Ihenacho’s Home Truths


Every other argument Fabiyi had proffered besides the position of AOPIG was history not economics. In fact he was quite magnificent with the history of the beginnings of the oil cartel - OPEC and the lobby group with the acronym AOPIG.
Wednesday, August 7, 2002



David Asonye Ihenacho
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THE ''WISDOM OF OPEC'' BY MALCOLM FABIYI:
RESPONSE TO A REJOINDER

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hen early this year I made a commitment to abandon the shadows of freelancing so as to do more formal and regular writings as a columnist on the Nigeriaworld.com, I also adopted a policy not to indulge in frequent back-and-forth reactions with rejoinders to my essays. Despite all the temptations to the contrary as a result of increased reactions to my essays, I have maintained my policy thus far. I had to do this for two reasons. First, I was fully aware that my column would be devoted to my personal opinion, which would be as reliable and also as unreliable as those of the other columnists out there. I was not under any illusions that my points of view might from time to time be adjudged wrong, or at least, insufficient by my readers. However I believed that my overall interest would be to work hard on every edition of my column to give my readers good reasons to understand my point of view. Second, I did not believe that I would ever be able to avail myself the amount of time needed to give adequate responses to rejoinders and reactions to my essays. I thought indulging in such a task would take a terrible toll on my limited time as well as put me through an unnecessary stress.

But Malcolm Fabiyi's rejoinder to my penultimate essay: OPEC QUITS: HEADS-UP MOVE FOR NIGERIA has caused me to rethink my policy at least in this one instance. This is as a result of the many dubious claims and sweeping declarations he had loaded in his rejoinder. I learned in my days as a student writer that an allegation not denied could be taken as a fact. Fabiyi's sweeping claim that had rankled the most as well as forced me into this momentary policy-change was his declaration that:

In Ihenacho's commentary, there was NOT A SINGLE COMPETENT economic argument, NOT ONE FACT-BASED ANALYSIS of the presumed gains of such a venture to Nigeria. There was not a SINGLE POINTER TO HISTORICAL PARALLELS (IN THE ABSENCE OF SOLID ANALYSIS) of the benefits of such a move, and NOT A SINGLE OBJECTIVE APPRAISAL of the so-called benefits that could accrue to Nigeria from a concession to the purported desire of the USA for Nigeria to withdraw from OPEC" (emphasis mine).

As anybody familiar with scientific thinking would agree, by this banner statement so to speak, Fabiyi has made an offer that promises to comprehensively dismiss the very basis of my OPEC essay. In fact with his tortured repetition of the phrase "Not a single", he not only declared that my essay was an effort in futility, he also set himself the goal of highlighting as well as rectifying what he thought were my failures in the article. And this is quite a tall order for anybody for that matter. To exude such a level of confidence and to employ such highfalutin dismissive phrases against anybody's opinion as Fabiyi tried to do in his rejoinder can only amount to setting a very high bar for oneself. So the task for me in this response is first and foremost to reintroduce my article to Fabiyi because I thought he showed a terrible misconception and mischaracterization of my essay. Secondly, I will be interested to see whether Fabiyi successfully clears the high bar he sets for himself or whether he was just blowing smoke. In all these I will like to use his thesis quoted above as a guide.

First, Fabiyi began unleashing his salvo on my piece and my person with a very arrogant claim that my essay lacked "a single competent economic argument." To be frank I could not immediately understand what he meant by "a single competent economic argument." So I quickly read my article after rereading his for the second time. I found out to my satisfaction that I had based my analysis on the economic findings of a petroleum think-tank, African Oil Policy Initiative Group, and had carefully included a caveat to my analysis: "I had questioned in my mind which countries would not rush to embrace the offers if they were true." On reading Fabiyi again I found out that his so-called "competent economic argument" was completely based on the AOPIG finding: "Some think thank (sic) called the African Oil Policy Initiative Group (AOPIG) had done some research that aimed at appraising American strategic oil interests…"

Every other argument Fabiyi had proffered besides the position of AOPIG was history not economics. In fact he was quite magnificent with the history of the beginnings of the oil cartel - OPEC and the lobby group with the acronym AOPIG. But despite his pretenses to the contrary, his beautiful historical narratives, which are of course available on many websites on the Internet, could not and will not substitute for a good scientific analysis, which he promised but could not deliver in his essay. In other words, Fabiyi agreed that the "research" of AOPIG is a very solid economic ground to begin an analysis of this nature. So, his accusation of me of not providing "a single competent economic argument" to support my position falls apart. It was mere slander. If I did not provide any economic argument, he did not provide any either. But one should not declare a draw yet for I have many more ammunitions against his rejoinder.

