Conventional wisdom holds that the OPEC oil cartel has the world in its grasp. It can manipulate prices by tinkering with supplies. Last month OPEC released a new study on world oil demand that seemed to signal the cartel was readying to tighten the taps because higher prices were slaking the world's thirst for oil. The American Petroleum Institute released fresh data showing that demand for oil products in the United States (the world's largest market) dropped a whopping 3 percent from the year earlier. The news about lower demand has caused oil prices to fall a bit, and all eyes are on OPEC's wizards to tighten supplies.

But the conventional wisdom is mostly wrong. OPEC (which stands for the Organization of the Petroleum Exporting Countries) is no wizard. For the most part, its actions lag behind fundamental changes in oil supply and demand rather than lead them. OPEC looks like a masterful cartel when, in fact, it is mainly just riding the waves.

It is hard to figure out exactly what goes on behind's OPEC's closed doors, but glimpses are possible by probing what the cartel members say about prices and how they set quotas. Over the last five years, OPEC members have announced ever-higher price goals only after the market had already delivered those high prices. As the market has soared, OPEC has followed. Only in the last few months has Saudi Arabia suggested that the cartel would be better off if prices reversed because high prices would encourage the world's big oil consumers to wean themselves from oil. It proffered $125 a barrel. The markets shrugged and kept on rising until real facts about slowing demand revealed that fundamentals were changing.

OPEC also sets quotas so that each member knows its role. Throughout its history, OPEC has faced the difficult task of holding the cartel in the face of strong incentives by each member to cheat. Today's oil market makes that job easy because nearly every member, except Saudi Arabia, is producing at full capacity. OPEC, more or less, has nothing to do.

In fact, the last time OPEC made a major adjustment to its quotas—September 2007—it jiggered them to reflect what its members were already pumping. Algeria got a big boost because it was already supplying nearly 50 percent more than its quota. Kuwait, Libya and Qatar also got boosts that aligned their OPEC quotas with existing reality. OPEC also set, for the first time, a quota on Angola's output. Since then, Angola has attracted a steady stream of new production projects, which makes it inevitable that OPEC will adjust Angola's quota to reflect the new reality. (Iraq has no quota; it has troubles enough without pretending to align its oil output to OPEC strictures.)

Nigeria and Venezuela got haircuts because their political troubles meant they were already producing far less than their quotas. Indonesia also cut its quota and a few months later left OPEC because it realized that as a big oil user it actually had more in common with oil importers than its fellow OPEC members. These changes in quotas were reflections of political realities that OPEC doesn't control.

Today's oil cartel, even more than in the past, is really about Saudi Arabia. But Saudi Arabia also is no wizard at the controls of the world market. The Saudis can adjust their output a bit since they control nearly all of spare capacity in the world market. (Earlier this month they pledged another 200,000 barrels per day to dampen pressure from the United States and other governments that are reeling from high oil prices. But that move was more symbolic than real as the markets were already expecting the new supplies.)

Saudi Arabia is on the front lines of the new reality in world oil supply. It is proving much harder and more costly to bring on more supplies. The Saudis have an ambitious plan to increase output about one third over the coming decade, but they are finding that will be a stretch. Their fellow OPEC members are in a similar situation, and those hard facts also produce high oil prices. In fact, the Middle East members of OPEC are, today, producing at just the same level as they were three decades ago because none of them invested much in finding and producing new supplies. High prices into the future reflect these fundamental facts rather than the assumption that OPEC is a masterful cartel.

Conventional wisdom holds that because OPEC is raking in more cash than ever, it has never been stronger than it is today. In fact, OPEC has rarely been weaker. It is the accidental beneficiary of forces that have caused today's high prices, and it will be nearly as powerless when prices come down.

The real solutions to today's high oil prices require more attention to demand. Blaming OPEC, while good political theater, won't have much impact. Legislation now working its way through the U.S. Congress would actually attempt to break up the oil cartel. Such schemes won't work, and the political effort would be better spent on policies that redouble the nation's efficiency, producing more oil from diverse sources here at home, and in finding ways to move beyond oil altogether.

