly repulsed by those of our own governments?

So it is now the time for all of us to act in this regard. The approach to all members of governments is now vital to ensure that we aren’t paying too much at the bowser.

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