Al-Ahram Weekly On-line 21 - 27 September 2000 Issue No. 500
Published in Cairo by AL-AHRAM established in 1875

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Nothing to worry about

By Sherine Nasr

Although members of the Organisation of Petroleum Exporting Countries (OPEC) have increased oil production by 800,000 barrels per day (bpd) to 2,200,000 bpd, their action has had little impact on the oil crisis sweeping Europe. Meanwhile, the international price of oil has continued to vacillate. Last week, oil prices jumped to a decade high of US$35.85 per barrel, before dropping slightly to US$32.82 following OPEC's increase of production. Prices moved upwards again with US threats to use its military power against Iraq should it commit any acts of aggression against Kuwait.

While Egypt welcomed OPEC's decision to increase production, Minister of Petroleum and Energy Sameh Fahmi said that stability in oil prices worldwide is in the best interests of not only oil importing countries, but exporting countries too. Fahmi called on European countries to investigate the causes of the present crisis and devise plans to avert similar situations in the future.

The impact of increased oil prices on Egypt is considered minimal. An importer of natural gas, Egypt's bill for this fuel will probably increase if, as predicted, the cost of this fuel rises in conjunction with that of oil. An increase in the international price of natural gas might, however, eventually work in Egypt's favour. A source at the Egyptian General Petroleum Corporation (EGPC), who spoke to Al-Ahram Weekly on condition of anonymity, said, "If natural gas prices do remain high, this increase will ultimately be in Egypt's best interests because within two years Egypt will not only stop importing natural gas but begin to export it to Europe."

According to Paul Rae, Chairman of ExxonMobil in Egypt, which is not involved in the production of oil in Egypt, private oil companies operating in Egypt are barely affected by the present situation. Explaining that his company buys oil from the EGPC at a fixed price, one which was negotiated earlier and is therefore lower than the current international price, the impact on his company will be minimal.

The EGPC, however, in its sales to companies such as ExxonMobil, will not be receiving a windfall due to the current high prices.

Among the reasons for the recent price increases on the world market, according to experts, are the shortages in international strategic reserves and the acceleration of economic growth rates, particularly in East Asian countries where the economic situation is picking up again.

The high cost of electricity and gas in Europe, currently causing so much panic, cannot be blamed solely on international oil prices. More significant, experts suggest, are the high taxes imposed by European governments on oil products. "It is the importing countries that get the most revenue from oil products due to these taxes," said the EGPC source. He added that in Britain, for example, half the price of a litre of fuel goes directly to the government's coffers in the form of a tax.

International observers suggest that prices will continue to rise to reach US$40 per barrel. Although OPEC was quick to increase production when prices began to move upwards, it will probably be months before this has a significant impact on price levels in the international market.

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