Gordon Brown this week described the present economic crisis as the third great "oil shock" of recent decades. In fact, there are important differences between the present situation and the energy shocks of the 1970s. The cause of the high price of oil in that unhappy era was Middle Eastern producers cutting back supply for political reasons; the fundamental reason for soaring prices today is a surge in demand from the rapidly growing economies of Asia. Yet the Prime Minister was justified in drawing a comparison with regard to the political ramifications.
This has been a week of fuel protests across Europe. Fishermen from France, Portugal, Belgium, Italy and Spain have gone on strike, some blockading ports. Hauliers in Britain have clogged London with their vehicles. Dutch lorry drivers and French farmers have staged similar demonstrations. In America, there have even been bizarre cases of thieves stealing chip fat for power. There have been political fuel protests too. The leader of the Scottish executive, Alex Salmond, has chosen the opportunity to pick a fight with Westminster over the distribution of the proceeds from the UK's North Sea oil fields. All these events have a common cause: the fact that oil is now trading on international markets at around $130 a barrel and consumers are feeling the pinch. The political response has not been encouraging so far. The French President Nicolas Sarkozy has proposed a Europe-wide cap on fuel VAT. Labour MPs, desperate to hang on to their seats beyond the next election, are demanding a suspension of the planned 2p rise in fuel duty and the new, more environmentally progressive, vehicle excise duties.
And our Government, despite Mr Brown's grasp of the scale of the problem, has resorted to impotent posturing: demanding that Opec, the oil-producing cartel, increase production and handing out permits for more oil drilling in Britain's inexorably declining North Sea fields. Meanwhile, the main thrust of yesterday's "fuel poverty" alleviation proposals was to continue subsidising home heating.
Subsidies and tax cuts will only put off the pain that needs to be endured if we are to reconfigure our economies to run on renewable energy. Governments around the world ought to be explaining to their citizens that the era of cheap fuel is over. The present spike might (indeed probably will) subside, but global demand will not fall back significantly, nor will pressures on supply. Put simply, the world's oil is running low just as more countries desire it.
This means we need to begin the long overdue task of breaking our reliance on the power source of fossil fuels. Governments and businesses need to invest heavily in sustainable energy sources, such as wind turbines, solar and wave power. And there must be a concerted effort from all of us to conserve energy. The transition must be carefully and sensitively managed, of course. In terms of domestic heating costs, this means governments (especially those in colder nations) heavily subsidising home insulation, energy conservation and micro-generation schemes. And some developing world governments with high food prices (one of the consequences of higher energy costs) will need help from richer countries to ensure that their people do not starve.
But the very thing governments should not be doing is bowing to popular pressure to interfere in the market to make energy less expensive. The oil shocks of the 1970s were followed by three decades of cheap oil and gas. The energy conservation and diversification projects established in those years were rapidly discarded. The economics are radically different this time. Our response must be radically different too.Reuse content