The price of a barrel of oil has more than doubled in the past year and a half, from $60 in early 2007 to a high of $142 earlier this summer. This has led to a search for someone to blame for this price increase and for government policies to reduce oil prices.

The actions of energy traders, more pejoratively known as speculators, are being targeted by Ralph Nader, the chief executives of the major domestic airlines and many members of Congress as a major cause of this price increase. However, data from world oil market demonstrates that it is unlikely that speculators have had a noticeable impact on world oil prices.

House Speaker Nancy Pelosi, D-San Francisco, recently called on President Bush "to
draw down a small portion" of the U.S. Strategic Petroleum Reserve to reduce oil prices. But this is unlikely to have a discernible effect on world oil prices.

Oil is a relatively homogenous commodity traded in a world market with a demand of 85
million barrels a day, of which 25 percent is consumed by the United States. The demand for oil is insensitive to changes in the price of oil, particularly in oil-producing countries, where its use may be subsidized. Recent research suggests a 10 percent increase in the price of oil would reduce world demand by no more than 1 percent.

Speculators are accused of increasing the price of oil by taking large financial positions in oil futures markets. But these bets on the future price of oil have no impact on the current price of oil if the current demand equals the current supply, meaning there is no net change in inventories of oil.

According to the U.S. Energy Information Administration, commercial inventories of oil
currently held by the major industrialized countries are below their five-year average. That means consumers are willing to purchase all available supply and run down inventories at the current high price. Given that market outcome, the behavior of speculators cannot be inflating the price.

What would speculators have to do to increase the world price of oil by $25 relative to a
$100 baseline? They would need to buy and put into inventory approximately 2.5 percent of world demand, or approximately 2.125 million barrels a day. Over the course of a year, this would amount to storing 775 million barrels, which is the current amount in the our country's Strategic Petroleum Reserve.

Applying this same logic to Speaker Pelosi's recommendation to draw down a small
portion of the reserve--say 100 million barrels over the course of a three-month period--this 1-million-barrel-a-day increase in supply implies at best a three-month-long $12.50 reduction in the price of oil relative to its current price of $125.

However, according to the Energy Information Administration, world inventories of oil
held by industry and government are on the order of 7 billion to 8 billion barrels. So a more likely outcome of withdrawing 1 million barrels a day from the government's reserves for three months is that privately held inventories would increase one-for-one, and world oil prices would be unaffected.

Although energy traders are a convenient scapegoat for the current high price of oil, the
numbers just don't add up for their actions to have any significant impact on market prices. A strong world demand, not the actions of speculators, is responsible.
But releasing a small amount of oil from the U.S. reserve may still make sense. Given
historically high prices--and the great need for government revenues--this may be a fortuitous time to sell oil and take advantage of the market.
--------------------------------------------------------------------------------
FRANK A. WOLAK is a professor of economics at Stanford University specializing in the
energy sector. He is chairman of the California Independent System Operator's Market
Surveillance Committee, an independent monitor for the electricity supply industry. He wrote
this article for the Mercury News.

Five visiting scholars with expertise on Southeast Asia will spend varying portions of the academic year 2008-09 in residence at Stanford. Shorenstein APARC and the Southeast Asia Forum will host four of them: three were selected under the Lee Kong Chian NUS-Stanford Initiative on Southeast Asia. and one is a recipient of a 2008-09 Shorenstein Postdoctoral Fellowship. A fifth scholar will be on campus as a National Fellow of the Hoover Institution.

The five are John Ciorciari, Joel S. Kahn, Mark Thompson, Angie Ngoc Tran, and Christian von Luebke.

John Ciorciari spent the 2007-08 academic year at Stanford as a Shorenstein Postdoctoral Fellow at Shorenstein APARC. He finished a book that examines how Southeast Asian states have "hedged" their relations with the United States and China.

Dr. Ciorciari will spend upcoming academic year at Stanford as a Hoover Institution National Fellow. In that capacity he plans to expand his research to include the international relations of India.

Joel S. Kahn is a professor of anthropology (emeritus) in the School of Social Sciences at La Trobe University in Victoria, Australia. He will be at Stanford for the first half of October 2008 as the 2008 Lee Kong Chian National University of Singapore-Stanford University Distinguished Lecturer.

