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Opinion: Who needs OPEC?

Henrik Böhme / elNovember 27, 2014

OPEC was not expected to agree on reducing oil production. DW's Henrik Böhme wonders what kind of authority the institution still holds.

https://p.dw.com/p/1DvXM
oil pumps in Los Angeles
Image: picture-alliance / dpa

Let's make it clear right from the beginning: There's no need for OPEC anymore. Is there a cartel in the world that sets prices for other commodities, like cocoa or coffee? No! Prices are set by markets. Even speculators are part of the deal. And if such a cartel were to exist, anti-trust regulators would certainly step in and simply ban it. But this doesn't happen in the oil industry. Why not?

It's because oil is still the lubricant of the world economy. Because it's still being applied as a political weapon. Because we still have not really understood what we are doing to the earth with the mass burning of fossil fuels.

One man's joy is another man's sorrow

Of course, a lot of people are glad that oil prices are cheap nowadays: motorists, haulers, ship owners, airlines, those who buy heating oil. But many others have a real problem with the low prices - Caracas and Moscow, for example. Oil-producing countries Venezuela and Russia base their government spending on higher oil prices, but they now take home billions of dollars less. Anyone who is dependent on oil has been dealt a bad hand at the moment.

There are wild conspiracy theories regarding who is to blame for the drop in prices. Is it the Saudis because they want to bring US fracking to its knees? Or is it the Americans, who want to punish the Russians for their expansionist policies in Ukraine? Maybe everyone is to blame, since the so-called "Islamic state," which finances itself through oil sales, would see its money drying up.

DW's head of business online Henrik Böhme
DW's Head of Business Online Henrik BöhmeImage: DW

An institution of bygone days

There is still a realistic scenario: the weak global economy. Current oil consumption is low. In the good old days, when times were simpler, OPEC would have curbed production to keep prices at an agreed range. But the world has become more complex. OPEC is an institution of bygone days. The United States - which in the meantime has become the world's largest oil exporter - is not sitting at the table, and neither is Russia for that matter. So it comes as no surprise that Venezuela is already thinking about a two-way alliance with Russia, outside the OPEC framework, of course. Should it do so, one might think: But no one will buy their more expensive oil when others offer it at a cheaper price. OPEC would cease to exist at this moment. What would be so bad about that?

There are other things that are more worrisome: The oversupply of oil makes one forget that "black gold" is a finite resource. Even if the "end of the oil age" - something predicted decades ago - is not yet in sight: If one thinks ahead a generation, things look different. Alternatives have long been available, though not to the extent that we could do without nuclear, coal or oil overnight. But it would be much more important for the world to come to terms on a fair CO² emissions price than haggle over the price of oil behind closed doors. Thus, the current cheap price of oil obscures the real issues. And to solve them, the world needs all kinds of things, but not OPEC.