But then as I read along, the woes of Fabiyi's rejoinder seemed to pile on. The self-assured professional in petroleum and economics alluded to knowing "the essentials of the current America oil policy" which he described as "straightforward." I became curiously enthusiastic. I waited to learn from his essay all about the latest American policy in this regard. But it turned out that Fabiyi was reporting his imaginations rather than a real American oil policy. He could not cite any single document or source reporting such a US policy whose essentials he claimed to know. I was disappointed. I thought to myself, perhaps Fabiyi does not quite know the meaning of the word policy talk less how it applies to the all-important American oil policy.

But it did not take long before I was vindicated in Fabiyi's contradiction-riddled essay. After a few paragraphs he concluded, "it is therefore fair to speculate that this report (AOPIG report) could very well metamorphose into US policy in the near future." Then I noted beside this statement. I thought Fabiyi claimed to already know the essentials of the evolving US policy on oil? How is it that the AOPIG report, which he apparently despises, is likely to make it all the way to the US oil policy? How many policies will the US produce in this regard?

But why drag God into the debate about Nigeria's continued membership of OPEC? In fact only Islamic fundamentalists and militants like Osama Bin Laden are qualified to make Fabiyi's type of an argument based solely on the belief that God located a huge oil reserve in the Arabia desert to shame the proud Americans and their allies.

Perhaps not quite weighty but nonetheless important in determining the credibility of Fabiyi in this debate is his irresponsible use of absolute statements in conveying his opinions: "With the opposition of the Arab world to America's Middle East policy, it is not far fetched to expect that THE ONLY WAY the Arab world can express its displeasure at American activities in their region is TO USE OIL AS A WEAPON and the ONLY WAY that America can shield itself from undue exposure to the Arab bloc is RE-ALIGNING ITS STRATEGIC OIL POLCIY OUTLOOK" (emphasis mine). This is a very irresponsible statement by somebody who apparently lacks real knowledge of the complex options of modern Arab nations and the sophistication of the present-day America. Neither America nor the so-called Arab world has ONLY ONE option in dealing with the current situation in the Middle East. Oil is just one of the essential factors that must be considered in any political development in the area.

But the whole betrayal of knowledge of the real options of the different countries continued throughout Fabiyi's writings. There is this element of irresponsibility and careless reading of facts that tend to endure in Fabiyi's rejoinder. For instance, he dismisses the Venezuela option because of what he alleges as mutual disdain between President George Bush of the USA and President Hugo Chavez of Venezuela. In fact Fabiyi appears to enjoy his amateurish way of over-simplifying politico-economic relations among nations. The relation between say America and Venezuela for instance is not hung on the shoe laces of the two presidents who are the leaders of their two nations at this point in time. It is far more complex than that. There are lots of factors that the likes of Fabiyi are perhaps incapable of knowing. Leaders come and go but nations with natural bond as the US and Venezuela ever endure mainly as a result of factors beyond their individual choices. Their economic needs hardly ever end and their histories are permanently interlocked. These are some of the essential intangibles that influence trade relations. No matter what happens in the personal relations of President Bush and Hugo Chavez, Venezuela and the US have quite a lot binding them as members of the American States. Their interlocking histories and affinities will always outlive their leaders and secure their economic bonds.

The same irresponsibility seems exemplified also in Fabiyi's dismissal of the possibility of Russia becoming a strategic supplier of the US oil. According to him, "the question as to whether the Americans will decide to make the Russians strategic suppliers is even absurd to complete. The cold war may be over, but there is still a gulf of trust that needs to be bridged between the two nations." By characterizing the up and coming vigorous relationship between the US and Russia as "absurd to contemplate" Fabiyi reveals a very painful ignorance of post-cold war politics. With this view Fabiyi appears stuck in the mid 20th century of raging cold war dominated by the scare of a nuclear holocaust. America and Russia have come a long way from that era. Fabiyi must be welcomed to the 21st century of compromises based on democracy and free market. Those are perhaps the two most important factors calling the shots in American relations with other nations.

