Watching the World: Grandstanding and scapegoating

Oct. 2, 2000
Rilwanu Lukman must be answering the question in his sleep.

Rilwanu Lukman must be answering the question in his sleep. Pressed by a reporter's interrogation on the opening day of the Organization of Petroleum Exporting Countries heads of state summit in Caracas last week, the OPEC secretary general lost patience. "Eighty percent of the price of fuel is taxation," he bellowed, "you figure out who's responsible for the high price of oil."

One man held by OPEC to be "responsible," UK Chancellor of the Exchequer Gordon Brown, had been only slightly more politic in his blame-laying at the IMF-World Bank meeting in Prague the day before. Brown spoke of the "common" desire among the world's "rich countries as well as poor countries" for a "reasonable" oil price and, then, without missing a beat, rounded on the 11 OPEC nations, "call[ing] on them to take further steps to create conditions in oil markets conducive to healthy global growth."

So the weeks of scapegoating continue unimpeded-and to no avail. All debate of near-term oil price stability is still magnetized around global levels of crude production, despite the "common" knowledge among industry observers that further hikes to output by OPEC will be futile in answering the problem of winter price spikes, because this extra crude will not reach consumers in time.

Textbook economics

Self-interest appears to be quickening our impulse to cast the first stone. As Edmund Warner pointed out recently in the UK broadsheet The Guardian, to identify the true culprits behind the inflammation of oil markets, one need only to refer to any economics textbook. Guilt rests with the users, not suppliers.

The oil price, Warner reminds us, is set, as in any market, by the marginal buyer and seller. Supply of oil, whatever OPEC's "price-smoothing" efforts, is historically inelastic, only responding slowly to changes in price. Demand, because it's motivated by general economic activity, however, is immediate. High volatility is the result.

No wonder, then, that the oil price has soared, for the global economy is booming-driven by a US economy enjoying its 10th year of unfettered expansion. Demand on the upswing is naturally placing concerted pressure on all raw resources, crude oil included.

To Warner's mind, something much larger than old Middle East-West antipathies are afoot: a shifting of seismic economic plates where the traditional division of spoils among the "providers of raw materials, labor, and capital, as well as government" is under transformation. The outcome, economically better or worse, is difficult to predict.

Conscience or cash

More predictable has been the response from a self-serving public to the prospect of overpriced oil unhinging the global economy anew: panic buying at the pumps in the UK and on the European continent and a pitifully underattended inaugural Pan-European Car-Free Day.

Incidentally, one issue on the agenda at the IMF-World Bank meeting was the deleterious impact high crude prices would have on the heavily indebted poor countries most dependent on oil imports. The conclusion, according to Brown, was "that everyone now agrees we must have stability in oil markets." Read: "Over to you, OPEC." In the face of adversity, the lowest common denominator prevails-in this case, an urge somewhere between buck-passing and inaction.