The populist notion of greedy oil companies driving (get it) up the price of oil misses the obvious. The oil is largely owned by OPEC, not Exxon Mobil. Russia and Venezuela are nationalizing oil reserves; cheap and easy oil reserves are no longer available to the big oil companies.

Big Oil is the only counterweight to OPEC we have. Today Big Oil are price takers, not price makers.

We are not running out of oil. In fact proven reserves are larger than three decades ago. The higher price has performed its function of incentivizing more exploration and production. New reserves have been found off of Brazil. Higher prices have made “unconventional hydrocrabons” such as shale and oil tar become available sources.

Higher prices have also driven new technology such as fuel injectors, hyrbrid and fuel cell technology. Such technology has the impact of countering natural scarcity.

Higher prices are not inevitable. Higher prices are a result of short term mismatches in supply and demand. It can shift downward like it did in the 1970’s. OPEC greed drove the economies into a recession and reduced the demand for their product when production was increasing.

It is far easier for new companies to challenge the large automakers. Other industries may enter the game with the entreprenureal zeal that so commonly solves such huge problems. Maybe Sony or Apple or Intel or some whiz kid will make your next car.

summarized by HKO from “Think Again” by Vijay V. Vaitheeswaran in the November/ December issue of Foreign Policy

print