Things are bad in the Middle East? Oh good, let's make them worse

Thomas Evans offers a false choice in an op-ed in today's New York Times about suing OPEC:

If the president allowed the states to sue OPEC, his actions would undoubtedly anger political leaders in the Middle East and create the need for diplomatic initiatives to limit the fallout. But how stable is the Middle East right now? And isn’t starting a lawsuit better than starting a war?

The gist of his piece is that individual states in concert could sue OPEC under Article III of the US Constitution that grants jurisdiction to the Supreme Court for lawsuits brought by individual states against "foreign states" or "aliens."  But the question uttered above - the choice between a lawsuit and a war - is absolute nonsense.  The two-fold assumption behind it is that (1) OPEC's actions are causing the inflated price of oil (which is only partially true) and (2) the only "reasonable" American response is either a war or a lawsuit .... and aren't lawsuits preferable to wars?  The other question, about the stability of the Middle East, follows additional fallacious logic: The Middle East is already unstable, so why don't we destabilize it some more?

I can think of about six reasons why the United States should not sue OPEC:

(1) It is not clear that OPEC market manipulation is the source of the current run-up in oil prices.  The previous two oil shocks (in 1973 and 1979) were sudden, unexpected, and caused by a deliberate supply side disruption.  The current oil "shock" is more the product of growth in demand from the developed world, China and India as evidenced by the build-up in price over time instead of a spike.  Suing OPEC, with its questionable efficacy, would probably do very little to change the fundamental supply-demand balance that has resulted in high oil prices.

(2) High oil prices are certainly disruptive to the world economy, but they also force consumers to change their energy consumption habits by purchasing more fuel-efficient vehicles, worrying about electricity consumption, etc.  The investments in energy efficiency made after the oil shocks of the 1970s have allowed the United States to better weather this high oil price environment.  We should invest in new technology, chase after alternative sources of energy and ultimately transition away from an oil-based economy.  For the most part, the market will take care of that transition if the price of oil (and price expectations) remain high for the years to come.  There is an additional benefit to high oil prices: it reduces consumption of petroleum products like gasoline and therefore reduces one's carbon footprint.  If you worry about climate change, higher oil prices are the single best thing for slowing it down and eventually achieving a "green" economy.

(3) It won't work.  As Thomas Walde, a professor at the University of Dundee, has reminded me and others, OPEC is not a "cartel" in the legal sense of the word because it is a collection of governments, not private companies.  A plausible defense could be that OPEC actions constitute a "joint resource conservation effort" and not market manipulation per se.

(4) Related to point (2) above, OPEC does act as a mechanism for natural resource conservation.  In the past thirty years, the environmentalist community's best friend has been OPEC because its oil production quota system, with its attendant rise in oil prices, has forced consuming economies to invest in energy efficiency upgrades and cleaner technology.  If it caused oil prices to drop precipitously, dismantling OPEC would hurt efforts to mitigate climate change.

(5) It pushes the moderate OPEC members - Saudi Arabia, Kuwait, UAE, and others - into the hawkish camp of Iran and Venezuela.

(6) It would be ruinous for US foreign policy in the Middle East.  Belligerence toward OPEC could have serious consequences.  For instance, Iran might retaliate by stirring Shia militias in Iraq.  Arab governments would be less inclined to support American efforts in forging Israeli-Palestinian peace.  And many Arab states that rely on oil revenues to maintain stability - Saudi Arabia, the Gulf kingdoms, even Iraq - could face serious internal instability.

I for one think high oil prices are "good" in that they spur investment in a more fuel-efficient appliance stock and help the economy transition away from oil dependence.  The best way to do that is through petrol taxes or oil import tariffs, in which case the revenues of high prices accrue to the federal government and not despotic Middle Eastern governments, but in the meantime high oil prices serve as a form of "tax" that will push the American economy away from oil dependence.  Suing OPEC will probably do little to reduce oil prices but will surely undermine other US foreign policy goals in the Middle East.

Thus the false choice between a lawsuit and a war (against whom? to what end?).  Frankly, the better solution would be to do nothing at all, let oil prices stay high, and when (if) they fall gradually introduce petrol taxes or oil import tariffs to spur investment in new technology.