While at Stanford Professor Kahn will give three public lectures. Their tentative titles are: "A Southeast Asian Modernity?"; "Empires, States, and Political Identities in (Pen)insular Southeast Asia"; and "Religion, Reform, Science, and Secularity." Details including dates, times, and venues will be posted as they become known.

Mark Thompson is a professor of political science at the Friedrich-Alexander University Erlangen-Nuremberg, Germany. He will be in residence at Stanford in Winter and Spring 2009 as the 2009 Lee Kong Chian National University of Singapore-Stanford University Distinguished Fellow.

While at Stanford, Prof. Thompson will pursue a book project on "Late Democratization in Pacific Asia." The book will question the claim that democratization in Pacific Asia (including Southeast Asia) has been driven by economic growth and offer an alternative perspective. He will present the results of his project in a public lecture in the spring of 2009. Date, time, venue, and other details will be posted when known.

Angie Ngoc Trần is a professor in the Division of Social and Behavioral Sciences and Global Studies at California State University, Monterey Bay (CSUMB). She will be in residence at Stanford for the second half of November 2008 as the 2008 Lee Kong Chian National University of Singapore-Stanford University Distinguished Fellow.

In a public lecture on November 17, 2008 (Mobilized Workers vs. Morphing Capital: Challenging Global Supply Chains in Vietnam), Professor Tran will present the results of her study of labor-capital relations in Vietnam and how the different national origins of investors and owners affect workers' conditions, consciousness, and activism. Details including time and venue will be posted as they become known.

Christian von Luebke was a research fellow in Tokyo at Waseda University's Institute for Global Political Economy in 2007-08 following receipt of his 2007 PhD in public policy and governance at the Australian National University. He will be at Stanford for the 2008-09 academic year as a Walter H. Shorenstein Postdoctoral Fellow.

During his residence Dr. von Luebke will pursue a research and writing project on "Good Governance in Transition: Explaining Local Policy Variations in Indonesia, China, and the Philippines." He will give a public lecture on the results of his project in winter or spring 2009. The date, time, venue, and other details will be posted when known.

For the past ten years, Japan has undergone aggressive, government-driven reforms aimed at changing its financial systems, labor markets, and corporate governance institutions. Faced with the challenges of globalization and an ageing population, Japan undertook these reforms to regain its former competitiveness. What remains uncertain, however, is whether these reforms will also be effective in creating an environment
that is more favorable to entrepreneurship and innovation. If the reforms are effective, at what pace, and in what shape will new firms emerge? Will Japan’s system mirror the institutions that have evolved in regions such as Silicon Valley, or will it develop into a new framework of innovation?

The persistent decline in Japanese asset values during the 1990s engendered many policy and legal responses. Among these was a series of business policy and associated legal reforms intended to foster the creation of new companies, new industries, and new financial institutions. Starting in 1997, these reforms included changes in how firms are formed. For example, the capital required to start a stock-issuing firm was reduced from ten million yen to a mere one yen. The yugen kaisha—a secondary form of Japanese company—was also abolished and the limited liability partnership created instead. Holding companies were allowed, mergers were deregulated, treasury shares were authorized, and the liability of company directors was limited.

Additional reforms were promulgated to encourage new forms of financial intermediation. Tax benefits created for “angel” investors, foreign venture capitalists, foreign private equity, and foreign lawyers became common. Purchase of shares with shares, triangular mergers, and repurchase of shares were all allowed. Moreover, several new stock exchanges were created expressly for relatively new companies.

Corporate governance laws were also revised. For one, Japanese firms may now use U.S.-style board of director committees, with an upper limit placed on directors’ liabilities. Japanese auditors are now required to be outsiders, and consolidated accounting is likewise compulsory, as well as “mark-to-market” rules for financial reporting. These are just a few of the changes, all of which combine to increase transparency in Japan’s markets.

