India should prosecute OPEC in WTO

We live in the WTO era of rule-based trade aimed at increasing competition and removing distortions. Yet there is an absolutely huge exception to this rule called OPEC (Organisation of Oil Exporting Countries). This cartel brazenly aims to manipulate production to fleece consumers.

Now, attempts to fleece do not always succeed. The very jacking up of prices spurs R and D on energy conservation. And smaller members often cheat on production quotas, so that prices fall instead of rising. Yet in the last year OPEC has made cartelisation work, so the world price has tripled from $ 10 per barrel to $ 30 per barrel.

The US has leaned on its friends within OPEC, notably Saudi Arabia, to increase oil production and bring down the price to $20-25 per barrel. But this avoids a more basic question: why does the world community not impose sanctions on the cartel and ensure its break-up? Clearly the very existence of OPEC is anti-competitive. India is now a huge importer of energy, and its dependence on imported energy will rise further in coming years. But India by itself cannot take on OPEC. Rather, it must raise the issue within WTO, and seek multilateral action to stop the fleecing of oil consumers.

This means a sea change in political attitudes. When OPEC quadrupled oil prices in 1973-74, India’s foreign exchange reserves disappeared. Yet itsupported instead of castigating OPEC. This was ironical. When multinational oil companies cartelised the world price at $ 2.79 in the 1950s, India complained of exploitation. Yet when OPEC raised the cartelised price to $10 in 1973, India kept discreetly quiet about exploitation, and even gave a cheer or two.

Why? First, it felt safer grovelling than standing up. Second, it thought, with incredible naivette, that if oil could be cartelised, so too could all commodities, and this could be a way for all developing countries to enrich themselves at the expense of industrialised ones. Third, India believed that OPEC would use its petro-dollar clout to improve trade and aid concessions for the whole Third World.

In retrospect, this approach was hilariously off the mark. Grovelling got India nowhere. Cartelisation for other commodities like iron ore proved impossible, and even the oil cartel collapsed in 1985. And, far from getting developing countries more financial concessions, OPEC’s rise hastened aid-weariness while dragging developing countries into the debt crisis of the 1980s. It was a great relief for non-oil developing countries for when OPEC collapsed in 1985.

However, even collapsed cartels get their act together from time to time.

When oil prices fell to $ 10 per barrel in 1997, OPEC managed to instill what is euphemistically called discipline among its members. In plain language, the looters managed to organise their looting efficiently.

Both India and the US are large importers of energy. So they have a common interest in preventing cartelisation of world energy prices. This should have been a key topic for Bill Clinton and Atal Behari Vajpayee to discuss at their recent meeting. Yet it was not even on the agenda.

Why not? Because special interests in both countries have other private agendas. Many political parties and ministries in India hark back nostalgically to the Cold War days and non-aligned bloc, forgetting completely the way we were exploited (and are still being exploited) by the oil cartel. And the oil lobby in the USA is delighted with the rise in oil prices.

US anti-trust legislation makes it illegal for producers to collude to raise prices. This is why the US government has fined multinational vitamin producers and is prosecuting Microsoft. It is also probing suspected collusion between the two biggest auction houses, Sotheby’s and Christie’s. This may protect the interests of rich art collectors. But surely it makes more sense for the US to probe cartelisation of oil, which siphons billions from ordinary motorists. Logically, it should prosecute government-owned oil companies in OPEC countries, sequester OPEC assets in the US, and arrest any OPEC oil minister who steps into the USA.

Why has it not done so? Because it is reluctant to move against cartelisers who happen to be goverments rather than corporations. The State Department and Pentagon view many OPEC countries as valuable allies. Yet the plain fact is that crooks who fleece you on oil are no different from crooks who collude to raise the price of vitamins or paintings.

The second reason for US reluctance to act is its own oil producers, notably those based in Texas, who are major beneficiaries of cartelisation. Many of them are engaged in oil exploration in OPEC countries, and fear that anti-trust action against OPEC could jeopardise their foreign operations. When OPEC collapsed in the mid-1980s, Texan Senators virtually begged OPEC to push up prices again (this was called a plea for stability). So this combination of big oil, the Pentagon and State Department has put paid to any US anti-trust initiative against OPEC. Instead the US has used diplomatic pressure on OPEC, viewing cartelisation as a diplomatic rather than anti-trust issue.

But even governments are answerable in forums like WTO, which seeks to lower global trade barriers. Cartelisation is a far more objectionable barrier to trade than quotas or tariffs. India needs to realise that Third World unity has proved meaningless at WTO: what works in that organisation is a combination of countries with similar interests, like the Cairns Group on agriculture. India needs to raise the cartelisation of oil as a WTO issue, and canvass support from other oil-importing countries. If India moves positively, the US and other western nations will find it difficult to adopt the position that protecting Indian small scale industries is bad but looting consumers of oil is acceptable.

What do you think?