The
International Oil Fund
A Credible U.S. and International Oil Policy
By Michael S. Ladah
November 4, 2004
Recent polls have made it clear that the US
public is divided in believing the Bush Administration regarding US objectives behind the
war in Iraq. In other parts of the world, the
level of skepticism is even higher. Speculation
on the real motivation behind the war has been widespread, and oil seems a more commonly
accepted explanation than any factors offered by President George W. Bush and his cabinet.
The invasion of Iraq, many explain, was
designed to guarantee a safe and cheap source of oil for the USA. This explanation is supported by the failure of
successive US administrations to formulate a credible and practical US oil policy that
would guarantee a peaceful and reliable source of oil to the world’s major economic
powers. It stems from a parochial US outlook
on the world oil supply and from a selfish, ethnocentric US approach to the Middle East
that ignores the energy needs by other nations.
Given that the US is the largest oil
consuming nation on Earth, there are two ways by which we can manage our demand for oil. The first is by acting unilaterally, as a
confrontational superpower, securing our oil needs through brute force. This approach, employed by the Bush Administration
in its first term, will inevitably lead to an unnecessary rivalry, political turmoil and
increased worldwide resentment of US policy among the world’s largest oil producers
and among our traditional European allies. Taking
by force what we determine unilaterally is our share, in spite of international law and at
the expense of other economies, will result in an oil shortage with far-reaching
consequences. In an interconnected global
economy, we have tied the fate of the US economy to the prosperity of the rest of the
world. The impact of supply shortages by
others will inevitably flow through and affect our own economic growth. As the other world economies suffer, our economy
will suffer as well in spite of our having all the oil we need.
As an alternative to the Bush agenda, we
can manage our demand for oil through responsible leadership, establishing consensus on
the world’s demand, and collaborative efforts among producers and consumers to meet
that demand. This consensus needs to be
established in conjunction with all affected countries and must include the key oil
producing nations, especially OPEC members, and the large oil consumers, the OECD
countries.
World oil production will soon peak. The Energy Information Administration (EIA) of the
US Department of Energy forecasts that the world demand for oil will increase from the
current 82 million barrels per day to 120 million barrels per day by the year 2020. The EIA also forecasts that the world production
may peak as early as the year 2026. The
forecasts are based on the assumption that world economies will continue to grow
moderately and the demand for oil will continue to increase, especially as the
transportation requirements increase worldwide. Based
on these forecasts, the supply of oil will fall short of consumption demands within a few
years unless critical measures are taken. Key
oil producers are content with producing at levels sufficient to guarantee the liquidity
of their national economies and the prosperity of their populations; this level appears to
be far lower than the world’s needs over the next two decades.
If additional income is not required in
the short term, oil producing and exporting countries have little incentive to over extend
their national budgets by spending countless billions of dollars on increasing production
from existing fields or developing new fields. The
world therefore needs to share the burden of these key oil producing countries, and
provide incentives and assistance to develop untapped fields, as well as increase
production from fields already producing, to satisfy the growing world oil demand.
The USA has an established record of
building consensus in situations similar to the pending oil crisis. The US was instrumental in the establishment of the
World Bank, the International Monetary Fund and the World Trade Organization, among the
many international organizations that moderated the impact of various shocks to the
economies of the world. Building upon this
track record, the US can establish a new international organization, The International Oil
Fund (IOF), to finance the development of new and existing fields; this can be done
without resorting to conflict or even undue competition.
Such an organization could be either completely independent from, or a part
of, one of the existing international organizations such as the International Monetary
Fund or the World Bank. In addition, the
proposed IOF would regulate the responsible use of oil and other fossil fuels, including
creating incentives for the implementation of conservation measures and research for
alternative sources of energy. The IOF would
also establish quotas for financial contributions to the development fund as well as for
the national consumption of oil relative to other sources of energy.
The proposed International Oil Fund must
result from convening an international body to consider and establish the following
principles:
1)
Recognize that the world oil
supply is a finite resource, the producing fields are fast maturing and market forces do
not provide adequate incentives for large scale new developments. Ensuring continued supply will require a massive
infusion of capital and the financial burden can not be borne by oil producing and
exporting countries alone.
2)
Establish a fund to urgently
develop new oil producing facilities, with priority given to fields where the cost of
production per barrel would be lowest. All
countries who become members of the IOF will contribute to the fund based on a formula
that would take into account their oil consumption and their Gross Domestic Product (GDP),
similar to the standard drawing rights, SDR, used by the International Monetary Fund.
3)
The IOF would charge back any
production development costs to the respective countries where the funds were spent,
amortized over a period of time that would be agreed upon with each individual producing
country based on their production capacity and that country’s resulting income from
new development.
4)
The IOF would establish a
separate trust fund where the income of the oil producers, in excess of their national
needs, would be held for social programs for each of the respective producing countries. The purpose of the trust would be to protect the
citizens and future generations of the respective oil producing countries against
potential mismanagement or economic crises of any kind.
5) Establish a coordinated, international effort to
urgently develop alternative sources of energy for the benefit of all members.
The choice should be obvious. An international organization, the International
Oil Fund, established by consensus worldwide for the benefit of mankind, is an alternative
to the confrontational course we have embarked on. It
is not too late to reverse course and adopt a policy of international coordination and
reconciliation in our pursuit of world energy stability and world security.
© 2004 by
Michael S. Ladah.
The writer is an Arab American who lived and worked in various parts of the Middle East. He worked for the oil industry in Saudi Arabia during the
periods 1968 through 1969 and 1974 through 1994.
He is
the author of “Quicksand, Oil and Dreams: The Story of One of Five Million
Dispossessed Palestinians.”
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