Knocking on OPEC's Door
In its Week in Review section, the New York Times expressed concern about dwindling non-OPEC oil reserves and the need for greater access to OPEC's reserves to boost future production. I think this is an issue that deserves a wider audience than industry experts and market analysts; its implications will drive economic and foreign policy decisions for decades to come. Still, in the process of highlighting the problem, the author has focused a bit too heavily on increased OPEC influence without considering the potential downside for these countries.
At this point, many of the large oil importing countries also have important domestic oil industries. This is true of the US, the EU, China, and to a lesser extent India. But as the domestic reserves of the developed countries wind down, their view of oil naturally becomes sharper and more objective. If a $1/barrel increase in the price of oil only puts money in the hands of foreigners, and a $1/barrel decrease harms no domestic constituencies, then the incentive to reduce consumption or find substitutes, in order to gain leverage over suppliers, grows.
If you look at OPEC this way, then the scenario in which it produces 100% of the world's oil without any foreign investment and with no non-OPEC competition is actually their worst nightmare, for the long run. Such a world has every incentive to switch away from oil, and none to keep paying distant and fractious suppliers. The graphic in the Times article nicely illustrates just how long the oil reserves of Persian Gulf producers might last, as well as what they stand to leave in the ground, if the world switched to a substitute in the next 20 years.
Consider Sheikh Yamani's oft-quoted epigram about the stone age not ending for lack of stones, and the oil age not ending for lack of oil. It suggests that the wiser heads in OPEC understand this issue, though I doubt they've made the connection to the surest way to avoid this trap: giving their customers a vested interest in their continued oil production by allowing them to invest in reserves and production. OPEC's best scenario is the one in which their oil is used first, not last--or possibly never.
So when we talk about our growing vulnerability to OPEC, let's not neglect to mention OPEC's growing dependence on us, and the leverage that may confer.