Perhaps it might be important to call Fabiyi's attention to a recent statement made by Colin Powell in Moscow that the US would rather be exchanging volleys of chicken missiles with Russia than a nuclear missile. The "chicken missile" is an allusion to a current trade crisis between America and Russia. The fact is even as we speak there is a major trade relationship growing in leaps and bounds everyday between Russia and the United States of America. That is the major dividend of the death of communism, and that is the source of the revival of the Russian economy.

Now let us try to consider the more peevish part of Fabiyi's rejoinder. He counsels, "considering the fact that at this stage, the report (AOPIG) is nothing more than the views of a few researchers in an Israeli-US think thank (sic), with no policy formulation roles, I am amazed that Ihenacho and the Nigerian press have thrown so much energy into a pre-emptive and pre-mature debate on the findings of the report." It is very sad that the likes of Fabiyi believe that there is anything like "pre-mature and pre-emptive debate" on an issue. This is certainly not the case. In fact as regards the current situation in the Middle East and America's move to reshape her fuel policy, time is more than ripe for an oil producing country like Nigeria to embark on an aggressive debate to carpe diem. There is no better time than now for Nigerians to review the gains of their three-decade membership of OPEC vis-à-vis the new situation in the oil market.

However the most vexing aspect of Fabiyi's rejoinder is his misapprehension of my position with regard to AOPIG report. He calls me all sorts of names including the report's "advocate," "friend" and "pal" of AOPIG. This is totally unfair and a complete misreading of my essay. What I did was to use the report as the basis of my analysis but only with an addition of the necessary caveat: "if it were true." And that is exactly what Fabiyi had done himself. The difference is, while he had drawn a negative conclusion from the report I drew a positive one with some contingency attached. My support is not absolute. It is contingent on the report being the true position of the American government. Such a condition is quite a high hurdle that must be cleared before one could determine the degree of my support for it. But Fabiyi could not clear this hurdle before relatively making me a bona fide member of AOPIG.

Notwithstanding all these, Fabiyi could not resist the temptation of dabbling into irresponsible exaggerations. The suggestion that part of the economic deals that were being packaged for Nigeria would be "US private and institutional capital to move to Nigerian projects in telecommunications, transportation… Fabiyi transformed as "the floodgate will be opened to US private and institutional capital to move to …" If this is not irresponsible exaggeration, I do not know what else is.

Much to the discomfort of Fabiyi who would rather see me posing as the spokesperson for the oil lobby on Nigeriaworld.com I will not hold brief for the report of AOPIG for my support to it is quite tepid. But that would not stop me from reviewing the terrible analysis of Fabiyi in this regard. After rehashing a romantic history of how OPEC had started with the experiences of a non-Arab nation, Venezuela and how it later became dominated by the Arab world, Fabiyi drew two inconsequential and in fact illogical conclusions as the benefits of OPEC to Nigeria. According to him, "Had it not been for the OPEC oil cartel, Nigeria might have been earning much less than the 1961 price of $2.50 per barrel given what would have clearly been a situation of unbridled and uncontrolled over supply situation - and the loss therefore of total crude oil accruals since 1961 of over $300 billion." This is a patently false conclusion that is devoid of any known logic. The implication is a total absurdity. It implies that non-OPEC countries that have more or less the same quantity of reserves as Nigeria have all lost about the fabulous amount of 300 billion dollars that has accrued to Nigeria as a result of her membership of OPEC. This is absurd. OPEC may influence prices, it does not predetermine in advance how much oil countries not affiliated to it could sell or how much revenue could accrue to them. The oil market like most other markets in this era is open and people are free to buy from which country they are comfortable with. OPEC does the Yeoman's job of spiking up oil prices. And when it does, both OPEC and non-OPEC countries benefit. There is not one market for OPEC countries and another for non-OPEC countries.

