Oil: Our Economic Achilles Heel

Countless corrective measures, with which you are nauseatingly familiar, have been proposed, debated and are being implemented. All in the hope that something - anything - might rectify the rapid world-wide economic decline not seen since the Great Depression. Indeed we may be entering Great Depression II but that is, at this stage, still speculation and best left to the economists and their crystal balls.

There is one tipping point that could destroy these best laid plans, that hovers precariously in the background. It is the one variable that could be the sand that grinds the economic engine to a complete halt. What is it? The price of oil.

With all that's been happening lately the memory of $4.50 per gallon gas price is fast-fading. However, its effects were very real.

The entire country was in a state of psychological and financial shock as the price of oil crept up near $5 a gallon last year. People suddenly had to decide between food and fuel; driving to work became a game of squeezing every last drop out of a gallon. That was when people still had jobs.

Fortunately, as the world's economic engine overheated, demand for oil plummeted and with it the price of our economic life's blood. Had that absurd price lasted through the winter, we would have seen destitution and hardship on a grand scale as home heating oil would have tripled in price.

The Organization of Petroleum Exporting Countries (OPEC) is the controller of world oil production. It is a cartel of twelve countries that includes Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela. When there is too much oil on the market and prices fall, OPEC restricts production in an effort to push prices up again. When prices are high, as happened last year, OPEC members party like its 1999 and they over-produce in the hope that the good times will last forever.

Since the New Year OPEC has been in huddle mode. They have been implementing their plans for cutting oil production, in an effort to soak up the large surpluses of oil (the result of overproduction) in the marketplace. Until recently we were awash in the stuff, a lot of it left in the holds of huge Supertankers off-shore as the market price was not worth the cost of offloading it.

For OPEC members the dilemma in cutting production is in determining which country is going to make the deepest cutbacks while absorbing the resulting short-term loss of critical revenues that keep their own economies going. This has been a bone of contention since the organization was founded in 1960. Despite common interests OPEC doesn't always get along for a hundred reasons. As a result oil production continues, each member competing to suck in as much income as possible to keep their heads above water.

OPEC is having a rough time of it just now, having lived the high life during the period of the enormous transfer of wealth to their counties last year while prices were high. Not any more.

If you read the news you'll see that Mr. Chavez in Venezuela and Mr. Ahmajinidad in Iran are in deep economic trouble, having made the mistake of planning their projected budgets based on $4.50 a gallon gas. While you probably feel bad for them, as we all do (chortle), we have to remember that having happened once, the price spike could happen again.

It can happen more easily than we think.

Having tasted the sweet rewards of high prices, OPEC members may finally agree to shelve their differences and put a collective mega-squeeze on production to push prices up again. And that - if prices reach the levels they did last year - may well push us over the edge into severe, maniac economic slump.

You could say that OPEC's current suffering is probably the only saving grace we have going for us just now. And for that we should be grateful. For now.