The results were noticeable. By 2006, new companies were garnering price-to-earnings ratios of greater than 100 to 1 in the new markets; the number of IPOs per year was comparable to the rate during the U.S. Internet bubble; and the mergers and acquisition market was transformed from one of the most moribund in the world to one of the most dynamic. Venture capital firms proliferated, as did new law firms, private equity firms, and foreign banks. Existing Japanese banks merged, new banks formed, and money-lending began again. Some new companies even gained sufficient liquidity and stature to turn their founders into celebrities and some of the wealthiest people in Japan. Rakuten, Mixi, ValueCommerce, and Cybird are just a few of these success stories. Japan is currently in its seventy-first month of economic expansion—the longest of the postwar period.

The future, however, is unclear. As Professor Yoko Ishikura, of Hitotsubashi University, recently observed at a SPRIE seminar at Stanford, “Japan is at a turning point and it is uncertain which direction it will choose.” For 2008, IPO valuations have returned to levels more comparable to those in the United States, and the climate for startups has moderated somewhat. New company startup rates are flat and IPO rates have recently dipped significantly. Some prominent studies of the entrepreneurial climate in various countries rank Japan among the least favorable. Many observers are impatient for more evidence of results from the reforms. It remains an open question whether Japan is being affected by the U.S. slowdown and commodity price increases, or if the country is simply retreating from it entrepreneurial gains.

In light of these developments, scholars remain curious: Are the reforms permanently changing the Japanese economy? Are the reforms sufficient to meet the challenges that Japan faces? Will the reforms be effective? Alternatively, are these reforms even desirable? SPRIE and the U.S.-Asia Technology Management Center, in cooperation with selected experts and research organizations in Japan, are undertaking
a major project to study the seemingly contradictory corporate and social climate in Japan, which is at present stretched between entrepreneurial and more conservative forces.

Japan’s economic relationship with the countries of the Pacific Rim—and indeed with the rest of the world—is vital to all of the economies involved. If Japan is transforming into a new economic culture, an understanding of that transformation is relevant both to global economic development and to the study of entrepreneurial growth.

National Identity - Shallow or Deep? Nationalist Education - Top Down or Bottom-up? Politeness Campaigns - Smiles or Frowns? Entrepreneurial Culture - Transplanting Silicon Valley? Environmental Policy - Selfishly Green? Renewable Energy - What about Sunshine?

The inaugural (March 2008) issue of PRISM, an undergraduate journal published by the University Scholars Programme (USP) of the National University of Singapore (NUS), carries a dozen essays. Six were written by Stanford undergraduates for a Stanford Overseas Seminar taught in Singapore in September 2006, and six by NUS undergrads in the USP for an NUS course taught at Stanford in May 2007.

The Stanford students, their paper topics, and brief summaries of their conclusions follow:

Jenni Romanek examined Singapore’s national identity. She found that Singaporeans “embody certain shared attributes of national identity, but they do so on a superficial level … If the government truly wishes to impart upon citizens a Singaporean identity, it must allow them to cultivate and define it, at least in part, by themselves. This necessitates a level of self-expression that is not currently acceptable by government standards.” She ended her essay by asking, “Without free speech, whose identity are Singaporeans representing?”

François Jean-Baptiste examined Singapore’s efforts to inculcate national identity through the school curriculum. He found the education ministry’s top-down methods “generally unsuccessful” and recommended a more student-and-teacher-driven approach. “The real and representative Singapore narrative,” he wrote, involved the ambitions of a wide range of Asian immigrants including “Filipina maids,” “Malay Muslims,” and “opposition leaders like J.B. Jeyaretnam and Slyvia Lim.” Education in the city-state’s secondary schools, he concluded, “should and can incorporate that story.”

Lauren Peate studied the “Four Million Smiles” campaign launched in the run-up to the annual meetings of the International Monetary Fund and the World Bank held in Singapore in September 2006 while the Stanford seminar was in progress. She found general public support for the campaign except among “young, [more] educated, and electronically connected” Singaporeans, one of whom told her, “We trust the government but it doesn’t trust us [to smile without being told to].” She ended by wondering how the authorities would choose to deal with a young generation of bloggers with critical minds.

