[OPE-L:8496] Re: Re: George Caffentzis. "Not Just Blood for Oil: The Political Economy of the War on Iraq"

From: rakeshb@stanford.edu
Date: Sat Feb 22 2003 - 13:04:29 EST

Just to restate evidence against the idea that OPEC is a 
price-fixing cartel; I sent this post in December, 2001, I think. 

 I quote here from a chapter "Oil: 
temporarily a special case" in Kunibert Raffer and Hans Singer's 
The  Economic North South Divide: Six Decades of Unequal 
Development.(Elgar, 2001) They seem to reach the same 
conclusion here  as Cyrus Bina regarding the dwindling pricing 
power of OPEC or Saudi  Arabia in particular.

"When OPEC could not stop the gradual erosion of its market 
share it 
abandoned its policy of restricting supply, which led to the price 
collapse of 1986. This policy was mainly based on Saudi Arabia's 
willingness to be a 'swing producer', the country reducing its 
production substantially. Between 1980 and 1985, Saudi 
declined by more than two thirds. It fell so low that associated gas 
production could no longer meet the kingdom's internal needs. 
Maintaining their idle capacities in a state of readiness caused 
considerable costs. In August 1985, Saudi Arabia linked prices to 
spot market, and raised output to 5 million barrels per day in early 
1986. The emerging new pricing system linked transaction prices 
closely to prices, established in organized trading markets. This 
change highlighted OPEC's new situation. In the 1970s,  Saudi 
Light served as the so called 'market crude,' the basis on which all 
oil prices were calculated. At the beginning of the 1980s, spot 
prices started to dominate official OPEC prices. Nowadays non 
crudes, such as Brent UK or West Texas intermediate (as traded 
at the 
New York Mercantile Exchange), are usually quoted as THE oil 

"UNCTAD (1999) describes the present situation: 'a new pricing 
dominated by future markets has emerged. Under this system, 
set up key futures prices based mainly on expectations of market 
conditions. Transaction prices have become closely linked to 
established in the organized trading markets. The large influence 
the functioning of futures trading have resulted in more 
in the petroleum market, enabling not only consumers but also 
speculators to react to shifts in supply or demand more rapidly.'

"The former direct link between changes in supply and price does 
exist any longer."

Then on the conditions in the oil market in 2000:

"In spite of further increases of production, prices have not fallen. 
As prices are now determined on exchanges speculators may well 
able to raise prices further while output expands, thus reducing the 
pricing power of producers, as OPEC (2000) pointed out. After the 
summer OPEC became more outspoken. After three agreements 
by OPEC 
members to raise output in 2000 and a total increase of  'no less 
than 3.3 mb/d, brining supply to the market will in excess of 
anticipated oil demands', crude prices had [not?] fallen noticeably 
over recent days. According to OPEC, the real reasons for market 
volatility were therefore refining botlenecks, 'speculation in the 
futures market, manipulation of the Brent market due to dwindling 
volumes of this crude,' and widening diffrentials between certain 
types of crudes. These are all elements 'about which OPEC can 
little or nothing at all'. Naturally the approaching winter is one 
reason fuelling speculation. Should it be very cold, this would 
strongly affect demand for heating oil."

Quoting rakeshb@Stanford.EDU:

> OPEC is a price-fixing cartel? Evidence? George's most 
> piece of evidence seems to be the assertion of a Republican 
> yahoo congressman probably aiming for the anti Arab popular 
> vote.  Argument against counter-evidence? How much of 
> oil is under OPEC control? What is the nature of internal OPEC 
> relations? How are OPEC decisions made? How do the spot 
> future markets affect or constrain OPEC choices? Or is the price 
> oil simply determined by the arbitrary will of OPEC? Is OPEC 
> always an effective price-fixing cartel? If not, why not? 
> OPEC collects differential rent, George says--but differential rent
> is 
> not the product of monopoly power. The magnitude of differential 
> rent, whether I or II, is price-determined, that is, it is determined
> in 
> and through competitive price formation, as Cyrus shows.  
> Differential rent is not a price-determining phenomenon; it is not 
> the product of the pricing power of monopolies. In short, two 
> claims are conflated--OPEC is a price-fixing cartel and OPEC 
> collects differential rent.  The latter is true; the former not.  It
> may 
> well be true that the US would like to exercise indirect control 
> the disbursement of OPEC and Arab oil rent in particular in order 
> to make a (hopeless and thus truly reactionary bid) bid for 
> renewed hegemony. 
> I also think by absolute rent, George does not mean absolute 
> in Marx's sense but rather in the sense of monopoly rent. 
> I just don't find the underlying economic analysis persuasive; 
> moreover, I think the analysis based as it is on the myth  of 
> as a price-fixing cartel comes close to supporting the anti Arab 
> demonology (close in structure to the old myths of the Elders of 
> Zion) which will be the backbone of popular support for the war, 
> such that it is.
> Yours, Rakesh

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