Editorial: Opec should share its windfall
Published by The Straits Times, Singapore on 2004-09-20
The spectacular rise in the price of crude oil over the last several months has brought the 11 members of Opec an unprecedented windfall - so much so that the windfall, in fact, has revealed some cracks within what was supposedly the Vienna-based cartel's public unity on prices. Some members - the so-called doves such as Saudi Arabia - fear that rising prices will spawn conditions for another global recession and thereby hurt their own economies over time; some of the hawks - Nigeria among them - want to take advantage of the situation and let prices escalate to as much as US$100 a barrel, claiming they need such cash to cover their domestic development needs. Just three years ago, Opec's revenues from oil exports were US$195 billion. In 2003, the figure rose to US$240 billion. The initial projection for this year was US$286 billion. Now, because of a combination of growing global demand, tensions in oil producing states such as Nigeria, Saudi Arabia and Venezuela, and low inventories in big-consumption countries like the United States ahead of what's expected to be another harsh winter in the Northern hemisphere, Opec's members find themselves pumping almost 28 million barrels a day. This is well above the cartel's official ceiling of 26 million barrels a day, which was symbolically raised just the other day by four percent to 27 million barrels, still below actual daily production. New ceiling or not, Opec's production will translate into an income of US$325 billion in 2004. Should that we all be so lucky.
Luck, in the form of geography, plays a huge role in the world's oil situation. It's by virtue of their location that Opec's members have proven oil reserves of almost 900 billion barrels. That's nearly 78 percent of the overall global oil reserves of 1.042 trillion barrels (the balance of reserves are held by non-Opec countries such as Russia, Norway, Britain and others). And more luck will surely come Opec's way if exploration by the big oil companies continues. Geologists estimate that there's more than three trillion barrels of oil waiting to be discovered and drilled.
So what's wrong with being lucky? For one, Opec's petrodollars and profligate spending have historically damaged economic prospects of many of the less fortunate countries of the 135-nation Third World. (Believe it or not, Opec members are, technically at least, grouped under this silly nomenclature.) The accumulation of petrodollars in Western banks led to their recklessly giving large loans to poor nations, which by now have piled up almost US$3 trillion in debt - money that they are unlikely to ever repay fully because prices of their own primary exports - minerals and commodities - have taken a nose dive. Some of Opec's members, such as Saudi Arabia, also embarked on massive construction schemes that were almost assured to be unsustainable in the long run because of the paucity of indigenous talent and manpower to manage the domestic economy properly. Long-term budgetary planning has long been a problem in some Opec countries, complicating efforts to deal with balance of payments deficits, budget problems, economic reform and rapid population growth. The bacchanalian lifestyles of many oil sheikhs also points to the fact that the elites of some Opec states haven't always spent their monies wisely.
Neither have they much helped their poorer brethren of the Third World. Opec - which was formed in 1960 to stabilize and harmonize world oil and gas prices - belatedly started its Fund for International Development in 1976. The fund's grants and loans in nearly 30 years of existence? Barely US$$4 billion. That's less than 10 percent of the total foreign aid given by the 31 Western industrialised countries and Japan to the Third World each year. Now that Opec is enjoying a fresh influx of cash, it may be a propitious time to consider how to channel at least some of it into alleviating global poverty and spurring economic development in countries that geography hasn't blessed.
Senior Writer and Global-Affairs Columnist