Jon Casto explored Singapore’s efforts to instill an entrepreneurial culture despite a general aversion to risk (and a preference for state employment) “perpetuated through cultural norms, the labor market and [government-linked corporations].” He also, however, found entrepreneurship in Singapore “slowly on the rise” and argued that “today’s experiences” in promoting it “may bear tremendous fruit” if and when the economic climate because problematic enough to demand “that Singaporean individuals, not just the [People’s Action Party] government, provide solutions.”

Alexander Slaski researched the implications of illiberal politics for environmental policy in Singapore. He credited the government with having provided its citizens with a high quality of life, including “excellent environmental governance” from the top down. But he was struck by an artifact of the government’s relatively authoritarian approach to being green: the virtual absence in the city-state of a bottom-up or civil-society movement for conservation. To that extent, he concluded, “the authoritarian elements of the government have kept environmental protection from being as strong as it could be.”

Sam Shrank investigated the status and future of renewable energy. Singapore had previously managed to secure for itself “a constant and assured flow of oil and natural gas from abroad at reasonable.” But “peak oil—the year in which the supply of oil peaks—is in sight, and the end of natural gas is not far behind.” Oil and gas prices, he warned, will rise as demand outpaces supply. Amply sunlit as it is, Singapore could and should be doing much more to exploit sources of renewable energy sources, and solar (photovoltaic) energy in particular.

Compared with these essays, the Singaporean students’ essays in PRISM were no less diverse. If the Americans concentrated single-mindedly on Singapore, in keeping with the focus of the Stanford seminar, the Singaporean contributors were more inclined to compare American conditions and experiences with those in their own country.

Dan Goh, the NUS professor who taught the Singaporeans at Stanford, introduced the student essays. His thoughts are excerpted here:

"Reflections on Western civilization have often found themselves seduced by the idea of the American exception. … It seems ironic therefore that a group of American students would travel to this island to study what they have termed as the Singapore exception. Seen in the immediate context of Southeast Asia, Singapore is indeed an exception [whose] culturally diverse [im]migrants [have transformed the city-state] into a forward-looking nation. With little historical gravitas except for founding moments and fathers, it is a young nation filled with anxieties and self-doubt. Yet, it is resolute in forming its citizenry through clever ideological campaigns and in engineering visionary technological and economic projects based on successful foreign examples. For all its democratic institutions, it is beset by political elitism and illiberal tendencies. Despite its Edenic ideals and scientific prowess, it is reluctant to pursue environmental sustainability. These are the themes and contradictions tackled in the articles by the six young American scholars featured in this inaugural volume."

"But if we look closer, these themes and contradictions describe America as well. I have always suspected that the study of the exceptional other is always the study of our self as normal when the two are actually much more similar than they are different. Irony has a way of turning in on itself. However, the American students’ essays show that there is a major difference at the heart of comparing the American and Singapore exceptions."

"Given the American political culture of suspicion of state authority, it is not surprising that [in the Stanford students’ essays] the state sticks out visibly in the landscape of Singapore society. For the Singaporean students traveling to the Bay Area however, the feeling is best described by the excitement and trepidation of a Western naturalist traveling from sedate urban London to the rich jungles of Borneo. The state monolith fades and vibrant cultural diversities, intriguing identity evolutions and self-organizing chaos beckon. But always with Singapore in their minds, the young scholars reflected their study of Silicon Valley and San Francisco back unto Singapore. What they found was that the same diversities, evolutions and chaos were also evident in Singapore, but with the roots of the state apparatus sunk deeper into the rich soil here."

"Singapore is not anything like America and yet is everything American, except for the leviathan that stands over our shoulders. Nonetheless, the diversities and hybridities of vernacular everyday life continue to grow as ideas, images and identities speed around the global circuits of capitalism, … connecting young people across the deep Pacific …"

In his own preface to the PRISM issue, SEAF Director Donald Emmerson, who taught the Stanford seminar in Singapore, had this to say:

“In Praise of Bad Teaching.” Years ago at the University of Wisconsin-Madison I pinned a page of text under that title to a bulletin board next to my office door. The author argued that bad teachers were really good teachers because their boring lectures drove their students out of the classroom and into the real world where real learning could occur.

