It’s unfair to blame Asia for high oil prices

WHENEVER we refer to current oil prices, it is worth noting Thomas Friedman’s optimism ahead of the US-led invasion of Iraq . The New York Times columnist suggested in 2003 that a new Iraqi regime could “in short order ramp up its oil production to 5 million barrels per day (mbpd)”, and cause a crash to $6 a barrel, last experienced in 1973.

To be fair to Friedman, very few have got it right while predicting oil prices, but it is also true that very few got it as wrong. Some felt that $40 per barrel was expensive, others insisted that $60 was unsustainable, and still others were confident that $80 would never happen. However, since the Iraq war, oil prices have surged from about $37 a barrel to more than $90 recently, after briefly threatening to even cross the psychological $100 barrier.


Opec signalled this month that increased output is not the real answer and that it is looking at a $70-80 per barrel price band. But, while The World Energy Outlook 2007 estimates that $159 a barrel by 2030 is possible, an American expert predicts that oil prices would reach $200 in 2010 – “$65 a barrel translates to 10 cents a cup, still 10 times cheaper than bottled water”. It is worth noting that some calculations of oil price history using the 1980 consumer price index method shows that the 1980 price of $39.50 per barrel “is the equivalent of over $200 per barrel in today’s anaemic dollars”, thus making “$100 oil still look quite cheap”.

The reigning price has been blamed on a combination of geopolitical instability, a shortfall in refining and spare capacities, and financial speculation (and a weak dollar, of course). However, unlike in the past, the current trend has not been influenced by any one conflict or physical shortage. Instead, as emphasised by the Qatar energy minister, financial players – who “lost a lot of money on real estate, shares and bonds, and then they jumped to commodities,” including oil – are largely responsible.

Khaleej Times