Tests for industry recovery

Gyration of stock exchanges brings into sharp and useful focus one of two essential dimensions of the oil industry's recovery.

Plunges in equity share values in Asian and European markets, followed by the New York Stock Exchange's 7% loss Oct. 27, raised chilling questions about the durability of worldwide economic expansion. Although stock prices quickly pulled out of their dive, observers dared to point out that Asian economies won't grow at rates of 8-10%/year forever.

This economic truth implies moderation of growth in consumption of oil and natural gas. Demand forecasts lately have assumed indefinite extension of recent economic trends in Asia, petroleum's fastest growing market. And why not? Although everyone knows that no trend lasts forever, there have been no visible limits to Asian growth until now.

Currency jitters

The limits are fuzzy, though. An Asian currency crisis accounts for some of the late-October stock market drama. But key ingredients of growth remain in place: rising populations, economic liberalization, ambition stimulated by worldwide communication, mobility of capital. Currency jitters and stock market reactions may simply have confirmed that the Asian miracle, like all economic phenomena, has outer boundaries.

For the oil and gas industry, anything that affects demand deserves special attention. Demand growth is one of the two dimensions of industry recovery (the other is cost control). An Asian economic correction shouldn't change the oil market's basic direction. But there are other hazards, all political.

Governments seem too prepared to put global economic growth in jeopardy and too reluctant to acknowledge how progress toward global prosperity serves noneconomic interests.

The U.S., for example, is leaning too heavily on trade-a core factor of global growth-as a lever of international influence. In an interconnected world, a country can't block trade with an adversary without hurting friends, too. By trying to push sanctions against countries such as Iran, Libya, and Cuba onto reluctant allies, the U.S. invites retaliation by otherwise friendly governments in Europe. It thus gambles with commerce in a diplomatic showdown where only the good guys can lose. European governments seem to recognize what Washington, D.C., has yet to learn: that trying to starve whole populations into submission is no way to pursue international civility.

European governments favor other economic poisons. They have led the once doubtful but ever-accommodating Clinton administration astray on the issue of global warming. It should be obvious, from the early dismissals of doubts about warming theories received in European capitals, that the central attraction there is the excuse to raise taxes. Clinton goes along anyway, gushing assurances that carbon dioxide emissions can be slashed at no cost with no new energy taxes.

The oil and gas industry should not be fooled. By direct mandate or manipulation of incentives, remedies to the atmospheric build-up of carbon dioxide-all that science is certain about-would cut demand for oil and gas. Reductions would result from consumption changes needed to satisfy emissions limits and from a slump in overall energy use as economies stalled.

Recovery threat

The greatest immediate threat to the oil and gas industry's recovery, therefore, is not a stock market correction but the relentless urge of politicians to treat trade and economic activity as government programs subject to compromise. Last week's taste of economic peril should have been a lesson.

As a transcendent goal, global economic progress can be the most unifying force in modern international relations. Governments should learn to treat it that way. Political and environmental responsibility comes most often not from external pressure but from prosperity and the freedom to pursue it.