One can see why Ali Naimi, the Saudi oil minister, says this week’s meeting of the Organisation of Petroleum Exporting Countries was one of the worst ever. Opec was created to co-ordinate restraints on oil production to keep prices high. But not only did the cartel, not for the first time, fail to agree new output quotas; what its leading members unsuccessfully aimed for was to expand, not restrain, output.
This double failure to pursue its raison d’être invites the conclusion that Opec’s condition is hopeless, but not serious. The cartel’s power over oil markets is clearly going through one of its toothless phases. This is in part due to irreconcilable political differences: Riyadh wants to stay on good terms with oil-importing powers; Caracas and Tehran must – at least publicly – denounce any truck with the devil. But there are more mundane reasons for the cartel’s incohesion. An agreement to expand output is never likely when most members are producing at capacity; a deal to cut output is unfeasible when members need every petrodollar to fund bloated budgets.
The resulting reiteration of quotas busted by those able to do so hardly instils fear. Riyadh can still be relied on to use its spare capacity to keep prices under control.
Treating commodity cartels with benign neglect would be a mistake, however. Opec may not be able to realise its formal ability to collude. But other commodity markets also suffer from effective, if informal, cartelisation. Iron ore extraction, for example, is dominated by three large companies. The vast majority of rare earths – indispensable in many electronics components – comes from China. The recent public offering of Glencore exposed the extent of a single company’s control of commodity value chains from extraction to trading.
In these and other cases, the possibility that market concentration pushes up prices is one importers ignore at their peril. More transparent and competitive commodity markets are in the global public interest. The Group of 20 can begin to bring this about in a non-confrontational manner by putting mechanisms to monitor commodity markets firmly on its agenda.
Commodity importers can also act unilaterally to reduce their vulnerability. As regards oil in particular, rich states can pursue energy efficiency more assiduously than at present. Carbon taxes or auctioned emissions permits not only address climate change but recapture some of the windfall profits of fossil fuel exporters. That could be a smart move, however pathetic their cartel looks at the moment.
