Sean Farrell: Regimes play power games with oil supplies

Share
Related Topics

When the oil price rocketed in 1973, everyone knew what the reason was. Opec, tired of supplying cheap oil to the world, flexed its muscles by cutting supplies and massively increasing prices, resulting in a global economic slowdown.

This time there is less agreement and more finger-pointing for the more than doubling of oil prices in the past year to a record $139.12 a barrel. Demand has no doubt increased, partly on demand from rapidly growing countries in emerging markets, led by China.

Until now, Opec has rejected claims from the United States and other oil consumers that there is not enough oil to go around and instead blamed the surging cost on speculators.

Tony Hayward, the chief executive of BP, dismisses the idea. But it is clear that investors have increasingly turned to commodities to add to their portfolios, causing concerns about a bubble. According to Mr Hayward the main constraints are political and not ecological. Supplies are controlled by regimes in countries such as Russia and Kazakhstan as well as the states of the Middle East. Some of these countries are exercising their new-found power by holding back reserves.

What is certain is that further large increases in the oil price can wreak huge damage on the global economy. The Group of Eight major economies said at the weekend that rising commodity prices were replacing the credit crunch as the main threat to world growth.

If prices rise above $200 a barrel, as some analysts are predicting, the "new stagflation" – slowing growth combined with higher prices – will take an even firmer grip on the world economy as inflation continues to rocket and businesses and households rein in spending and investing. Central bankers are preparing to raise interest rates to cope with the increase in prices even amid claims that we may be heading for the worst economic slump since the Great Depression.

Whether speculators bear some of the blame or not, the demand for oil has been driven by all of us as the long global economic boom and rising living standards have boosted demand for the goods that China and other manufacturing nations churn out. It may be that what is needed to bring oil prices down is the very recession that policymakers grappling with the problem are trying to avoid. The Saudis may now have realised this and decided to act to ward off that prospect.

However, there may be a beneficial by-product. Faced with massive costs, governments and businesses will invest more in finding alternative sources of energy.

Beyond the current debate about who is to blame for the exploding cost of oil, the grim truth is that in the long run the stuff is going to run out.

React Now

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Junior VB.NET Application Developer (ASP.NET, SQL, Graduate)

£28000 - £30000 per annum + Benefits + Bonus: Harrington Starr: Junior VB.NET ...

C# .NET Web Developer (ASP.NET, JavaScript, jQuery, XML, XLST)

£40000 - £50000 per annum + Benefits + Bonus: Harrington Starr: C# .NET Web De...

Clinical Negligence Solicitor

Highly Competitive Salary: Austen Lloyd: HAMPSHIRE MARKET TOWN - A highly attr...

Network Engineer (CCNP, CCNA, Linux, OSPF, BGP, Multicast, WAN)

£35000 per annum: Harrington Starr: Network Engineer (CCNP, CCNA, Linux, OSPF,...

Day In a Page

Read Next
 

The power of anonymity lies in the freedom it grants

Boyd Tonkin
Rebel fighters walk in front of damaged buildings in Karam al-Jabal neighbourhood of Aleppo on August 26, 2014.  

The Isis threat must be confronted with clarity and determination

Ed Miliband
Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

The phoney war is over

Russian troops and armour pour into Ukraine
Potatoes could be off the menu as crop pests threaten UK

Potatoes could be off the menu as crop pests threaten UK

The world’s entire food system is under attack - and Britain is most at risk, according to a new study
Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
From Mozart to Orson Welles: Creative geniuses who peaked too soon

Creative geniuses who peaked too soon

After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
Caught in the crossfire of a cyber Cold War

Caught in the crossfire of a cyber Cold War

Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

Salomé: A head for seduction

Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

British Library celebrates all things Gothic

Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

Is the Hard Rock Café worth fighting for?

The restaurant chain's owners are currently embroiled in a bitter legal dispute
Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

In search of Caribbean soul food

Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
11 best face powders

11 best face powders

Sweep away shiny skin with our pick of the best pressed and loose powder bases
England vs Norway: Roy Hodgson's hands tied by exploding top flight

Roy Hodgson's hands tied by exploding top flight

Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

Di Maria and Ronaldo: A tale of two Manchester United No 7s

They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

Robert Fisk: No victory for Israel despite weeks of devastation

Palestinians have won: they are still in Gaza, and Hamas is still there
Mary Beard writes character reference for Twitter troll who called her a 'slut'

Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

The Cambridge University classicist even wrote the student a character reference
America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

America’s new apartheid

Prosperous white districts are choosing to break away from black cities and go it alone