Thursday, August 3, 2000

Kohlenweiss 1979

It’s been twenty years, and the deadline established to keep the minutes of the European Union (EU) Inter-Ministerial meeting secret has elapsed. At last, we can read what was agreed to in the small German town of Kohlenweiss during a rainy autumn weekend in 1979, when EU Energy Ministers met in conclave to draw up a strategy on “how to defend oneself from the crude rent aspirations on crude of OPEC countries.”
One debate registered in the minutes seems particularly horrible with all its prejudices against oil-exporting countries. However, because of lack of space, I will limit myself to summing up the approved plan, as originally presented by German minister Grüngelde, a plan that allegedly hinged on the following five key actions.
The first measure (the most innocuous) was to strengthen the relations between European governments and the environmental organizations to such a degree that the latter could be used to apply pressure in favor of diminishing oil consumption without its affecting the more contaminating coal, which Europe happened to possess.
Secondly, a program of continued hikes in taxes on oil and its derivatives, especially gasoline, was established to ensure not only a drop in demand but also that day after day the oil producers would receive a lesser and lesser proportion of oil's real value in the final market, namely, the price paid by the consumer. In this respect, the countries pledged themselves not to allow a lowering of gas prices to the consumer so, each fall in the price of crude should set off an immediate increase in taxes.
The third course of action was aimed at weakening OPEC's internal cohesion and in that sense, using Cold War tactics (the Berlin Wall hadn't tumbled yet), disinformation was one of the recommended instruments, aimed principally at sowing doubts and suspicions inside OPEC itself regarding such things as compliance with quotas set by the organization.
The fourth element agreed to was the “Community’s prior interest to promote and support efforts that would lead to the privatization of the oil industry in OPEC countries.” The reasons are understandable, when among the arguments, is that “as long as the oil industry belongs to the states, they will have the possibility of brandishing the weapon of geopolitical bargaining.” The report established that “to achieve the goal of privatization, the ensuing competition among the partners would guarantee greater volumes of production and lower prices, in view of the fact that they all have a common interest in increasing profit and cash flow in the short term.”
The Fifth ...? Why continue?

I admit the above is pure fiction and that, as far as I know, it doesn’t exist except in my imagination. There’s no Kohlenweiss or Grüngelde. I have no knowledge of any such meeting and I definitely don’t believe that the European Union fixed a period of only twenty years to make documents of this kind public.
However, since reality is stronger than fiction, I trust the reader will pardon my cheek. Let’s see:
Since 1980 all taxes on oil and derivative have been hiked. For example, in the United Kingdom they went from 85% added value in 1980 to a confiscatory 456% in 1998. Obviously, during the same period oil products price index on the consumer level increased in the UK in constant terms from 100% to 247%, while, as if it were planned, the crude oil price index fell from 100% to a miserable 18%.
A barrel of oil contains around 160 liters of oil products broken down into gasoline (84), jet fuel (12), gas oil (36), lubricants (16) and heavy residuals (12). Today, when oil in Europe sells at a minimum $1.20 per liter, we see that this component represents more than $100—adding the other derivatives we come to a market value, that is, the price the consumer is prepared to pay, of more than $150 per barrel. If we start from the fact that refining, transport, and distribution costs aren’t high, let’s say around $20 per barrel, we can conclude that the European Treasury retains a minimum of $100 per barrel, while the producer, who actually sells an asset and sacrifices a nonrenewable resource, has to be satisfied with $30—scarcely 20% of its European value.
As for cooperation with environmental movements, there’s no doubt it’s been a complete success, since oil has been punished with all kinds of possible taxes, thus diminishing its consumption, while coal hasn't been touched even with a feather, arriving at the absurd situation where it’s even being subsidized in some countries by taxes on oil. The consequence of such disparity in treatment can be seen in International Energy Agency statistics, which indicate that in 1973 oil accounted for 44.9% of world fuel consumption compared to 35.3% in 1996. Coal consumption in 1973 represented 24.8% and had maintained the same percentage in 1996.
Despite the fact that the figures mentioned above show clearly that only through geopolitical instruments like OPEC can existing injustice be reversed or at least cushioned, in Venezuela privatization has not only been preached until the beginning of 1999 but it has also been partially achieved through Apertura Petrolera (Oil Opening).
Another trick was to egg us on to believe that the solution lay in increasing the volume of production, even though the price was $8 per barrel, 5 cents for each liter (less than bottled water), a price that hardly covers the costs of extraction. Pressures to increase production were so intense that they continue even today, when we see important representatives of our local academe propose a weird thesis, according to which if Venezuela produces 3 million barrels of oil per day and sells it at $30 a barrel, we will find ourselves in the immoral grip of living on rents whereas, if, on the contrary, we produce 7 million barrels a day and sell it for just $7 a barrel, it would reflect an immense and praiseworthy productive effort.
Finally, with respect to OPEC, we can only say it has just saved itself from extinction—for the time being.
With this on record, who can doubt that, in fact, I have produced enough material to inspire a thriller script? If anyone out of curiosity wants to know what the imaginary Kohlenweiss fifth pillar was in the hope that (as my daughters say) recounting a nightmare makes sure it will never happen, I confess that recently I have been waking up each morning bathed in nervous sweat, fresh from the nightmare that the EU has plotted to plant an environmental extremist in the White House.
From El Universal, Caracas, August 3, 2000

