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Outside View: Oil crisis lessons learned

By VLAD GRINKEVICH, UPI Outside View Commentator   |   Oct. 25, 2007 at 2:44 PM
MOSCOW, Oct. 25 (UPI) -- Oil prices on the world's commodity markets have topped $90 per barrel. "Black gold" now costs more than it did during the fuel crisis of 1973 (with a correction for inflation) and is just $10 below its 1980 record high.

Analysts say a new record could be set before the end of this year. However, such forecasts do not cause panic in the Western world, where consumers have learned over the past few decades to live with the fact that cheap oil is a thing of the past.

Turkey's declared intention to fight separatist guerrillas of the Kurdistan Workers' Party, or PKK, in northern Iraq and a new drop in the value of the U.S. dollar have further increased oil prices on world's markets. At the New York Mercantile Exchange, for instance, crude oil jumped to $90.07 with the news at the end of last week. Analysts have predicted that before the year's end the price may settle at $90-$100 per barrel, only to rise further in the year 2010 to $150, which would be a 30 percent increase on the 1980 figure.

Yet the news of crude oil surpassing the psychological price barrier of $90 did not trigger panic in Europe and North America and had little impact on their economies. Consumers in the West realize perfectly well that the latest leap is largely due to market speculation and that price fluctuations are being stoked by conflicts in oil-producing regions such as the Middle East. But the main reason for their calm is, perhaps, that in the 30-odd years since the 1973 oil crisis they have come to terms with the reality of increasingly expensive oil.

In October 1973, with the Arab-Israeli war in full swing, the Organization of Petroleum Exporting Countries led by Saudi Arabia introduced an embargo on oil deliveries to the United States and Western Europe. In the subsequent year the price of crude jumped to $12 a barrel, up from just $3. That shock led to a 15-percent drop in industrial production in Western countries and made inflation surge by as many percentage points in 1974.

European countries learned their lesson quite well, with the oil shock prompting them to work on measures to reduce their energy dependence on Middle Eastern oil. They began buying Soviet natural gas to have their public transport shift to liquefied gas and undertook research in energy-saving technologies and alternative sources of energy.

Over the past few decades people in Western Europe have learned to save energy. They now consume half as much gasoline per capita as do their counterparts across the Atlantic, thanks in part to the wide use of small cars and trams. Energy costs in Europe currently account for an estimated 5 percent of the gross domestic product.

As for North America, most people there do not seem to care much about the sustainable use of energy. According to some statistics, the United States now burns as much gasoline as all other nations combined. If all of the Earth's inhabitants used as much petrol as the average American does now, the global fossil fuel reserves would hardly last another 10 years. But who said there should be enough fossils to go around in the first place? That's the whole point of the American response to the energy challenge.

The 1973 oil shock gave rise to a pro-Malthusian sentiment, with followers of the early 19th-century demographer-cum-economist contending that the Earth's resources are too scarce to meet the needs of the planet's entire population. Scientific estimates made in the 1970s suggested that the globe's natural wealth would be enough to provide a high standard of living for just about 1 billion people. It was then claimed that the lucky few should get their hands on a 75-percent share of global resources. And to prevent developing countries from dividing the energy pie into too many pieces, U.N. programs for economic and social development in the 1990s were stripped of a provision declaring individual countries' unalienable sovereignty over their national wealth.

It looks like the new increase in oil prices is good news for Russia: Every barrel of the Russian Urals crude blend sold for $80 brings about $59 into the national treasury coffers, and a 1-percent price increase results in the country's oil export revenues growing by 1.2 percent. Petrodollars make it possible to increase budget expenditures, invest more in infrastructure and raise wages for public-sector workers. But windfall oil revenues have their downside as well. They spur inflation. Worse still, they encourage the Russian leadership to make the same mistake as their predecessors did in the 1970s.

Back then, an upsurge in world oil prices and an influx of petrodollars into the Soviet Union made the ruling elite forget about the need to reform the ailing national economy. History may repeat itself in the post-Soviet era, with essential economic reforms being repeatedly put off till later. Meanwhile, the country's dependence on foreign markets keeps growing. The share of imported foods, for instance, already accounts for about 40 percent of the Russian market, which is double the 1999 figure. And then again, as world experience shows, hardly any country can expect to achieve economic prosperity by trading its natural resources abroad.

Venezuelan Fuel Industry Minister Juan Pablo Perez Alfonso, a founding father of OPEC, famously said during the 1970s oil boom: "I call oil the devil's excrement. ... Look at this 'wealth': extravagance, corruption, consumerism, utilities breaking apart. And a debt, a debt that will be our burden for years."

The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.

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(Vlad Grinkevich is a political commentator for RIA Novosti. This article is reprinted by permission of RIA Novosti. The opinions expressed in this article are the author's and do not necessarily represent those of RIA Novosti.)

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(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)

Topics: Juan Pablo
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