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Al-Ahram Weekly On-line 21 - 27 September 2000 Issue No. 500 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly On-line 21 - 27 September 2000 Issue No. 500
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Elections Development Region International Economy Opinion Culture Features Special Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Another oil crisis?
By Mohamed Sid-Ahmed
On the 40th anniversary of its birth on 10 September 1960, OPEC decided to raise its daily production of oil by 800 thousand barrels as of the beginning of October in an attempt to bring down the price of crude oil, which has escalated in recent weeks to a 10-year high of over $37 a barrel. The blame for the surge in price was attributed to an earlier decision by OPEC to trim supply as part of a plan to lift the oil price to about $25 a barrel. The plan backfired badly, and any short-term benefits the oil producers hoped to reap from the price increase were overshadowed by the disruption in the global oil market and the looming spectre of a new oil crisis.
An oil crisis this time around will be very different from the one that convulsed the world in the aftermath of the October 1973 war. To begin with, the map of energy consumption has changed considerably over the last three decades. The industrialised countries that were hardest hit by the first oil crisis have learned to diversify their energy sources, with gas and, in some countries, notably France, nuclear power replacing petroleum in many areas.
According to Ahmed Zaki Yamani, Saudi oil minister from 1962 to 1986, this latest crisis will mark the end of the oil era. As he puts it, "The Stone Age came to an end not for a lack of stones and the oil age will end, but not for a lack of oil!" He accuses OPEC of having "a very short memory" and warns that it will "pay a heavy price for not acting in 1999 to control oil prices," adding that its decision to raise production is "too late."
The architect of the dramatic oil price hike in the '70s, Yamani believes that "technology is a real enemy for OPEC" because it will "reduce consumption and increase production from areas outside OPEC. This year's oil price scare will feed rival non-OPEC production, suppress demand and, most damagingly for OPEC, breed new fuel technologies." He sees hybrid engines for automobiles and hydrogen fuel-cells drastically cutting the consumption of gasoline, while big new finds lift crude flows from non-OPEC countries, and predicts that "the real victims will be countries like Saudi Arabia, with huge reserves which they can do nothing with -- the oil will stay in the ground for ever."
The main lesson drawn by the industrialised societies in the wake of the oil crisis in the '70s was to have diversified their sources of energy, and build up a "strategic reserve" of petroleum for emergencies. Today new concerns have emerged making cuts on fossil fuel consumption (i.e., coal, petroleum, gas) still more imperative, namely, industrial pollution and global warming due, among other factors, to carbon dioxide emissions. The Kyoto protocol, signed in 1997, fixes a limit on greenhouse gas emissions contributing to global warming to be reached by no later than 2010. Now the main field of petroleum consumption is the private car and the truck -- more generally, the field of transport, human and merchandise. Ninety per cent of automobiles and trucks use gasoline. A new policy is to be devised on how to solve transportation problems.
Many factors have contributed to the rise of oil prices, such as refinery bottlenecks, transport restrictions, high taxes in oil importing countries and speculation on the financial markets. But the crisis reached a critical level with haulers blockading oil depots and refineries and truckers, farmers and taxi drivers clogging motorways throughout Europe, beginning in France, then spreading to England, Belgium, Holland, Poland and Germany, with repercussions extending to Spain, Italy and other European nations. The demonstrations were held to protest the high cost of fuel, between 70 per cent and 80 per cent of which goes into the tax coffers of the state. This has prompted some OPEC members to suggest that countries complaining about the high cost of fuel should look more to their own tax policies than to OPEC's production levels.
Britain's Tony Blair adopted a hard line towards the blockade crisis, arguing that the proper forum for debating such issues is Parliament, not the street. He made it clear that he was not willing to consider a reduction in the cost of fuel nor to reach a compromise solution with the protesters, as Jospin did in France. His Labour government, which is committed to reducing pollution and greenhouse gas emissions, believes high fuel prices provide a cost incentive to reduce traffic congestion and increase the use of public transport. The extra revenue earned is used by the government to fund public spending in areas like health and education.
Overcoming the current oil crisis requires a delicate balancing act between the divergent interests of three parties: oil producers, oil entrepreneurs and oil consumers. The producers are no longer divided as they were before, with a group of hardliners insisting on the highest possible price for oil and moderates keen to reach a compromise that would benefit all parties. Everybody now agrees that a price ranging between $20 and $30 a barrel is the optimal solution in the long run if undesirable surprises are to be avoided.
The US asked for an increase in production reaching a million barrels a day. But oil producers were afraid that such a drastic increase could bring prices sharply down and disrupt oil markets. A consensus was reached to increase output gradually by 800 thousand barrels a day, with promises to increase it still further in future if this proves necessary. Most oil producers have reached their maximum level of production and cannot contribute much to the increase, which leaves Saudi Arabia with the main cards in hand. To bring the extra oil produced to the million barrel level, the US has released some of its strategic oil reserves, thus deeply displeasing OPEC members who have complained that the strategic reserves of oil are for emergencies, not for price manipulation.
In the final analysis, it is the developing countries that will suffer the most from high oil prices. These countries now use more of the world's oil output than they did at the time of the last oil crisis: nearly 40 per cent of world oil compared with 26 per cent in the '70s. The growth in the use of oil in developing countries has averaged five per cent annually since 1970, compared with one per cent per year growth in the richer countries. This increased dependence means that China's oil import bill could jump 250 per cent this year, while the Brazilian import bill could be 150 per cent higher as a result in the rise in oil prices. Thus many of the benefits of foreign assistance could be wiped out.
How will the oil crisis impact on the Middle East crisis, which is also at a turning point? Until the recent Camp David summit, the Middle East game seemed to focus on three main actors: Clinton, Arafat and Barak. With the emergence of Jerusalem, a holy city for the three monotheistic religions, as the main issue of contention, the game is bound to extend to a wider range of actors. The same is true for the oil crisis, which is likely to further strain relations between the Arab/Muslim Gulf oil producers and the Judeo/Christian Western world, the main oil consumers. In that sense, the oil crisis could further complicate any attempt to reach a settlement of the Middle East crisis.
