Back in 2002, when I was UK energy minister, I attended a producer-consumer dialogue in Osaka hosted by the International Energy Agency.
At the time of that meeting, the price of oil was about $30 a barrel and, for this brief and halcyon period, it seemed that sanity and stability had become the norm. There was a consensus, or so it seemed, that a price range of $24-32 a barrel was where the price should be, and on that basis, producers did pretty well, while consumer states – particularly poor ones – could plan for some economic growth.
Looking back on the statement which emerged from that Osaka meeting of more than 60 governments, all solemnly agreeing to agree, I could not help reflecting on how much of my life I must have spent in pointless talking shops – of which this was a prime example. Because everyone signed up, quite dishonestly as it soon transpired, to the belief that “price stability is in the interests of both producer and consumer countries”.
Two years later, when the forum met again in Amsterdam, prices were on the rise, but no meaningful action was taken to pre-empt what was going to happen next. Just another bland statement of good – but far from honest – intent. A few days ago, this biennial talking shop moved on to Rome. The Americans didn’t even bother to turn up and Opec made it clear that increased production was not on the agenda.
I do not believe that making the pumps flow a little faster is, in itself, the answer to the current price surge. As Opec president Chakib Khelel pointed out, mismanagement of the American economy and the resultant weakness of the dollar is at least as big a factor as the level of supply.
Sixty-five countries account for 90% of the world’s oil production, which leaves twice that number which are dependent, to lesser or greater degree, on imports. The big, rich guys – notably Japan – have long since adjusted their economies to that reality, so the impact of oil being (as I write) at $116 a barrel may be uncomfortable but it is certainly not deadly in any sense.
For many underdeveloped countries that depend on imported oil, the reality is different. Their meagre state budgets have to be raided for the money to pay for oil imports rather than be spent on schools, hospitals and communications. Their internal communications grind to a halt.
To make matters worse, many are still locked into subsidising fuel in a way that eats up even more of the little they have and, perversely, encourages demand by protecting the population from the true price.
Various schemes to iron out the vast discrepancies in fortune between producers and consumers have been discussed repeatedly over the years. But they have never come to more than hot air. When the price goes up, the producers take whatever they can get. Poor countries want Opec to set up a fund to subsidise their imports, but neither the principle nor the complexities of that approach are likely to commend themselves to rulers of oil-rich potentates.
One country that has taken practical action in that spirit is Venezuela, which now supplies much of the Caribbean with cut-price oil. But this can be interpreted as a political tool as much as a humanitarian one – and, of course, it carries political risks for the government, which is exposed to the charge that not enough is being done to improve the domestic infrastructure as a benefit from the high oil price.
In theory, there should also be beneficial consequences for those countries that are currently net importers and are obliged to focus their minds on the use of oil. They should learn to use less – but most of the poorest places have very low per capita consumption to start with. They should be prompted to develop other energy sources – which, unfortunately, require capital. Even if feasible, these solutions are not going to be quick. Meanwhile, the suffering caused by current oil prices is urgent and real.
There are no convenient answers and, if there were, they would undoubtedly be rejected by those who assume they have most to gain from maximising the price. But they, too, must remember that there are downsides, both political and economic, from the kind of instability that poverty and hunger eventually lead to. And the knock-on effects of high oil prices are now closely linked to other huge commodity price rises now stirring the world’s poor to action.
Even if the words I signed up to after that Osaka meeting were lacking in sincerity or commitment, it does not mean they were not true. In anything but the shortest-term analysis, there is a coincidence of interest between producer and consumer nations, and it can be summed up in that one word – stability. The alternative cannot be neatly contained within the borders of oil importers.
Don’t, however, expect any such consensus to be achievable around that concept through a shared view of self-interest while oil is at $116 a barrel.
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