OPEC's clout isn't what it used to be

Globalization reduced our reliance on Middle East oil, and allows us to pursue our goals in the war against terror without fear of triggering an energy crisis


Conventional wisdom says that because the United States gets more than half of its oil from foreign sources, our energy gets more expensive in times of international tension, uncertainty and war. When the war involves the oil-producing Arab world, prices are expected to surge even higher. Consider the Persian Gulf War, when oil prices jumped 30 percent within eight weeks as U.S. forces began massing in Saudi Arabia for war with Iraq.

Why, then, have gasoline prices in this country dropped some 20 percent since U.S. leaders began a delicate diplomatic dance with the Arab world and remained down even as U.S. forces have engaged in Afghanistan? The answer, in short, is that globalization has trumped foreign-oil dependence.

Competition among oil-producing nations and economic interdependence have created a global energy balance. The world needs oil prices to be stable and reasonable to keep the forces of inflation at bay and to fuel economic growth. And the 11-member Organization of Petroleum Exporting Countries needs an economically healthy world so that demand for crude remains high. In other words, OPEC nations can no longer dictate world oil prices and can do little to push oil prices up without hurting their own economies.

This sea change could have an enormous impact on how the United States conducts its war against terrorism. Having defended Saudi Arabia, liberated Kuwait and saved Muslim lives in Kosovo -- all in the past 10 years -- the United States should not have to demonstrate its bona fides as a friend to the Arab world.

But if players in the region question our actions in Afghanistan and our anti-terror aims or seek to impose limits to our military effectiveness, U.S. leaders and policy-makers should know that they can remain locked on our objectives without doing real harm to other American interests.

The United States should not simply cut its ties with the Middle East -- that would play directly into Osama bin Laden's hands -- but our leaders can act in America's interest without fearing that they might precipitate an oil crisis.

Even before Sept. 11, economies around the world were precariously poised on the brink of recession, and oil producers were facing dramatic drops in demand in virtually every market. OPEC was debating how to respond so that oil prices could be pushed high enough to stave off its members' national bankruptcies, but not so high that energy inflation would further depress demand by crashing other nations' economies.

That response was a dramatic change from the 1970s when OPEC nations, with little infrastructure to maintain and little foreign debt, cared not a whit about U.S. or European economic health, and used oil as leverage against the West.

But since the terrorist attacks, OPEC nations have generally acted responsibly toward pricing. The United States specifically asked Saudi Arabia to help keep supply up, and Saudi leaders have remained receptive to those requests. Non-OPEC countries Norway, Russia and Mexico, meanwhile, essentially gave OPEC little real choice, declaring they would keep production at high levels to help the United States.

So global economic realities, an ever-more-efficient U.S. oil industry and the support of non-OPEC nations have come together to give this country cheap energy and higher energy security, while Saudi Arabia, Kuwait, Indonesia, Venezuela and other OPEC countries feel the economic pinch.

That at least explains our current stable energy marketplace. Gasoline prices are 30 cents a gallon lower than a year ago, and home-heating-oil bills are expected to be $170 to $320 less this winter than in 2000. Following former President Clinton's lead, the Bush administration is rightly using this opportunity to fill the nation's Strategic Petroleum Reserve at a reduced cost so that the United States will have at least a 30-day supply of crude oil in the event of a supply interruption.

Despite that good news, the administration remains cautious. The diplomatic complexities of building an anti-Taliban coalition plus the political finesse required to gain intelligence and military support for U.S. operations in Afghanistan have reinserted into our policy debate the issue of U.S. vulnerability to energy manipulations by nations with whom we share little common interest.

Market forces

This is a fair discussion, especially as the United States considers who our allies are for a prolonged, global war against terrorists and their backers. But what's gotten lost is the fact that today's worldwide energy marketplace minimizes our exposure to geopolitical manipulations.

Over the next decade, the United States could find itself in an even more secure energy position than it is in now. One big reason is that we will most likely have the opportunity to diversify our sources of foreign oil.

