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High oil prices are a political problem

High oil prices are a political problem
Sunday, November 18, 2007 | 10:00 a.m. CST; updated 8:25 a.m. CDT, Tuesday, July 22, 2008
Stuart Loory, who holds the Lee Hills Chair in Free-Press Studies at the Missouri School of Journalism, is the moderator for the weekly radio program “Global Journalist.” It airs at 6:30 p.m. Thursdays on KBIA/91.3 FM or at www.globaljournalist.org.

Stuart Loory, who holds the Lee Hills Chair in Free-Press Studies at the MU School of Journalism, is the moderator of the weekly radio program “Global Journalist.” It airs at 6:30 p.m. Thursdays on KBIA/91.3 FM or at globaljournalist.org.

Loory: The price of oil is hovering over $90 per barrel, and there is no indication that it will go lower anytime soon. There are dire predictions that it will go even higher and that $150 a barrel is not out of the question. Imagine what that will mean to the cost of heating your home, running your cars or operating the factories in which many Americans work. This week, the leaders of the 12 nations in the Organization of Petroleum Exporting Countries, the cartel that controls almost half of all the oil production in the world, will meet to discuss this situation. They will not set any price levels; OPEC doesn’t do that. Nor will they set any production levels; a lower-level committee of experts does that. But they will have a lot to say about what can be done to control the oil situation and who is responsible for the high prices. Venezuelan President Hugo Chavez will be there, presumably to argue that oil prices should be kept high and that the money should go to help the world’s poor. Iranian president Mahmoud Ahmadinejad will be there, certainly to castigate the United States for creating the problem. The nations seeking a solution will talk about new methods for setting prices by, for example, taking control of them from speculators in the financial markets and dealing with the increased demand on oil by rapidly developing countries like China and India. OPEC produces about 36 million barrels of oil a day. Estimates are that it could produce 61 million barrels a day by 2030, but that would take a cash investment of billions of dollars. Can those numbers be dealt with, and why are the heads of states getting together for only the third time in OPEC’s history?

Khaled Al-Maeena, editor in chief, Arab News, Jeddah, Saudi Arabia: This meeting was long overdue, and it also comes against the background of rising oil prices. A lot of the price hike is due more to market forces than design — the more the price rises, the more it hurts many economies — but the rise in price is also due to the intake of more oil by China and India. The OPEC leaders want to reassure the world that they would also like to see stable oil prices and to reassure everyone that the OPEC countries are going to shoulder responsibility.

Will Dobson, managing editor, Foreign Policy magazine, Washington, D.C.: The bigger question is how we got to where we are this moment. We’ve seen a 60 percent increase in the last six months. The world is turbulent, but that increase is hard to justify based on the news cycle of the last six months. China and India are showing incredible demand, there are supply disruptions occasionally, and there are concerns about Turkey dealing with the Kurdish situation, but it’s hard for most energy analysts to get their heads around 60 percent in six months.

Loory: Some say speculators and investors are driving up the price. Is that true?

Dobson: A lot of financial players are making bets on much higher oil prices. It makes sense if you’re a commodity trader, and it’s in your interest that the commodity price falls the direction that you forecast it. The reality is that as a global inventory, there is no oil shortage. Willing buyers don’t have a problem finding oil, and the global inventory is more than four billion barrels.

Loory: The price increases have been helping Russia’s economy. What impact does Russia’s interest have on the oil price?

Mikhail Zygar, political commentator, Kommersant, Moscow: Russia isn’t an OPEC member, but Russia tries to get as much profit as it can from the OPEC members because Russia doesn’t recognize any quotas. The only Russian policy in energy is increasing oil output because high oil prices are the main base of the Russian government. But oil prices that are too high are also counterproductive, and that is why Russia is observing the current situation. Russia is satisfied with the current price level, and it’s ready to increase oil step-by-step as long as resources allow it.

Loory: What impact may Chavez have on the high oil price?

Brian Ellsworth, energy correspondent, Reuters, Caracas, Venezuela: Chavez has always supported a high oil price. He doesn’t respond to concerns that if oil is too high it will damage economies around the world and lower the demand for oil. Chavez believes $100 a barrel is a fair price. He’ll promote that OPEC should consider the market as having structurally changed, that $100 a barrel should be the target.

Loory: What is Venezuela doing with the increased income that it gets from the high oil price?

Ellsworth: Chavez has successfully managed a social development program that has used oil revenues to finance things like education, hospitals and schools. Chavez exported that model to Caribbean countries, providing them cheap fuel and oil. At the OPEC meeting, he is preparing to propose that OPEC nations take this money and finance social development, housing project development and health projects in the poorest parts of the world. That’s his effort to put this model on a global stage while simultaneously asking OPEC to become more involved in geopolitics.

Loory: Will that go anywhere in this meeting?

Al-Maeena: Probably not. The OPEC countries have their own interests. They may agree on a broader platform in which OPEC countries would get increased aid to other countries, but it wouldn’t be under an OPEC umbrella. It would be done individually.

Loory: Is there any way to take control from the speculators and to put it in more reasonable hands?

Dobson: There is a role for government to reign in some of the excessive speculation and to prevent the type of bubble we’ve seen in housing or tech stocks. The government can deal with structural things, like supply and delivery, through regulation. Things having to do with the politics of oil, it can’t control. Government has limited ability to tell Chavez or Putin, for example, what to do with their oil supplies.

Loory: If oil goes much higher, will the U.S be hurt?

Dobson: A higher oil price would severely slow down economic growth at a time when the U.S. is worried about other market fundamentals like housing and subprime mortgages. There could be some positive benefits though. Many environmentalists say that the rising oil price may be the only thing that gets the U.S. and other countries serious about investing in technology that weans us off of the oil dependency. The more important questions, though, are how we got here and whether this is a rational basis.

Loory: What we have heard is that we’re not really talking about an economic problem as much as we are talking about a worldwide political problem. Neither does there appear to be much consideration at this level among the OPEC nations or the consumers of oil about the long-term environmental or supply situations.

Producers of Global Journalist are Missouri School of Journalism graduate students Devin Benton, Yue Li, Heather Perne and Catherine Wolf.


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