And published in OGEL too

Friday, March 24, 2000

Oil and the Stockholm Syndrome

Fact No. 1: In 1980 the nominal price of oil (Arabian Light) was US$ 36 per barrel. In constant dollar prices calculated using the GDP deflator with 1998 as base, this was equivalent to US$ 67. By the end of 1998 the price of oil was US$ 12.20. In real terms it means that if the price index of oil in 1980 was 100% then in 1998 it was only 18%.
Fact No. 2: The index of oil products retail prices in 1980 was equal to 100%, in the United Kingdom, it reached 247% in 1998.
Fact No. 3: The amazing difference in how the two oil-related indexes developed can only be explained by taxes. As an example, in the UK in 1980 the ad-valorem taxes on gasoline were 85%; at the end of 1998 the same taxes were 456%.
Conclusion. Oil demand and oil prices are being held hostage by the taxes levied on various oil products by most oil-consuming countries. Had it not been for these sky-high discriminatory taxes, Venezuela would today be selling more oil at higher prices, easily repaying its foreign borrowings, and not even requiring a credit rating.
Adding insult to injury, the before mentioned taxes were slammed on Venezuela's main export at a time when the country was busy reducing custom duties and opening up its economy to all type of foreign competition.
It is difficult, then, to understand why, thanks to their country’s press, radio and television, Venezuelans can only worry and feel guilty of the fact that perhaps the recent increases in the price of oil will be the detonator for inflation and worldwide recession.
Could it be that the Stockholm syndrome affects Venezuela (as well as all of the OPEC nations)? As all pseudo-psychologists and writers should know, the Stockholm syndrome is what happens when someone that has been kidnapped finally becomes sympathetic with the position of his captors and ultimately even begins to defend them.
If you doubt what I am saying, just think of how our neoliberals, while talking up the maximization of income as one of their credos, blithely forgive their foreign heroes by either ignoring the issue or by creating lame environmental excuses or by simply repeating absurdities as “being rentist is really not very good for the country”. I would specially like to see them sustain this last thesis in other countries, for example in those that do all that is possible to maximize their rent from intellectual property, to the point of turning us into their best collectors.
That’s it then. There is no doubt in my mind that the Stockholm syndrome, or something very similar, is alive and well in Venezuela’s economic policies.
We need a couple of couch sessions, this time with psychologists that are very different from those we have used up to now. Dr. International Monetary Freund turned out to be simply an unethical Dr. Fraud. While the latter was pretending to give us good advice, he would travel behind our backs throughout the world, preaching the marvels of increasing taxes on oil-based products, and when this was not sufficiently convincing, simply forcing the adoption of the policy.
With its inaction, OPEC is also a prime suspect of having come down with the same affliction. I sure hope that during their sessions next week, to be held in Vienna, they will find time to get the advice of a true Dr. Freud.
Only then will they realize that at US$ 30 per barrel, the price of oil is still less than 45% of what it was in 1980.
Only then will they be able to understand the true injustice present when a taxman of a consumer country perceives an income 4.8 times more than the producer of a non renewable asset. During February this year, premium unleaded gasoline was sold at the pump in the UK for US$ 1.18 per liter, distributed as follows: 20 cts for the producer, 5 cts for the distributor and 93 cts for the British taxman.
Only then will they know that the world is not threatened by oil prices. The world and economic growth is above all, threatened by taxes implement for the sake of easy tax collection.
Only then will they remember to ask for a reduction of oil taxes, as a quid-pro-quo for any increase in oil production.
OPEC friends, … please remember Stockholm.
Calculations based on information in World Oil Trends 1999 published by Arthur Andersen and Cambridge Energy Research Associates.