Mexican President Vicente Fox, perhaps President Bush's closest friend on the world stage, has positioned his country to be a major energy supplier to the United States. He is even weighing the idea of allowing U.S. companies to invest in Mexico's heavily protected oil industry, which exports 1.5 million barrels per day. Norway, the No. 3 oil exporter in the world, is a firm ally of the United States and plans to increase production from its current 3.3 million barrels per day.

A series of proposed pipelines bringing energy resources from Central Asia to Europe plus the ongoing refurbishing of lines in former Soviet republics will add non-OPEC volume to the market over the next five to 10 years. And Russia, the world's second-largest oil producer, is planning new Arctic oil routes, expanded shipping between Europe and Asia, and development projects with Chevron, ExxonMobil, BP (British Petroleum) and other U.S. and European energy firms that, taken together, will add millions of available barrels each day and weaken the OPEC cartel's ability to control worldwide oil prices.

Still, long-term U.S. security is best served when America is less and less reliant on any foreign suppliers for our oil and energy needs. In 1974, America imported 1 million barrels of oil per day from the Persian Gulf; today, it's 2.5 million daily. Placing ourselves at the mercy of Russian foreign policy, Mexican foreign-investment laws, or any other variable in energy supply is obviously unwise, but the United States cannot be completely energy self-sufficient in the foreseeable future.

We could, however, become much less dependent on foreign oil within a decade or so if we launch a comprehensive energy plan that includes as core elements more efficient fuel consumption and the development of new energy sources. The payoff: freedom from having to secure or defend oil supplies around the world, and the United States could base its foreign policies even more purely on promoting democracy, freedom and open markets rather than on supporting regimes with whom we share few common values or interests beyond economics.

On the consumption side, policies should make it more advantageous for manufacturers to build and for consumers to buy vehicles that get better gas mileage, improved industrial heating and cooling technologies, super-efficient jet engines and household appliances that consume less electricity.

On the energy-supply side, the government needs to encourage use of now-in-development fuel cells for vehicles and buildings and pebble-bed nuclear reactors that are safe and clean. The country also needs to make real investments in alternative solar and wind sources and allow some expansion of domestic oil and natural-gas production. All this must be married to an increase in badly needed generation and transmission capacity so that the country is energy-diverse, energy-rich and energy-dependable regardless of world events.

The combination of a more global energy marketplace where no one holds power over U.S. economic interests with developing new sources of energy and better conservation technology is the best avenue for effective, productive U.S. foreign and national-security policies. We have achieved the first part of the equation, and have made some gains on the second. Global economic realities have overpowered 50 years of dependence on the unpredictable politics of Middle East oil supplies. For that reason alone, we should refresh our view of OPEC as a participant in the global economy and not view it as the sole driver of energy prices and supplies.

This new context should be liberating for U.S. policy-makers. The Bush administration can deal with Afghanistan, Osama bin Laden and Al-Qaida as best suits U.S. interests without being paralyzed by energy-supply anxieties.

Nations can support U.S. anti-terrorism operations and objectives or they can oppose them -- and those who do not actively, openly and materially support us should be considered as opposing us. But those opposing nations cannot undermine our efforts to protect ourselves.

Our best interests

We should have little fear that our best interests can be detoured by others. We should, instead, feel free to pursue foreign policies that reward our closest and most trusted friends, that cultivate the values of democracy and freedom worldwide, and that boost U.S. prosperity and national security while also advancing global stability. And American consumers, businesses, families and communities can file away fears of skyrocketing gasoline prices or lengthy heating oil shortages as unpleasant memories of the 1970s not likely to find footing now.

Of course, the United States still needs oil from OPEC and other foreign sources. But now, oil producers are as dependent on oil consumers for economic vitality as we are on them. This mutual interest may be the true measure of the triumph of globalization. We should remember this as we pursue a war against the Taliban, bin Laden and other forces that would do us -- and all who share common ground with us -- harm.

BILL RICHARDSON was ambassador to the United Nations and then U.S. secretary of energy during President Clinton's second term.

THOMAS F. MCLARTY III was President Clinton's chief of staff and special envoy for the Americas. They are, respectively, senior managing director and vice chairman of Kissinger McLarty Associates, a strategic advisory firm based in Washington and New York. They wrote this article for Perspective.