As the oil war between Russia and OPEC send prices tumbling, the WTO and its mission to champion global free trade are nowhere in sight.
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Lost in the constant coverage of the coronavirus pandemic, news broke at the beginning of this last week out of the Middle East. OPEC (Organization of the Petroleum Exporting Countries) and Russia failed to come to an agreement to cut oil production.
Russia, tired of propping up global oil prices at the expense of state revenue, promised to increase production to try and bring the American shale industry to heel. Saudi Arabia, the head of OPEC, responded in kind and ordered state-run Saudi Aramco to increase production to over 12 million barrels a day by April. Oil prices tumbled over 25%, and currently hover around $30 a barrel. This has roiled stock markets, contributing to the risk of recession this year.
To be clear, there will be no winners in this oil war. What little benefits consumers get from lowered gas prices will be swept away by larger economic hardships. However, what is particularly concerning about this development is the inevitable ra-ra “capitalism sucks” calls from both the left and, increasingly, the populist right.
Capitalism is not to blame for the market collapsing, or even for the oil price war. Government-backed cartels are.
OPEC is, at its core, nothing better than a shady cartel. Any group of people, corporations, or countries that collude to manipulate the market is, by definition, a cartel.
This is not the first time that OPEC has roiled financial markets around the world either. In 1974, the fledgling organization crashed the world economy by imposing a brief but disastrous moratorium on oil exports. In response, Nixon took the nation off the gold standard and imposed strict price controls, which only contributed to the collapse. Now they are at it again. This begs a simple question: where in the world is the World Trade Organization?
I am not a fan of international organizations that intervene in inter-border matters. But this is no inter-border matter. The decisions made by OPEC affect every major country around the world in monumental ways. Why is the WTO not intervening in this case?
The answer, as always, is because it does not want to. Much like the United Nations, the WTO has lost much of its teeth. This is especially true in the case of China, where, despite numerous anti-free trade policies, the country continues to be allowed membership to the trade organization.
In OPEC’s case, six of the eleven-member countries are also members of the WTO. The organization has plenty of leverage to force OPEC to either dissolve or abide by market principles. The fact that it does not only shows its increasing irrelevance.
Whatever the result of the impending oil price war, the underlying trade problems will remain. If the WTO wants to truly bring about a global age of free trade, it must start by effectively enforcing its own policies. If it does not, then it should be scrapped and rebuilt.
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