Caspian Report - Issue: 07 - Spring 2014

tion, with Saudi Arabia taking on the
role of swing producer. The question
is how long the Kingdom can sustain
this role when faced with increasing
demand at home and potential budget
deficits. While Iraq has the potential
to be a swing producer of the future,
for the time being it seems the
best course of action would be for
both the major producers and consumers
to come together to regulate
supply and price.
To protect themselves from fluctuating
prices, members of the International
Energy Agency and many
other non-OPEC producers have
been stockpiling energy reserves.
Given the increased volatility in
price witnessed between 2000 and
2010 and the subsequent turmoil in
Middle Eastern geopolitics, it seems
sensible to call for market intervention
with the goal of price stability.
Working in concert, OPEC, the most
powerful oil producers’ association,
and the IEA, the largest energy consumers’
organization, could achieve
this. In June 2011, for example, the
IEA released 60 million barrels of
energy reserves in response to the
disruption of oil supplies from Libya.
However, greater cooperation is
needed between the two organizations
- together. Together, IEA and
the OPEC have the capacity to devise
a suitable intervention model in the
common interest of price stability.
Price stability would benefit the
oil-dependent economies of OPEC
and major African producers, stabilizing
national incomes, supporting
current government spending
plans, and allowing states to plan
for the future via the creation and
expansion of wealth funds. International
oil companies would be able
to take a more secure view of their
investments, supporting longerterm
projects in infrastructure development
and energy production. It
would remove speculation from the
market. A stable price of $100 per
barrel would give certainty to the
market and to world energy policies.
Prices at this level would also have
positive side-effects for the global
energy regime: they would encourage
the development of alternative
energy sources such as wind and solar
power, promote increased energy
efficiency, and encourage major oil
companies to invest in more efficient
technologies and remoter locations.
Contrary to popular wisdom, a lower
oil price would only damage the economic
prosperity of the U.S. and the
major oil-producing nations, most
of whom are developing nations
acutely vulnerable to the damaging
aspects of oil price volatility, which
slowed their economic development
to date. Critics might argue that such
a high, stable price would slow down
economic growth and recovery but
in the long run it would do much to
moderate the boom and bust aspects
of the economic cycle, and reducing
the risk to future, necessary capital
investment. Building economic
recovery on unrealistically cheap
energy sets the system up for even
greater failure when inevitable price
shocks occur. What the global economy
needs are stable, sustainable
prices that can provide the basis for
effective planning.
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CASPIAN REPORT, SPRING 2014