Oil Production and Social Contracts

Final-GraphCurrently oil producers face a problem that they would not have expected in years past, a glut of oil. While refiners and consumers are reaping the benefits of low oil prices do to a supply flood in the market, oil-producing countries are hurting. For the first time in years the price of a gallon of gasoline is down to below three dollars a gallon. For producers of oil this means lower revenue and some nations are trying to do something about it. The three philosophers who wrote about social contracts would have something to say about this.

Hobbes would argue that the oil producers should elect a sovereign power to oversee the oil production. This exists with OPEC, The Organization of Petroleum Exporting Countries. OPEC consists of twelve nations centered mostly in the Middle East along with Venezuela. However not all nations are members of OPEC, which has said it will not consider cutting oil production. The low price of oil due to high production yields along with a strong United States dollar is hurting these nations however it seems that none of these nations are willing to concede higher production levels in the interest of raising the price of oil as oil indexes continue to slide in the markets. Hobbes would argue that the power of OPEC should render an agreement with these nations that does not seem to be coming.

Rousseau would ask that all of the oil producing nations, including countries relatively new to the modern oil market, such as the United States to collaborate together in everyone’s equal interest to slash production and make prices rise. However the theory of Rousseau runs into problems in the capital markets. Some countries such as the United States, have seen a rise in consumer spending due to the lower price of fuel. Because of this, the United States is benefitting greatly from these lower prices as a majority of our economy comes from consumer spending. In comparison a country like Saudi Arabia leans heavily on the oil producers. Because nations come from such different perspectives it is unlikely that an agreement will be reached to lower production levels.

oil-production-DammamJohn Locke would also be a supporter of OPEC but not as vehemently as Hobbes in his belief that a power should be elected but ultimately contracts come down to freedom of the people. While OPEC does not seem to be making any significant changes, the freedom of the masses bound by a moral code is benefitting. While Wall Street might be struggling through the drop in oil prices, the average consumer is benefitting greatly. Many consumers spend up to a fifth of their income on fuel. Due to the decline in prices, this money left behind benefits individual consumers and small businesses greatly.

While the oil producers are hurting it seems as though the lack of a contract has benefitted the vast majority of the United States for the time being. It has especially benefitted those who have not had the opportunity to reap the benefits of the recovery in the economy. If any theorist wins in this scenario I would say he is John Locke.

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3 thoughts on “Oil Production and Social Contracts

  1. I have noticed the significant drop in gas prices and I have wondered what it’s doing to the other countries that supply the oil. Although the consumer is profiting as of right now, doesn’t mean we will be later. Of course we cannot predict what is going to happen in the future, but I personally believe something should be done to try to keep the prices as consistent as possible, yes that means less of a profit for the supplier, but that would definitely help the consumer out. I know it will probably never happen, but it is a hope to of mine to not pay almost four dollars for gas again in a few months.

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  2. OPEC is starting to lose control of the oil market because the United States is finally tapping into its large reserves and flooding the market with its cheap shale oil. Shale oil is hugely abundant and new fields are being discovered every day and this has led to the huge slump in crude oil prices. I don’t think that contracts can even save OPEC because they will probably lose much more of their power in the coming years as the United States government starts to deregulate the shale oil market.

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  3. I agree with your views about the expected actions of oil producers based on Hobbes, Rousseau, and Locke. I like how you pointed out that some oil producing nations would actually benefit from lower prices (United States) and that would result in disagreement between oil producing nations causing Rousseau’s mutual interest theory to be disfavored. I never thought of oil producing countries as people until you wrote this article. The fact that the philosophers theories can be applied at larger scale (countries as people and not people individually) is very interesting.

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