What's Behind Those High Oil Prices, and Other Issues (page 2 of 2)

We provided free homes and free health care. We improved the ports. We built two cities entirely from scratch connected to gas and oil pipelines. Now, 30 years later, 70% of the world's primary production of chemicals occurs in those cities."

That could not have been done, he implied, if Saudi Arabia had not fought for an increased share of oil profits. And it was that fight that led to the founding of OPEC in 1960.
OPEC has never been as powerful as its critics claim, Nazer said. He called it an "incoherent organization that gets both credit and blame for things it doesn't do." It's incoherent, he explained, because its member countries have divergent interests that effect decision-making. OPEC includes countries on the right like Iran and countries on the left like Nigeria. It includes countries with different domestic needs and different government organizations. For example, Saudi Arabia with its vast oil reserves has a different outlook from countries with small reserves.

"If you have large reserves you want stable prices to elongate consumption and discourage customers from turning to other sources of energy like natural gas or nuclear power. But countries with small reserves want higher prices now because when their reserves are depleted, they'll have nothing."
OPEC is typically described as "the oil cartel," he noted, although "OPEC member countries produce less than 30 million of the 74 million barrels of oil consumed worldwide each day. Producers outside OPEC provide the majority." The North Sea, for example, produces five million barrels a day, the Soviet Union, six million, the African countries together, 8 million. That's in addition to the oil from the U.S. and Latin America.

"When OPEC countries vote to moderate production to raise prices [as they just did again in Vienna Jan. 17] we run the risk that other countries will take our market share, so the decision on every action taken by OPEC is a compromise."

Nazer said he personally doesn't think $30 a barrel for crude is unreasonable, given comparable costs of other forms of energy. But, he added, "when prices hit $30 people in the U.S. got angry." He predicts a price from $25 to $28 will prevail.
Asked if OPEC will feel threatened if the U.S. opens the Arctic National Wildlife Refuge to oil exploration to reduce reliance on foreign oil, he replied: "No, because I don't think they will find much oil there."

Nazer left government service in 1995 when the king appointed a new minister of petroleum. He formed his own company, the Nazer Group, a holding company with a variety of interests ranging from information technology and health care to property development and the operation of upscale toy stores in Jeddah. He has also served as an advisor at the Center for Strategic and International Studies in Washington, D.C. and been a member of the Board of International Advisors of Columbia College and a trustee of Pitzer College. He speaks frequently on energy issues to oil companies, governments and educational institutions.
Nazer's first book, Power of a Third Kind, was published in 1999. It describes "how the West has used its control over communication technologies to superimpose its values and political institutions on the rest of the world," according to a book description.

What Nazer would like to see is an association beyond OPEC that would include all oil producing countries. Such an organization could discuss "environmental concerns and taxes; Italy, for example, gets $80 billion in taxes for the same amount of oil for which the United Arab Emirates earns $9 million. It could act to bring efficiency to an industry that is inefficient now; a refinery may need various blends of oil to make a product but the needed shipment goes somewhere else."

And, Nazer added, an organization like the one he envisions might also arrive at that "magic level of prices" that all sides would consider reasonable.

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