Oil is too important to leave to market forces

A six-point plan is needed to see off the latest threat to the economic stability of the world

…As the banking crisis has eased, however, a far greater danger has emerged to global prosperity: the price of oil. It looks increasingly as if this is another challenge that cannot simply be left to market forces. So is it time for a government-led plan B to curb the price of oil? I believe it is – and there are growing indications that world political leaders are starting to think along these lines.

The present oil boom looks reminiscent of the housing bubble, the dot-com bubble, the Japanese share bubble and all the financial bubbles before that. It started with a genuine and important structural shift in the world economy – the growth of China and the decline in non-Opec oil production – but financial markets have magnified this beyond all reasonable bounds.


But another more important aspect of the oil boom is now attracting political attention: An oil price above $100 a barrel is an enormous danger to the world economy. It threatens to reignite global inflation, wreck development plans in China and other emerging countries and magnifies geopolitical risks by redistributing some 7 per cent of global GDP, roughly $4 trillion per annum, from the stable societies of America, Europe and developing Asia to potentially hostile regimes. These regimes then leak this money to Wahhabi fundamentalist madrassas, communist insurgencies in South America and mafia activities from former Soviet states.

As politicians and voters start to grasp this, pressure is mounting for something to be done. As a result, a series of energy-related summits has recently been announced, starting with an emergency meeting of oil producers and consumers in Saudi Arabia and culminating in the G8 leaders’ summit in Japan in July. What, then, might a Plan B to reduce oil prices consist of? And could it possibly work?

Times of London