Monday, May 26, 2008


As a free market economist the last thing that I wanted to see created is another cartel especially one created by nation-states. However, I also believe in age old rule -- "never bring a knife to a gun fight" -- so perhaps it is time to create a cartel (oh, it pains me to type this line!) as a counter weight to perhaps the worst cartel in economic history. This "worst cartel" is the Organization of Petroleum Exporting Countries (OPEC).

OPEC was created in 1960 as an inter-governmental organization designed to control the supply of oil to the rest of the world. Membership (12 members currently if I read the list below correctly) in OPEC has included the following nations during its 48 year of operation:

Iran, Iraq, Kuwait, Saudi Arabia and Venezuela -- the Founding Members (1960)

Qatar (1961)

Indonesia (1962)

Libya (1962)

United Arab Emirates (1967)

Algeria (1969)

Nigeria (1971)

Ecuador (1973) – suspended its membership from December 1992-October 2007

Angola (2007)

Gabon (1975–1994)

As I noted in my earlier "Oil Imports and Free Trade" posting on this blog the USA's number 1 and number 3 export partners of oil are Canada and Mexico which are not members of OPEC so that is a very positive thing for the USA's economic performance.

Since OPEC controls the largest known oil reserves in the world I have to wonder why the US Congress did not insist on having OPEC officials testify alongside or in lieu of the American oil company executives who were compelled to explain why their corporate earnings and profits are at all time highs while Americans are paying nearly $4.00 per gallon of gasoline.

Again - I hate to advocate this but the time has come to pressure and hopefully break the back of OPEC via the creation of our own cartel called the Organization of Petroleum Importing Countries (OPIC). Here is a weblink to a wealth of information regarding world oil production, consumption, exports, and imports. I truly wish the Members of the US Congress would scan such data before they demand people to testify before Congress --

This website notes that the following 15 nations are the world's largest importers of oil:

1 United States
2 Japan
3 China
4 Germany
5 Korea, South
6 France
7 India
8 Italy
9 Spain
10 Taiwan
11 Netherlands
12 Singapore
13 Turkey
14 Thailand
15 Belgium

Based on this list we see that 6 of the 15 nations are members of the European Union (a sometimes partner of the USA and via NATO) while another three -- Japan, South Korea, and Taiwan have been staunch American allies for nearly 60 years. These 15 nations represent the vast majority of GWP (Gross World Production) , military strength, population, and the highest standards of living in the world today which should provide enough leverage via OPIC to force changes at OPEC.

I would suggest that once OPIC is formed the organization should target one member country of OPEC to pressure them to quit this cartel using the full economic, military, and diplomatic might of the OPIC member states. One option OPIC might consider doing is to coordinate the member states' oil imports so that the targeted member of OPEC receives the vast amount of OPIC foreign direct investment (FDI) versus going into other OPEC nations and perhaps all trade barriers would be lifted between the targeted OPEC member of the OPIC member states conditioned upon the targeted OPEC member quiting OPEC. Finally, once the first targeted OPEC member quits OPIC would set its sights on the second targeted OPEC member, the third one, etc. until OPEC is forced to dissolve or simply loses its critical mass of world oil reserves controlled by this cartel.

Creating a new cartel to destroy a current cartel seems justified but of course my fear is that once created OPIC will want to perpetuate its lifespan thus the founding members of OPIC would need to include a "sunset clause" to their founding documen t to ensure it will one day dissolve.

Fight fire with fire,


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