DYNASTIC DISCONTINUITY: A PROPOSAL
Rozen, Marvin E.
I had a dream the other night, no doubt triggered by recent behavior in the oil market, of a way in which $5/barrel oil could be obtained on a more or less permanent basis. With all the fuss over...
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...Surely, we have in the past conducted far more ambitious destabilization exercises for far less worthy causes...
...We cannot allow the plight of desert royalty to becloud our judgment and besides, as we shall see, they don't fare too badly...
...All it takes would be that over a decent interval, say perhaps once each decade, a new and eager group must be installed to make those production decisions that convert black gold into overseas wealth, and beloved and impersonal market forces will do the rest...
...The former rulers will now be reduced to counting their domiciles merely on one hand, retaining only a shrunken retinue of courtiers and functionaries, pursuing such pleasures as falconry in other climes, and making other life-style adjustments...
...As long as the oil lasts, the world can thus pay a price approximating the real cost of producing it instead of being subjected to the extortion of brigands...
...Second, those now controlling production are not driven by compelling and overwhelming need for more revenues...
...There will be no bloodshed...
...Under such circumstances, two considerations are relevant: • First, restricting production not only raises current prices but also the value of shut-in reserves, in part directly through the higher valuation of oil itself, and in part indirectly through demonstrating the ability to sustain high prices by managing supply...
...What determines current producI say tongue-in-cheek because, nowadays, life so often Imitates art and reality is spawned by fiction...
...the consequent increase in their wealth and the income it produces reinforce their reluctance to run the pumping stations full-blast...
...When that happens, we know it will be time to recycle these leaders, so that they too can be reunited with their assets abroad...
...And the more fastidious and squeamish can view such dynastic discontinuities as a form of international antitrust enforcement procedure, wholly consistent with our commitment to competitive free enterprise...
...Out there in the desert, lean and hungry men are in the wings, waiting for a turn...
...And if they hanker for the sands and heat of the desert, the world has no shortage of suitable places...
...Oil prices will plummet...
...the losers get a considerable consolation prize...
...They will have urgent desires for cash now...
...and it is a much more egalitarian income-distribution policy...
...The conclusion inexorably follows: for varied and pow488 erful reasons, present oil producers have too little current incentive to pump the stuff out...
...It will all be very civilized...
...To amass their bundle, however, they will have to turn the oil taps on at full flow...
...For both reasons, assuming dynastic continuity, oil-in-the-ground becomes more valuable, and therefore less of it will be lifted...
...Meanwhile, their lean and hungry successors, the new rascals, will most assuredly be eager to tread the same path as their predecessors...
...Oil revenues flow to a relatively few, who in turn convert a considerable portion thereof into a diversified collection of assets, sequestered abroad in countries showing a proper respect for private property...
...With all the fuss over falling oil prices, it may seem unsporting to threaten down-and-out oil producers with larger and sustained reductions, especially when they seem to be having so much trouble adjusting to modest declines...
...WHAT WOULD HAPPEN, though, if we could arrange, discreetly of course, for those currently controlling the wells and pipelines to be judiciously eased out without extreme prejudice, so that they may enjoy the pleasures of being physically reunited with their assets abroad...
...Their greed for revenues and awareness of the recently demonstrated impermanence of power will make them run the pumps overtime...
...tion is, on the one hand, the rough correspondence between oil's value left in the ground and what it will fetch in world markets and, on the other hand, how urgently those controlling production decisions need to generate a current cash flow...
...The only nagging doubt is whether the world can accommodate itself to $5/barrel oil...
...Who needs more when you have so much, especially when the value of what's left in the ground—great collateral, that—directly depends upon the influence of current on future prices...
...from the looks of present consternation, that may be the most difficult adjustment of all...
...The key to lower oil prices lies in reconsidering what determines current production decisions...
...These new masters too will grow fat and soft, as they place their wealth in safe havens abroad...
...The oil industry, especially in the Middle East, is characterized by huge amounts of shut-in capacity and extremely low real costs of actually lifting the oil from the ground...
...They will begin to emit statesmanlike noises about managing supply, stabilizing markets, the need to conserve a nonreplenishable resource, maintaining the solvency of the world financial system, and how vital it is that oil prices rise from their dangerously low levels...
...Yet in this camel-eat-camel world, sentiment and manners have little place and must give way to arrangements that can benefit many, despite the pain caused a few...
Vol. 31 • September 1984 • No. 4
