From http://www.washingtonpost.com/cgi- bin/gx.cgi/AppLogic+FTContentServer?pagename=wpni/print&articleid=A57327- 2000Sep12 }}>Begin Oil Prices Fueling World Pain By William Drozdiak Washington Post Foreign Service Wednesday, September 13, 2000 ; A01 VIENNA, Sept. 12 – For much of the past decade, an extraordinary windfall in the form of cheap oil has helped fuel prosperity in the United States, subsidized Europe's social welfare programs and helped much of Asia recover quickly from financial meltdown. But as crude oil prices continue their dizzying ascent – at nearly $35 a barrel, they have more than tripled in less than two years – many economists believe the good times may be ending. Large areas of Western Europe were disrupted today as truckers, taxi drivers and others protested high fuel prices by blockading oil depots. As panic buying in Britain helped drain three-quarters of all gas stations, Prime Minister Tony Blair asked Queen Elizabeth II for emergency powers in order to ensure fuel is made available for essential services. In the United States and the rest of the oil-importing world, notably the economies of East Asia, the impact is less visible but still painful, as higher fuel bills siphon more and more money out of productive use. "This is an international problem," Energy Secretary Bill Richardson said today at a meeting with Washington Post reporters and editors. But he added that recent efforts to persuade the Organization of Petroleum Exporting Countries to increase production and help bring down prices are bearing fruit. "Our quiet diplomacy is working," he said. Other analysts are skeptical. OPEC oil ministers meeting here on Sunday did agree to raise official output quotas by 800,000 barrels a day, or about 3 percent. But how much actual new production would result was unclear, and oil markets shrugged off the move as insignificant. "Right now, there is a lot of fear and a lot of uncertainty because few people expected oil prices would rise so high and so fast," said Leo Drollas, chief economist at the Center for Global Energy Studies, a British research group. "I think the only thing we can do is pray for a very warm winter." Whether Al Gore or George W. Bush moves into the Oval Office in January, the next U.S. president may discover that energy is his most urgent policy priority, many economists believe. Unless oil prices take a sudden turn south – which analysts say is unlikely with fuel inventories at rock bottom and cold weather approaching in the Northern Hemisphere – an ominous reckoning could arrive by January. Besides crude oil prices that are at 10-year highs, triggering spikes in the cost of gasoline and heating oil, natural gas prices have surged to all-time records. Such countries as the United States, which have shied away from nuclear and coal-fired power plants for environmental reasons, could face significantly higher electricity prices, according to energy experts. However, the United States and its new technology-oriented economy is less vulnerable to oil price swings than it was 20 years ago, economists say. So far, effects have been minor – such as higher pump prices and $20 surcharges on round-trip air tickets. But there are limits to how long the country can shrug. In worst-case scenarios, an inflationary jolt delivered this winter by an electricity-price rise and heating-fuel crunch could compel the Federal Reserve and other countries' central banks to raise interest rates more than expected. That, in turn, could provoke the precipitous fall in equity markets that many crash-minded Cassandras have been forecasting. In contrast to previous energy crises, many experts have no simple explanation for the recent price rises. During the 1970s, big increases were caused by supply interruptions – the Arab oil embargo during the 1973 Middle East war and the 1979 Islamic revolution that toppled the Shah of Iran. This time, traders and analysts say, there seems to be plenty of oil available for those willing to pay for it. "There are no real shortages for crude, only for certain refined products," said Mehdi Varzi, director of oil-market studies for the London- and Frankfurt-based investment banking firm Dresdner Kleinwort Benson. "The cost of oil production has fallen dramatically over the past two decades, and with new sources coming on line it's hard to see how prices can be sustained at anywhere near their current levels over the long term." But other specialists disagree. They attribute the price rises in large part to high demand caused by continuing good times in the United States, Europe's growth and a faster-than-expected recovery in Asia – resulting in world oil production being pushed to near capacity. Depleted reserves in many oil- producing Western countries and continuing speculation in world oil markets almost guarantee that prices will remain chaotic for the next 18 to 24 months, they say. "The only way to create a stable balance is through price movements large enough to bring demand in line with supply," said Steven Strongin, oil research director at the investment firm of Goldman Sachs. "We continue to see the current situation holding until either a surge in new drilling produces significant new oil supplies or until some event triggers a global recession." While OPEC says it wants to see oil prices drop about $10, to a range of $22 to $28 a barrel, the cartel's efforts to calibrate the market have been a fiasco. After announcing OPEC's third production hike this year for a total of more than 3 million extra barrels a day, Secretary General Rilwanu Lukman said he still did not understand how much oil was needed to stabilize markets. "More than enough? Less than enough? Who knows?" he asked with evident exasperation at a news conference here. What is clear is that the moving prices have already caused a startling shift in the economies of many countries. When prices dropped below $10 a barrel in December 1998, the loss of income threatened many oil-producing states – from Saudi Arabia and Iran to such non-OPEC members as Russia and Mexico – with serious financial and political consequences. The Saudis, who during oil's heyday enjoyed one of the world's highest per- capita incomes, were forced to borrow heavily and enact an austerity budget that posed the prospect of social upheaval in a country that is one of the West's most important allies. Governments in Nigeria, Venezuela, Algeria and Indonesia have fallen in some part because of the mounting economic desperation caused by shrunken oil revenues. But lately, their fortunes have changed remarkably for the better. OPEC producers are expected to earn at least $250 billion this year, up from $160 billion last year and $116 billion in 1998, according to the Petroleum Finance Co. of Washington. Their gain, however, is often the rest of the world's loss. A University of Houston study of the shifting outlook in the global energy picture says the energy infrastructure of the United States is now "greatly weakened" because of the lack of a national policy to address fundamental problems, "starting with our ability to produce and transport oil but spreading also to stable and adequate supplies of oil products, such as heating oil and gasoline, natural gas and electric power." In Europe, the burden of crude oil prices paid in dollars has been compounded by the sliding value of the single continental currency, the euro. This has driven prices up, stoking public resentment over gasoline taxes that account for 80 percent of the price at the pump. The most debilitating impact, however, may be felt in Asia. While the United States and Europe have learned some lessons from previous oil shocks and developed greater energy efficiency, studies show that emerging economies, including South Korea and Taiwan, that still depend on such heavy industries as steel-production will suffer a drop of at least 2 percent in their gross national product this year unless oil prices sink quickly. Some leaders now acknowledge that Western governments were remiss in not cultivating a dialogue about global energy needs when the producers were suffering. "We, the industrialized nations, must face the fact that we acted irresponsibly toward the oil producers," said Italian Prime Minister Giuliano Amato at a political conference in Italy. "We complain now, but we forget what we did to them. These are developing nations that derive their income from oil. Yet we did nothing when oil prices slumped to $10 a barrel last year. We must realize the era of globalization means we have to deal with the energy problem collectively and not see it as a game of winners and losers." � 2000 The Washington Post Company End<{{ A<>E<>R Integrity has no need of rules. -Albert Camus (1913-1960) + + + + + + + + + + + + + + + + + + + + + + + + + + + + The only real voyage of discovery consists not in seeking new landscapes but in having new eyes. -Marcel Proust ~~~~~~~~~~~~~~~~~~~~ The libertarian therefore considers one of his prime educational tasks is to spread the demystification and desanctification of the State among its hapless subjects. 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