The Consequences of Rising Oil Prices for Producing Countries

Where are we heading with the rapid and incredible increases in oil prices and what are the maximal limits for this increase? This is the question that currently concerns the public opinion all over the world and is in fact raised by OPEC oil ministers in their media interviews, but without any effective answers that can treat the daily developments in the markets as prices reached almost $135 per barrel.
Predicting the upward or downward movements of prices was possible in the past on the basis of market fundamentals. Economists and observers used to compare the costs of production to prices, and the cost of alternative energies to oil prices, anticipating whether using alternatives would increase as prices increased. Any increases in production by OPEC countries had a direct impact on prices. Presently, however, an entirely new picture has emerged, making it impossible and futile to make such comparisons or even to anticipate price fluctuations in light of major events in the market.

At this point, it is essential to point out, especially for Arab readers who may think that the increase in prices benefits the countries of the region, that this is a wrong and shortsighted impression, and that producing countries bear an unavoidable responsibility to global consumers. Despite the massive financial rents earned by oil producing countries from these prices, prices have serious political and social consequences for the international community in the foreseeable future rather than in the long term. This is attributed to the fact that the capacity of citizens earning limited incomes to absorb these high prices of fuel is limited. This citizen will start to feel the impact of prices on his family budget and will start wondering, if he has not already done so, about the percentage of his income that he can spend on the family food, gas, heating fuel, and electricity.

Dar Al Hayat