Thursday, September 21, 2000

On Oil, the Bill for Neglect Is Due

A few days ago Saddam Hussein accused Kuwait of stealing Iraqi oil, the same allegation he made just before invading Kuwait in 1990. That was enough to send prices in already jittery crude oil markets still higher, to around $37 a barrel. A little reflection makes it obvious that Iraq is in no position to go to war over a disputed oil field that lies under its border with Kuwait. But in the oil markets these days, calm assessments are scarce.

Just after the Iraqi threat, Saudi Arabia, the world's biggest oil producer, announced it might further raise output without waiting for the next OPEC oil cartel meeting, on Nov. 12, "if the need is there." It appears increasingly that the need is there. Rising prices prompted by swelling global energy demand, tight supplies and low oil inventories have started to retard growth in key Asian economies and have led to spreading protests across Western Europe. In the United States truckers are feeling particular pain, and worries are growing about home heating oil prices this winter. So far, the tripling of oil prices over the last 18 months has had little impact on the overall U.S. economy. But analysts warn that continued price rises could cut the economic growth rate by as much as 2% in coming years, possibly eliminating more than 5 million jobs.

Hussein has shown he can rattle oil markets just by making bellicose noises. He can do much worse if he opts to shut off Iraq's 2.3 million barrels a day of oil exports. That would more than erase the production boosts that OPEC has made so far this year. And it would about equal the maximum increase in output that Saudi Arabia currently has the capacity to make. It would also cancel any hope that prices might soon retreat from the 10-year high they reached this week. The political temptation for Baghdad to try to exert such pressure must be great. Iraq desperately wants all U.N. sanctions lifted, and Hussein is always eager to demonstrate that he should be taken seriously on the world stage. Iraq has lately been earning more from oil exports than it did before the Gulf War. It can afford to halt its exports for a time.

There's no quick fix to the oil problem. President Clinton says that if necessary he will "borrow" oil from the 570-million-barrel U.S. strategic reserve to keep home heating oil prices under control this winter. But that's a short-term palliative that leaves unaddressed the basic structural challenge. The search for improved energy efficiencies must be intensified, greater investment is needed to develop new oil and other energy sources, and low crude oil inventories must be built up as a cushion against future oil shocks. Recent years of extraordinarily cheap oil left these needs neglected. The bill for that negligence has now fallen due.

http://www.latimes.com/news/comment/20000921/t000089406.html

-- Martin Thompson (mthom1927@aol.com), September 21, 2000

Answers

Good piece. Short, concise, and directly to the point.

-- Billiver (billliver@aol.com), September 21, 2000.