Upsetting the OPEC Oil Cart(el)

With the recent end of the Iraqi oil auctions, of which a single U.S. company did not secure anything (blood for oil, anybody?) what we are going to see in the coming decade as Western cash, hardwork, scientific know-how, and profits (yes, those evil things) stream into Iraq is that the other OPEC countries will soon be playing second fiddle to that once dictatorial regime.

Iran might be sitting on a lot of oil (2nd largest deposits) but because of their anti-capitalist government, they can’t get to it, refine it, or sell it.  In fact, Iran imports more gas than they export which causes fuel shortages, rationing, and other social problems.  Another OPEC member, Venezuela, ruled by a sycophantic Leftist, Huge Chavez, recently kicked Western oil companies out and it is said that investment in their oil industry (which allows Chavez to be a “man of the people”) will soon start to degrade.

Saudi Arabia is the biggest dark horse in the oil game.  Since Western countries were kicked out of their oil fields decades ago nobody really knows how much oil they are sitting on, though they are believed to have the largest reserves in the world but recent estimates have shown some of their major fields are producing less and investment is lacking in other parts of the country.

So this brings us back to Iraq.  Currently Iraq produces about 2.5 million barrels of oil per day.  Once investment is flowing Iraq might be up to 4.7 million barrels of oil per day with total output possibly reaching 12 million barrels of oil per day or more after 6 years.

What this growth in oil production is going to mean for the Middle East, OPEC, and the world remains to be seen but we can guess it will mean cheaper oil for consumers and political headaches for those countries that rely on oil revenues to prop up their corrupt, social-spending budgets.

Currently, the OPEC cartel tries to maintain high prices through agreements that each country will not produce more than their yearly allotment of oil.  According to Wikipedia, these are the current OPEC production quotas:

OPEC Quotas and Production in thousands of barrels per day

Country	Quota (7/1/05)	Production (1/07)	Capacity
Algeria	894	1,360	1,430
Angola	1,900	1,700	1,700
Ecuador	520	500	500
Iran	4,110	3,700	3,750
Iraq		1,481
Kuwait	2,247	2,500	2,600
Libya	1,500	1,650	1,700
Nigeria	2,306	2,250	2,250
Qatar	726	810	850
Saudi Arabia	10,099	8,800	10,500
United Arab Emirates	2,444	2,500	2,600
Venezuela	3,225	2,340	2,450
Total	31,422	30,451	32,230

There is no loyalty among thieves and these countries frequently cheat, selling more oil than they have agreed to do.  Sometimes a country will sell much more oil than it has agreed to, sometimes only a little more (it depends upon how much they are spending to keep their populations docile).  Overall the cartel does not call other countries out for cheating unless it is an egregious case that dramatically lowers the price of oil.

But with new thinking, money, and technology pouring into Iraq it seems likely that the 3rd largest holder of proven oil reserves may usurp the current boss, Saudi Arabia, as the de facto leader of OPEC.

Iraq, for its part, doesn’t seem like it is going to continue to play second fiddle to the other countries:

Baghdad, for its part, said it should have the right to pump as much oil as it can in order to make up for decades of shortfalls from crippling economic sanctions and war.

Edward Morse, former U.S. deputy assistant secretary of state for international energy policy and current head of research at Louis Capital Markets in New York, said the resource potential of Iraq is much more than expected.

“The world is vastly underestimating the potential of Iraq production,” he said.

If OPEC members do not cut production to compensate for Iraq, the price of oil could drop substantially, the Times said.

I believe the world should use less oil, though not for any silly reasons such as “global warming” but simply because the stuff is going to, one day, run out.  People should try to conserve their use of the stuff, though human nature tends to consume the resources around itself until they run out then there is a scramble to find another resource to use until that, too, is depleted (how Easter Island became a dead zone).  I also do not think it is a good thing that our money goes to support corrupt regimes that use oil monies to buy the silence of their populations through increased social spending as this type of welfare does not fix the systemic problems found in those societies such as corruption, a lack of civil rights among the population, and the continued support of crazy leaders with half-baked ideas (witness any Hugo Chavez speech).

But the political implications for the other OPEC nations are dire.  For example, Saudi Arabia buys the silence of its citizens by using oil revenues to subsidize things like housing, education, and healthcare.  For Liberals this might sound like a great idea but the unfortunate side of the coin is that the Saudi Arabian economy is addicted to oil with 90% of its export revenue coming from the stuff.  What are they going to do when the oil either runs out or gets so cheap that they cannot continue to buy the silence of their population?

With so much public spending, the is much graft and inefficiency in these economies.  There is a saying in the Middle East:

My father rode a camel, I drive a Cadillac, my son drives a Mercedes-Benz, and my grand children will ride a camel.

I think what we will see in the coming decades, especially if democracy truly takes root in Iraq and that population beings to enjoy more and more freedom is that the entire basis of life in the “modern” Middle East will come tumbling down.  George W. Bush’s dream of a Middle East where corrupt dictators are overthrown and their populations adopt democracy might happen.  Liberals dismissed this vision as naive and foolish but, with Iraq set to become a leader in OPEC, it just might force things to change making this vision a reality.

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