America must face the harsh realities over oil

President Bush was in Saudi Arabia at the weekend, trying to get his hosts to increase oil production to take some of the pressure off rising prices.

Ever willing to be seen to please their American friends, the helpful chaps at the House of Saud duly agreed to ramp up output by a few hundred thousand barrels a day. This, of course, is a drop in the tanker of Saudi, let alone global energy production, and to nobody’s great surprise it had no effect whatsoever. The price of crude crept above $127 per barrel in London trading yesterday.
Oil is up by almost 30 per cent this year alone. That’s not the fault of greedy energy companies, or that other current favourite, unscrupulous speculators. It is a simple fact of economic life in a world economy that is, in effect, experiencing a new industrial revolution among half its population.

Even in the event of a serious recession in much of the developed world, energy demand is not going to change much.

The second reality is that this is, in the end, at least in terms of the nexus of economics and energy policy, a Good Thing. It should force all of us in the West to redouble our efforts to diminish our dependence on oil. Fortunately, markets are quite effective at doing this. As we all know, the capitalist world – yes, even the US – is much more energy-efficient today than it was 40 years ago. For that we have the last great oil shock of the 1970s to thank.

A third reality is that, at least for the foreseeable future, these higher prices will have enormous implications for geopolitics.

The Times