Fabiyi's second conclusion is that "Nigeria's membership of OPEC affords it a strategic avenue to influence global affairs in a significant way…" This is may well be the case. But it is totally beside the point. People who make such arguments have misplaced their priorities. Nigerians care less about influencing universal events than jobs and good economic conditions for our ever-growing population. Nigeria would rather have employments for her youth and abundant food for her citizens than being promoted to the position of a permanent member of the UN Security Council. People like Fabiyi who cannot get their priorities right are causing Nigeria lots of problems.

Fabiyi's argument against AOPIG proposal that quitting OPEC to become one of America's major suppliers of oil will enable Nigeria to receive "congressional-driven negotiations for debt relief" is too myopic and literalistic. He shows an annoying ignorance of the economic politics of the Group of 7 (8) industrialized nations. Yes, Nigeria may owe the US a relatively small amount of money, but the value of her economic alliance with Nigeria on a product as vital as petroleum is incalculable. Moreover the global economy is more interconnected than Fabiyi knows. A ten trillion dollar economy like that of America has almost an infinite capacity to bail out any ally of hers from any kind of debt. Fabiyi must respect the fact that in today's business America is the wheeler-dealer in chief of the world. There is no need posturing that one can do without an economic titan like America. To my knowledge no other country in the world is saying that at this very moment. Fabiyi must educate himself on how the current world is operating economically.

A very tragic recurrence in Fabiyi's essay is that he quotes some of the offers of AOPIG and ascribes them to me. This is a very unscholarly method to say the very least. I did not make the argument that a decision by Nigeria to quit OPEC will "open the floodgate to the US private and institutional capital." And to the best of my knowledge that is not exactly the position of the report in question. But reacting to his corruption of this offer Fabiyi describes it: "This is the most absurd point that Ihenacho raised." But I never raised such an argument nor made such an offer. However the whole gripe of Fabiyi in this regard is in itself a show of ignorance. According to him, "there is NO GOVERNMENT ON EARTH that has power to force investors to nations or territories that they feel do not offer minimum risk - political, economic and regulatory." First, with his return to his unscholarly use of categorical absolutes Fabiyi reveals his ignorance of political ideologies and countries of the world. He erroneously feels that the gospel of globalization and free market has reached the ends of the earth. He forgets that there are still communist countries like North Korea, China and Cuba and fundamentalist countries like Iran, whose governments decree where investments are made by their indigenous corporations.

However nobody besides Fabiyi is making the argument that a relationship with the US will force the Congress to pass a law forcing some US corporations to invest in Nigeria. This is certainly not the case. But the reality is that the US government has a lot of leverage to pull in favor of ensuring a constant supply of the petroleum fuel. Petroleum matters in almost all the countries of the world are usually national security issues. Any country at all can easily be toppled for lack of fuel. Therefore every country treats its source of energy, be it carbon-coal, petroleum, solar or nuclear as a national security issue. Its regular supply is always a high security issue. And to ensure that a country does not run out fuel, a government has a lot of levers to pull to influence the actions of her indigenous corporations. A government could reward them with tax breaks, lower tariffs and so many other factors available to every organized government. The scenario Fabiyi is painting in which a government leaves the sources of its energy on market forces and whims of privately owned corporations hardly ever exists in the real world.

Perhaps the most unintelligible argument of Fabiyi is that directed against the offer of "increased oil and gas share of the American market." According to him, he does not see any attraction in the offer that Nigeria's export to the US may increase up to 1.8 million barrels per day. He declares it as not only "unattractive but a clear case of strategic sabotage against the Nigerian nation." Fabiyi declares it "strategic idiocy in having one country as your principal source of demand (and) is patently obvious, just as it is strategically suicidal to have a single nation as a primary source of supply." Nothing seems to prove beyond doubt that Fabiyi hardly understands what the debate is all about than some of his statements here. First, while claiming to know the mind of America Fabiyi feels that all the US is trying to do in its new alignment is to avoid a single source supply. How does he know that? In fact, this does not seem to arise with regard to Nigeria. America imports about 12 million barrels of oil per day. How could Nigeria become America's single source supply if her total export to America can only rise as high as 1.8 million barrels per day according to AOPIG report? America is not just trying to avoid a single source for her energy it is what she has been practicing since time immemorial. She is only trying to up Nigeria's quota of the 12 million barrels. It is an arrangement that benefits Nigeria more than it does to the US. The only problem seems to be because it is coming with a catch that entails our redefining our relationship with OPEC. And some of us a saying, let us get rid of OPEC and make new friends in the big oil market.

