The Real Oil Problem
BY M. A. ADELMAN
Massachusetts Institute of Technology
REGULATION (SPRING 2004)

'DEPENDENCE ON OIL Price fixing by private companies on the
opecscale would not be tolerated in any industrial country. In
the United States, the officers of firms that engage in such activities
go to jail. But the opecmembers are sovereign states, subject
to no country’s laws. Moreover, the United States and other
nations want to think they have the opec nations’ support —
particularly the Saudis.

This alleged support consists in “access” to oil. But in a global
market filled with buyers and sellers, everyone has access.
Another myth is mutual obligation: The opec nations’ supply
oil, the United States protects them. In truth there is no
choice; we must protect the opec nations from outsiders or
neighbors. They owe us nothing for protection and will give
us nothing. Of course, opec will supply oil. The only question
is how much oil — and that determines the price. The supposed
opec (or Saudi) obligation to supply is what lawyers call
“void for vagueness.” But those in government crave assurance
that they are accomplishing something, and they will pay for
that assurance.
...

CONCLUSION
U.S. oil policies are based on fantasies not facts: gaps, shortages,
and surpluses. Those ideas are at the core of the Carter legislation,
and of the current Energy Bill. The Carter White House
also believed what the current Bush White House believes —
that, in the face of all evidence, they are getting binding assurance
of supply by opec, or by Saudi Arabia. That myth is part
of the larger myth that the world is running out of oil."

M. A. Adelman is professor of economics emeritus at the Massachusetts Institute of
Technology. He is the author of several books, including The Economics of Petroleum Supply:
Selected Papers 1962–1993 (Cambridge, Mass.: MIT Press, 1993) and The Genie Out
of the Bottle: World Oil Since 1970 (Cambridge, Mass.: MIT Press, 1995). More recently,
he published “World Oil Production and Prices 1947-2000” in the Quarterly Review of
Economics and Finance (Vol. 42).