The argument is not wholly facetious. Conventional undergraduate education is notoriously indirect. Independent field work is the preserve of professors and graduate students. Undergraduates sit, listen, read, take notes, and take exams. Technology—the ability to google—has reduced the teacher’s ability to control information. But in standard classrooms, it is still the teacher who selects, interprets, and conveys knowledge, and who then tests and grades its retention. In humdrum pedagogy at its worst, the professor and the student are, respectively, faucet and sponge. A charismatic lecturer—a supposedly “good” teacher—may fill lecture hall seats only to reinforce the enthralled passivity of the sitters.

Fortunately, the National University of Singapore and Stanford University are not conventional institutions. Both campuses encourage their students to go abroad. Professors are not dispensed with. But by affording students direct contact with foreign cultures, NUS and Stanford necessarily challenge the teacher’s span of control. In that loss of unquestioned professorial authority lies a chance for serious learning by students and teacher alike. …

For lack of space, alas, we could not [publish in PRISM] all thirty essays written for our seminars. But those that are printed herein should give readers a feel for what happened when two sets of undergraduate students were “turned loose” on each other’s turf. I am grateful to [Dan Goh and the other individuals who made this issue and the seminars possible] and above all to both complements of students, including those not represented in these pages, for giving me one of the most enjoyable and memorable “teaching”—that is to say, learning—experiences of my life.

PRISM is not available on line, but it can be ordered (stock permitting) from

The Editor, PRISM
University Scholars Programme
National University of Singapore
BLK ADM, Level 6,
10 Kent Ridge Crtescent
Singapore 119260

The Stanford Program on International and Cross-cultural Education (SPICE) has just announced a major new interdisciplinary, interactive initiative for middle school and high school students on the road to the 2008 Summer Olympics in Beijing. “The Road to Beijing” initiative includes a new documentary featuring world-renowned cellist Yo-Yo Ma and the Silk Road Ensemble, a new documentary developed by NBC that features Olympians who will participate in the Beijing Olympics, curriculum materials addressing Beijing and issues raised by the Olympics, an interactive website, and teacher professional development. SPICE serves as a bridge between the interdisciplinary work of Stanford’s Freeman Spogli Institute for International Studies and K–14 schools in the United States and independent schools abroad by developing multidisciplinary curriculum materials on important international themes.

“Learning about other cultures and about the migration of ideas among communities is vital in today’s world. In presenting a full range of perspectives, SPICE curricula broaden students’ views of the world and deepen their understanding of their own lives.” Yo-Yo Ma

The Road to Beijing initiative has four major educational components. First is a four-lesson curriculum unit, geared to middle and high school students, that (1) introduces students to the modern city of Beijing through its history, geography, and major attractions and sights; (2) explores some economic, environmental, political, and social issues of modern China and the challenges of hosting the Olympics; (3) introduces some of the Olympians participating in the 2008 Beijing Olympics through a documentary by NBC; and (4) examines musicians’ reflections on Beijing and China through a documentary produced by Yo-Yo Ma and the Silk Road Ensemble. Stanford scholars, such as Andrew G. Walder, the Denise O’Leary and Kent Thiry Professor of Sociology, served as advisors of the curriculum unit.

A second component focuses on two documentaries that are available through the SPICE website. The documentary, The Road to Beijing, produced by the Silk Road Project and narrated by Yo-Yo Ma and featuring music of the Silk Road Ensemble, is available with the Road to Beijing curriculum unit as well as through the SPICE and Silk Road Project websites. An accompanying teacher’s guide is available as well. Olympics broadcaster NBC joined the collaboration with SPICE and has produced a short documentary that features U.S. and Chinese Olympians. The first interview features Stanford alumnus and U.S. gymnast David Durante. The NBC documentary and an accompanying teacher’s guide is also available on the SPICE website.

