Oil Again: Keep an eye on OPEC members

OPEC’s decision earlier this week is being interpreted as something that will lead to an “oversupply” of oil. Prices of the commodity seem to be going down already. There are several political implications, and perhaps the most interesting countries to watch are the OPEC members themselves.

Many oil-rich countries end up affected by the so-called “resource curse”. Due to cronyism and other types of interventionism, they distort the economy and focus too much on that one special resource they have.

As a result, whenever the artificial bubble of that sector is hit, the effects are disastrous. Many of these countries need to develop – and that’s across the board, not just the resource sector. This is bad enough, but there’s more. If you consider the corruption of cronyism, it’s not necessarily the case that the country will be well when things go well in that sector.

OPEC reminds us that the state is not a unitary actor in world politics. Their collective decision to supranationally plan the supply and price of most of the world’s oil has deep consequences, some of which are negative for their own people.

In order to understand this, you have to look inside that “black box” of the state and look at the winners and losers of this foreign policy decision. The ruling elites and the cronies want to remain in charge and extract as much as they possibly can from each decision.

However, this may undermine their own position in the long run. This is because those on the losing side, the have-nots, often get very annoyed and do something about this, especially when the state apparatus is weak and lacks legitimacy. In fact, many of the conflicts related to the “resource curse” today include something of this component as part of their root causes.

If OPEC has been used as a tool of crony capitalism, the effectiveness of this move for those running the show is partial, and even questionable in the long term – it might turn out to be a shot in the foot. And it certainly doesn’t help the poor, the local population, the ones who would benefit from a very different approach.

Hating Energy Dependence, Not Loving Energy Independence

I have been working on this piece since November 30th. I wrote the bulk of it on the first day, and most editing since has been cosmetic. It is related to a project I am helping a friend with, although that is not the reason I wrote it. I don’t often blog about things that recently happened, and when I do bring up current events it is usually in a very general way. The same is true about this post as well. Still, gas prices have been falling, where I’m located at least, ever since before Thanksgiving. A gallon of regular has been stuck at $2.94 for a week or more now and I begin to wonder if they’re not ready to go back up again. Mentioning that is the best I can do to tie to any recent goings-on to the material below, which I hope you, the reader, enjoy, as it is my very first official Notes on Liberty contribution. Thanks again, Brandon, et al.

What’s so bad about Energy Dependence?

Contrary to what one might be led to think, energy independence need not be the opposite of energy (inter)dependence. Likewise, contrary to what many advocates of free markets and free trade will say, energy dependence (perhaps not their choice of words), is not a good thing. Energy interdependence certainly can be a good thing, but in today’s world I can’t agree that every instance of it always is.

The argument in support of energy interdependence runs, energy is cost-effective so long as it is abundant, therefore, the more suppliers of energy we have, the better. But the statement can also lead to another conclusion: therefore, the larger the size of the supply, the better. What this should mean is a very large domestic supply is as good or better than simply a large foreign supply. This does not mean they aren’t both good. And of course, the more suppliers there are the greater the potential for competition to lower prices, but I suspect that it is much easier to get competition amongst a few suppliers in a free (well, sort of) country than it is to get competition amongst several suppliers in an unfree world. Continue reading