Second, how could 1.8 million barrel export not be attractive if at the present time Nigeria exports only 900,000 barrels per day? Ignorant of the whole debate about quitting OPEC Fabiyi claims that exporting 1.8 million to the US would be exporting about 80% of Nigeria's daily quota to the US thereby making the US Nigeria's single export source. As I said previously, this shows that Fabiyi either does not understand the facts of the debate or cannot reason correctly. And this is a strange problem for him because he professes to be an expert on petroleum economics. The real issue of the debate is that Nigeria can hardly meet any increased export to the United States under the current OPEC arrangement. OPEC has a static quota allotted to Nigeria. Sticking only to that OPEC production quota Nigeria cannot fulfill the new American demand and the many other obligations she has with regard to crude oil consumption worldwide. Because of this situation she has to quit OPEC, produce as much as she can sell, sell a whole bulk of it to the US and sell the rest to all other costumers of hers at exactly the prices determined by an OPEC-influenced market. What is wrong about that? Fabiyi does not understand this simple argument that is based both on modern economic politics and common sense.

However, Fabiyi's most ridiculous argument in this regard is that which he draws from a strange hypothetical he constructs. And here it goes

Suppose Nigeria were to supply 100% of its crude oil to the USA, and suppose for some reason, Nigeria draws the ire of its sole source of demand, and finds itself like Saudi Arabia, suddenly fallen from the good graces of America, where would we turn to sell our crude?

This would have been a very tragic hypothetical if Fabiyi had not attempted to redeem himself with his acknowledgment that "the oil market is incredibly complex. It is not a simple case of moving supplies elsewhere. There are agreements to be made and contracts to be negotiated with buyers and producers as well as deals to be struck with shipping agencies …. There are also complex global trade laws and excise and duties that need to be taken cognizance of." But unfortunately Fabiyi steers this admission to buttress his strange conclusion. According to him in a situation where Nigeria has the US as the sole importer of her crude and the latter suddenly calls it quits, Nigeria would be stranded for at least six months in order to be able to accomplish all the different complexities associated with entering into new trade deals with other importer customers. As it is obvious, such is an argument that reveals the terrible limitation of people like Fabiyi in this debate.

First of all, his hypothetical scenario is achingly simplistic and elementary. Contractual commerce between nation states is rarely broken off suddenly. The different parties usually give a long-term notice of the imminence of such a break. Take for instance what America is apparently trying to do. They are only preparing for what may happen in the next five years. It does not mean that when they say that they have a new oil policy they rush immediately to break the alliances they had before. That is elementary commence which is perhaps all that Fabiyi and his ilk know. Life is more complex than that. There are serious consequences involved with breaking contractual agreements in commerce. In fact it may be easier to make a deal with a new customer than to break an old one with an old customer. For instance Nigeria may begin supplying oil to nation at a regular market prices pending when a deal could be finalized on the duration and prices of the bulk of supplies. That seems about how business is conducted in the modern times. The scenario envisaged by Fabiyi is unrealistic. You do not finish negotiating the complexities of trading in say petroleum products before you begin the supply or the lifting of the petroleum crude. Working out the deals is usually a long-term process, which continues many years after the first transaction had been effected.

Another ridiculous argument of Fabiyi runs like this,

I find a logical disconnect between the case for the total supply of Nigerian production to the USA and the supposed development of Nigerian refining capacity. Refining needs crude oil as raw material. If AOPIG and Ihenacho are advocating that Nigeria increase supplies to the USA, where then will the crude oil that will be used as stock for the 'expanded' refining capacity come from? Obviously in their analysis, AOPIG have not considered the possibility that someday Nigeria will move out of its doldrums, will diversify its economy, and will begin to consume significant amounts of crude oil locally - in thermal power plants, in industry and in refineries.

