How America can counter OPEC’s power
The national average for a gallon of gasoline is quickly approaching just $2. Drivers can mostly thank the highest level of domestic oil production in four decades — more than 9 million barrels per day — for these low prices.
With American energy production booming, gas prices plummeting, and the deeply integrated nature of the global economy, it’s difficult to imagine a return to the shortages and rationing that characterized the 1973 Arab oil embargo. But Saudi Arabia, Kuwait and the rest of the Organization of Petroleum Exporting Countries have recently launched a price war with the specific purpose of forcing Americans back to a dangerous dependency on foreign energy, and they are being aided by an outdated U.S. policy prohibiting the export of domestic crude oil.
The best way for American legislators to combat OPEC’s aggression is to lift this ban. Scrapping this outdated policy will secure American progress toward energy independence. It’s easy to see why OPEC is scared. Innovative extraction techniques like hydraulic fracturing and horizontal drilling have boosted U.S. oil production 4 million barrels per day in just the last six years.
OPEC can’t stand to see one of its biggest customers move toward energy independence. But the cartel might not be able to endure the self-inflicted wounds caused by rock bottom oil prices for very long. Of OPEC’s 12 member countries, only Qatar can balance its budget with prices at $60 per barrel. Six OPEC members need the price to stay above $100 to avoid fiscal ruin. This means their long run strategy has to include a return to more expensive oil.
By contrast, most U.S. producers still make a profit below $60 per barrel. That’s why, in late November, the governing board of OPEC decided not to cut oil production despite a global surplus of 2 million barrels per day and historically low prices. Instead, OPEC maintained its production levels to keep pushing prices down in hopes of driving American firms to scale back or go bankrupt. Now OPEC plans to push full speed ahead with their own production in order to turn the price war into a game of chicken. The cartel believes that American energy firms will break under pressure.
Congress can strengthen our domestic economy while countering these plans. It should lift the ban on crude oil exports — a relic of the 1973 oil embargo. Free of the ban, domestic firms could sell oil to the many overseas buyers eager to reduce their own energy dependence on unstable, autocratic regimes, thus reducing the power of OPEC to maintain a throttle on U.S. and global oil supplies.
J. Michael Barrett is former director of strategy for the White House Homeland Security Council.