Third, a new Road to Beijing website showcases many of SPICE’s curriculum units on China, along with new interactive features on the modern city of Beijing and the historic Silk Road. In 2007, SPICE completed a curriculum unit called Along the Silk Road in collaboration with Yo-Yo Ma and the Silk Road Project. A new Silk Road game, designed by David Cohn, Cammy Huang, Gary Mukai, and Johanna Wee, will now allow students to walk and explore the historic Silk Road. Yo-Yo Ma commented, “The wonderful work SPICE is doing to educate young people about the historic Silk Road trading route is significant on many levels. Learning about other cultures and about the migration of ideas among communities is vital in today’s world. In presenting a full range of perspectives, SPICE curricula broaden students’ views of the world and deepen their understanding of their own lives.” Other China-focused curriculum units that have been produced by SPICE include Chinese Dynasties Part One: The Shang Dynasty through the Tang Dynasty, 1600 BCE to 907 CE; Chinese Dynasties Part Two: The Song Dynasty through the Qing Dynasty, 960 to 1911 CE; China's Cultural Revolution; Ethnic Minority Groups in China; Hong Kong in Transition: A Look at Economic Interdependence; Religions and Philosophies in China: Confucianism, Daoism, and Buddhism; and 10,000 Shovels: China's Urbanization and Economic Development.

As a fourth component, the Road to Beijing initiative offers teacher professional development seminars, another hallmark of SPICE’s work over the past three decades. Many seminars have already been held at Stanford and for the East Asia Regional Council of Overseas Schools, the European Council of Independent Schools, and the Chicago Public Schools. Most recently, the SPICE staff and Albert Dien, professor emeritus of Asian Languages, gave four seminars for the Chicago Public Schools in May 2008. Each seminar featured a lecture by Albert Dien and interactive demonstrations of SPICE curricula by the SPICE staff. In October 2008, SPICE and the Silk Road Project will work with the New York City Public Schools.

In collaboration with organizations such as NBC and the Silk Road Project, SPICE will continue to channel its interdisciplinary work on key international issues (and their historical and cultural underpinnings) — political economy, security, the environment, and health — to schools in our nation and the world. SPICE invites interested teachers to visit its new website, show their students the new documentaries, and engage their students in a study of historic topics concerning China, such as the Silk Road, as well as contemporary topics concerning China, such as the 2008 Beijing Olympics.

“We are delighted that SPICE is once again sending the university’s path-breaking, interdisciplinary scholarship and research out into the world, educating a new generation of students and scholars about contemporary issues occasioned by the 2008 Olympic Games in Beijing and China’s historic rise,” said FSI Director Coit D. Blacker.

Gary Mukai personally introduced the new Road to Beijing initiative to Stanford alumni in Chicago on June 16, 2008, at a Leadership Circle Event.

As oil prices surge through $140/barrel at the time of writing, surely one can at least count on the invisible hand of the market to drive further exploration and production and ultimately bring more supplies on line, right? Or perhaps, more ominously, high oil prices presage a darker future of shortage and conflict as global oil fields pass their geological “peak”? In fact, both positions miss a crucial point about the dynamics of the world oil market — that it is increasingly animated by the counterintuitive behavior of the state-owned oil and gas giants that now control the vast majority of the world’s hydrocarbon resources.

“On average national oil companies (NOCs) extract resources at a far lower rate than international oil companies (IOCs), leaving about 700 billion barrels of oil effectively ‘dead’ to the world market.”So-called “national oil companies,” or NOCs, own about 80 percent of the world’s proven reserves of oil, a percentage that has been on the rise as the persistent high price environment encourages countries to assert even tighter control over the rent streams flowing from their resources. NOCs are curious and variegated beasts, and, contrary to the popular imagination, some are highly capable both technically and organizationally. Brazil’s Petrobras is an acknowledged world leader in deepwater drilling, while Norway’s StatoilHydro is highly regarded for its competence and transparent business practices. Saudi Arabia’s national champion, SaudiAramco, is secretive to the outside world but generally considered to be a well-run, technically capable organization. At the other end of the continuum, government infighting and micromanagement hobble Mexico’s Pemex and Kuwait’s KPC. Once-independent PDVSA in Venezuela has been remade by President Hugo Chávez into a government puppet that spends liberally on social programs but consistently undershoots its production targets. And indeed some national oil companies are hardly oil companies at all — Nigeria’s NNPC, for example, is mostly a rent-seeking bureaucracy.

