Drive out speculators

Drive out speculators
Arab News

Public opinion in the industrial and industrializing world sees the soaring price of oil as primarily the fault of greedy oil producers who are threatening the world’s present well-being and future hopes. Such an inaccurate view is as much a part of the problem as any dysfunction in the market or the activities of speculators. Blaming foreign producers for their woes, especially if they are Arabs, may come easily to consumers who have long been fed an unrelenting media diet of anti-OPEC and anti-Arab bias and who need someone to blame for their present woes. But this is a major impediment to solving the oil problem. If the basic facts and assumptions are wrong, how can anyone possibly come up with the right answers?

It is not OPEC members nor other oil producers who are to blame for the present wholly unjustifiable sky-high prices. Consumers must look nearer home. The problem started with investors in the main financial centers — New York, London, Frankfurt, Tokyo, Hong Kong and the others — as they searched for an alternative to the sinking dollar and began moving into oil. Prices started to rise. But then the hike took on a life of its own; speculators moved in, seeing rich pickings to be had and the wherewithal in terms of the massive sums at their disposal to push prices even further up. Now they drive the market — and they have driven it way beyond what it should be. Supply exceeds demand — yet still the speculators buy, convinced that future demand from China, India and other rapidly industrializing economies will be so great as to absorb any present excess held in inventories and to demand even more. The fact that they have not the faintest idea what consumption will be in a year’s time, let alone five, is wholly ignored. The attitude of the consumer governments until now has been that market forces can stabilize the situation, that all that is required is a substantial increase in production; hence President Bush’s request to the Kingdom to increase oil production and to the US Congress to allow drilling in Alaska and offshore.

A sensible solution, however, is not so simple. An increase in production can be part of the answer but it is not only the producers who have to act. The consumers must as well in what needs to be a coordinated, multipronged assault. Saudi Arabia is responsible for increasing production by half a million barrels a day and, as is seen in today’s summit in Jeddah, by seeking a dialogue between consumers and producers in order to find a way of restoring sanity to a market spiraling out of control.

It is highly encouraging that the leaders of consumer nations such as French President Nicolas Sarkozy and British Prime Minister Gordon Brown have dropped whatever plans they had and have come to Jeddah. They understand the urgency of the matter — hardly surprising given the damage and disruption the price rise is causing to their industrialized economies. Such leaders, however, have the means at hand — both to take the sting out of the present crisis for their own economies and to help bring it to an end. They can reduce their tax take on fuel in the knowledge that revenues will still be higher than originally planned when their current budgets were drawn up — and they can target the speculators.

The latter requires action now. The US administration is said to want to make speculation in commodities illegal, just as speculation in shares is illegal. Such a move should have happened long ago and not only in the US. Things nonetheless cannot wait for laws to be enacted. By the time that has happened, prices could be at $200 a barrel. On the other hand, government announcements that speculation will not only be illegal but may be retroactive and that windfall taxes will be applied to such morally ill-gotten gains could prove highly effective. Also needed immediately is a campaign to shame banks and other financial institutions from any further speculation in oil or any other commodity.

This summit will, hopefully, be the start of a new and permanently on-going energy dialogue between producers and consumers as partners instead of rivals. The aim has to be stability — in supply, in growth of demand and in pricing. The world sorely needs such a dialogue.

There is a Food and Agricultural Organization to ensure that the world does not starve. Energy is second only to food in the list of human needs today. Without it, there would be no industrialization. Economic activity, agriculture and trade would be at pre-industrial age levels. As for modern standards of living — central heating, air-conditioning, water on tap, cheap clothing, transport, vacations, mass information, entertainment and more — they would not even be a pipe dream. Energy is simply the lifeblood of human activity today.

So why not an Energy Organization to ensure stability in energy supplies and pricing? Consumers in industrialized and industrializing countries need to know that their economies are not going to be undermined and threatened by astronomical price hikes; they need to know that oil and gas supplies will be available to meet rising demand; they need to cooperate rather than try to outdo each other to ensure a regular flow of supplies; producers need to know what the real demand is — and that oil as a source of energy will not be made redundant by new technologies. There are also environmental issues that producers and consumers alike need to take on board. By coordinating and programming such information, a regular energy forum or organization might ensure a stable market for the benefit of all involved. It makes sense and is certainly worth a try.

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