As I said, this is one of those incomprehensible arguments Fabiyi is making to clearly demonstrate that he really does not understand the issues of the debate. First, nobody to my knowledge has ever argued for a total supply of Nigeria's oil export to the US. Both Ihenacho and his so-called "friends" and "pals" of the AOPIG have not made this argument. It is an argument manufactured in Fabiyi's imagination. Perhaps the only reason why Fabiyi discovers a non-existent "logical disconnect" between Nigeria's production capacity and the quantity that may be demanded in the new US oil policy is because he appears to be thinking from a box. That box is his thinking that Nigeria must always operate from the confines of the OPEC. But that is begging the whole question. The debate is focused on our call to Nigeria: let us get out of the OPEC box. Let us produce all that we want and export all that we need, not only to the US but to any other customer country at exactly the price influenced by OPEC. For people like Fabiyi to successfully join the debate, they have to think outside of the box. They have to study what is happening in the non-OPEC countries and know that such is what will be best for Nigeria in the new oil market realignments.

Finally Fabiyi concludes his rejoinder by descending totally into an incredible frivolity. Hear him:

The other issues he (Ihenacho) raises about a so-called OPEC Islamic agenda are patent falsehoods. Venezuela, the primary founding nation of OPEC and a current leader of the OPEC family is 98% Christian. That world's largest oil producers happen to be Islamic nations is nothing but an accident of geography. However, if Ihenacho believes, as he purports to, in a God of creation (I took the liberty to look up his biography), then the good Lord must have had a reason for citing the world's largest petroleum reserves under Arabian and African soil. Perhaps God in his infinite wisdom purposed that the world's greatest nations should every now and then be taught a lesson in humility by the not-so-great nations.

It is certainly very difficult to know how to evaluate this sudden descent into frivolity by Malcolm Fabiyi who has every right to describe himself as an academic. First, I supported my suspicion of an Islamic agenda in OPEC with non-accidental facts as they relate to Nigeria. It is known worldwide the Rilwanu Lukman is neither a petroleum engineer nor accomplished oil marketer. What other extraordinary qualification beside his Islamic faith does he possess to be serving that long with OPEC? It is known fact that those who occupy the slots allotted to Nigeria in the OPEC headquarters are all Muslims. What other facts does Fabiyi need to suspect an Islamic agenda in the whole OPEC operations as they relate to Nigeria?

Second, granted that Venezuela, one of the founding members of the cartel is overwhelmingly Christian. But the skimpy history provided us by Fabiyi suggested that at a particular point in time the understanding of the then oil producing nations was hijacked by the Arab countries with the collusion of the oil corporations. Yes, Venezuela may have been a founding member of the cartel, but as OPEC thrives today, it is totally dominated by Islamic nations who use the cartel to pursue other non-oil goals. These are the facts.

Third, Fabiyi states quite convincingly "that the world's largest oil producers happen to be Islamic nations is nothing but an accident of geography." But in the very following statement he contradicts himself by asserting that, "the good Lord must have had a reason for citing the world's largest petroleum reserves under Arabia and African soil." This shows nothing but frivolity and amateurishness. I am beginning to wonder how much simple logic Fabiyi knows. His essay is so riddled with contradiction after contradiction. God is neither a product of accident nor does God work by accident. God thrives beyond all categories such as necessity and accident. If God placed the oil reserves in the deserts of Arabia then the whole oil reserves of the world cannot be as a result of an accident. Fabiyi's God-language is too elementary.

But why drag God into the debate about Nigeria's continued membership of OPEC? In fact only Islamic fundamentalists and militants like Osama Bin Laden are qualified to make Fabiyi's type of an argument based solely on the belief that God located a huge oil reserve in the Arabia desert to shame the proud Americans and their allies. Moreover such a hopeless argument reveals nothing but a terrible ignorance of the huge oil reserves that are buried and untapped under the soils of the United States. If God has become the world's distributor of oil reserves, there is no doubt that God gave as much oil to the US as God gave to say the Arab world and the Africans. Let us not play this God-card in the current debate about OPEC.