What NOCs do share in common as distinct from the familiar international oil companies (IOCs) is being answerable to a host government, which inevitably brings with it some focus on objectives other than simple profit maximization. Typically, an NOC arises originally from the desire of resource-rich governments (“principals”) to gain more effective control over resource extractors (“agents”) by creating an oil champion owned by the state. Prior to NOC formation, governments are frequently (and often justifiably) wary of exploitation by the foreign oil operators providing hydrocarbon extraction services. Lacking a deep understanding of the costs of production, states are simply unable to be sure they are taxing their agents appropriately. In addition to enhancing control over the hydrocarbon sector and the revenue it brings, states may hope for other benefits from the NOC: cheap energy to fuel a growing economy, employment and development of local industry to support the hydrocarbon sector, or even foreign policy leverage derived from control of key resources.

Unfortunately for the states, relationships with their NOCs are rarely straightforward, with implications for performance. Some national oil companies evolve into barely controllable “states within a state”— PDVSA pre-Chávez was an example of this — while others see their initiative smothered by excessive government intervention as in the case of Pemex and KPC. Fraught state-NOC interactions can take their toll on company effectiveness; in other cases, NOCs may simply appear less efficient than their IOC brethren because they are serving state purposes beyond simple monetization of hydrocarbon resources. Irrespective of cause, the result is that on average NOCs extract resources at a far lower rate than IOCs, leaving about 700 billion barrels of oil effectively “dead” to the world market. A far more immediate concern than whether oil fields are passing their geological “peak” is who is sitting on top of those fields!

A detailed study of NOC performance and strategy at the Program on Energy and Sustainable Development at FSI suggests a useful way of thinking about the effects of NOC resource domination on world oil and gas markets. Price versus quantity supply curves from classical economics assume that increased price will spur efforts to expand supply. Unfortunately, the counterintuitive reality for NOCs is that, when it comes to expanding supply in the current high-price environment, most either 1) can but don’t want to or 2) want to but can’t. The end result is what one could call a “backward-bending” supply curve — additional price increases do little or nothing to boost supply.

“The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs.”In the “can but don’t want to” category are resourcerich governments that have decided they cannot assimilate any more money. Already, their investments are running into political resistance around the globe — witness Dubai’s failed attempt to purchase U.S. port management contracts, CNOOC’s failed bid for Unocal, or the increasing calls for curbs on the activities of sovereign wealth funds. Nations may decide they have enough cash and are better off leaving resources in the ground where they safely await monetization at a later date.

In the “want to but can’t” camp are countries and their NOCs that are simply unable to provide the stable political and regulatory climate to support additional build-out of expensive production and transport infrastructure. This situation is particularly common for natural gas, where long investor time horizons are needed to bankroll the multibilliondollar capital costs of pipelines or liquefied natural gas (LNG) terminals.

Meanwhile, international oil companies are left on the sidelines salivating helplessly over the vast reserves in NOC hands. Venezuela’s Orinoco region could yield hundreds of billions of barrels of heavy crude, but the government and a nowpliant PDVSA invite favored countries and their NOCs to explore rather than selecting the operators most capable of extracting the challenging but plentiful resource. Technical expertise and massive investment are required to fully develop vast Russian gas fields including Kovykta, Shtokman, and Yamal, but IOCs already burned by nationalizations and shifting rules in these and other Russian ventures are unlikely to be in a position to supply enough of either. In the face of dwindling resources they can tap, IOCs will need to diversify their business models, perhaps tackling technologically challenging options like oil sands or liquids from coal in conjunction with the carbon storage techniques that could make these palatable from a climate change perspective. Ironically, the only “easy” oil for IOCs has become oil that is geologically and technologically difficult.

While oil price is dependent on many factors (including global economic health) and is impossible to forecast with certainty, one can confidently predict continued tight supply of oil and gas, especially given global demand that will be propped up indefinitely by rising consumption in China and India. The world has plentiful hydrocarbons in the ground, but that’s where many of them are going to stay due to the unique organizational and political dynamics of the NOCs. Leverage over the market is weak; measures to reduce demand for oil and gas (though politically unpopular) or to spur development of alternative fuels and associated infrastructure (though slow to develop at scale) may be all that we have.