US dollars and the tyranny of oil

Recessions can be a good thing

Conspiracy theories abound when it comes to crude, but the simple truth is that oil prices are driven by the market. As has been evident for some time, the supply coming out of existing production is diminishing, and the (very few) new discoveries are not expected to make up for the imbalance, especially given the insatiable demand from emerging economies. This is bad news for those who were hoping that the likes of Vladimir Putin, Mahmoud Ahmadinejad and Hugo Chavez would see their coffers depleted anytime soon. And herein lies a cruel paradox.

Part of the reason supply has not been able to keep up with skyrocketing demand is the sheer inefficiency and the rampant corruption of state-controlled oil companies; the list includes Russia (where production fell in 2008), Iran (where gasoline has been rationed since 2007) and Venezuela (where daily output has dropped by 1 million barrels), and also countries such as Mexico, where the political system is democratic but where oil is a government monopoly. The regimes that have caused shortages in the world supply of the commodity on which their dictatorships depend are now reaping the benefits of higher prices partly caused by their own incompetence.

Brookes News