Soaring Oil price creates a new world order
Pastor Dale Morgan
Soaring Oil price creates a new world order*
Mark Landler
November 8, 2007
AS the price of oil surges above the symbolic milestone of $US100 ($106)
a barrel - with Malaysia's TAPIS crude hitting $US100.54 yesterday - it
is creating new winners and losers across the globe.
In southern China, high oil prices forced Wang Pui, a truck driver, to
wait in line 90 minutes the other day to fill up, just to be told he
could pump only 98 litres, as China faced spot shortages of petrol and
diesel.
When Vladimir Putin was making Russia's bid to be host of the 2014
Winter Olympics last July, he reached into the country's deep pockets,
bulging with oil profits, and pledged $US12 billion to turn a Black Sea
summer resort into a winter-sports paradise. Russia, which was nearly
bankrupt a decade ago, won the Games.
The prospect of triple-digit oil prices has redrawn the economic and
political map of the world, challenging some old notions of power.
Oil-rich nations are enjoying historic gains and opportunities, while
major importers - including China and India, home to a third of the
world's population - confront rising economic and social costs.
Managing this new order is fast becoming a central problem of global
politics. Countries that need oil are clawing at each other to lock up
scarce supplies and are willing to deal with any government, no matter
how unsavoury, to do it.
In many poor nations with oil, the proceeds are being lost to
corruption, depriving these countries of their best hope for
development. And oil is fuelling gargantuan investment funds run by
foreign governments, which some in the West see as a new threat.
"Five months ago, readers would not have recognised SWF as meaning
sovereign wealth fund," said Daniel Yergin, chairman of Cambridge Energy
Research Associates, referring to the funds set up by Russia, Norway and
others to invest their oil profits. "And yet now," he said, "they're
recognised as one of the fundamental forces of the global economy."
The basic calculus of expensive oil still holds: exporters enjoy a
windfall and importers bear a heavier burden. But some unexpected
countries are reaping benefits, as well as costs, from higher prices.
Consider Germany. Although it imports virtually all its oil, it has
prospered from extensive trade with a booming Russia and the Middle
East. German exports to Russia grew 128 per cent from 2001 to 2006;
exports to the US grew just 15 per cent.
Throughout Europe, the rise of the euro has acted as a hedge against
fluctuations in the dollar-denominated oil market, while the heavy
taxation of fuel has made rising oil prices less jarring to motorists.
"For Europeans," said David Fyfe, a senior oil market analyst at the
International Energy Agency in Paris, "$US100 oil is mostly symbolic."
Elsewhere, it is much more. For developing countries, oil can be a tool
of national transformation, whether the goal is a middle-class standard
of living or a utopian society.
In Venezuela the President, Hugo Chavez, is pouring oil proceeds into a
socialist revolution, creating free health care, free education and
cheap food; enabling heavy public spending that has helped fuel four
years of economic growth.
The trouble, says Theresa Paiz, a Latin American director for the Fitch
ratings agency, is that it's not really clear how the money is invested.
Mr Chavez's government is steering large chunks of money to development
funds and state-owned companies not subject to audits.
Transparency International, an organisation that tracks corruption,
ranks countries from least to most corrupt, and in its 2007 index
Venezuela was at 162 out of 179 countries.
Concerns about corruption are even more pronounced in Nigeria and Angola.
Oil-rich Angola is taking in 2½ times the cash it did three years ago.
Hotels in the capital, Luanda, are booked months in advance, largely by
foreign oil companies. Sales of luxury cars are booming and the
International Monetary Fund projects the economy will grow 24 per cent
this year, one of the world's fastest rates.
Yet analysts for the Catholic University of Angola's research centre say
two in three Angolans live on $US2 or less a day, the same ratio as in
2002, when the country's decades-long civil war ended.
The Government of Angola is eager to show that oil wealth is benefiting
ordinary citizens. It has rebuilt 3800 kilometres of roads, refurbished
four airports, and laid 690 kilometres of railroad tracks.
But many Angolans take it as a given that oil has enriched public
officials most of all. In 2003 a newspaper in Luanda identified the 20
richest people in Angola: 12 were government officials and five were
former officials.
Angola's growing muscle means it is now the biggest oil supplier to
China and the sixth biggest to the United States. This is leading it to
rethink its global position. It recently joined the Organisation of the
Petroleum Exporting Countries and is limiting its cooperation with the IMF.
China has become Angola's financier, lending Luanda as much as $US12
billion for the country's reconstruction, in return for guaranteed oil
supplies.
The contest among importers to secure access to oil supplies has become
fierce.
China, a one-time oil exporter that now must import half its oil, is
facing politically troublesome shortages of fuel from Shenzhen to
Beijing, as Chinese refining companies refuse to supply diesel at
unprofitable state-regulated prices. To head off a crisis, China raised
retail prices for fuel nearly 10 per cent on November 1.
India is potentially even more vulnerable than China. Although it
consumes a third as much oil as China, it imports 70 per cent of its
oil. It also has no strategic reserves and demand is growing faster than
in any other economy except China's. Like China, India subsidises fuel,
particularly the kerosene used by lower and middle-class families for
cooking, a policy that costs it some $US12 billion a year.
If oil reaches $US100 a barrel and stays there, analysts say, India will
be forced to roll back those subsidies.
Sooner or later, prices are going to bite, said Subir Gokarn, Standard &
Poors chief economist in Asia.
Without an increase in retail prices, officials at the Ministry of
Petroleum and Natural Gas warned recently, they might no longer be able
to buy adequate supplies of crude for India's refineries. Unless
consumers are paying for what they consume, said M. S. Srinivasan, the
petroleum secretary, the ministry is going to be left with a big hole in
its pocket.
But raising fuel prices could ignite even greater civil unrest in India
than in China, where a man was killed recently after jumping a line to
buy petrol in the city of Xinyang, in Henan province.
Even in developed countries like Canada, rising oil prices can cause
dislocation. The region around the oil sands in northern Alberta is the
closest thing the developed world has to a 19th-century boom town. The
influx of workers has created a shortage of skilled labour in
neighbouring British Columbia, where construction is under way for the
2010 Winter Olympics.
In comparison, the problems faced by other oil producers seem almost
benign. For them, the most burning question is what to do with all the
money. Norway, the world's 10th-largest oil producer, wants to guarantee
every child a subsidised kindergarten spot by the end of 2008.
It has increased spending on kindergarten to $US3.3 billion this year,
from $US2.75 billion, partly using money transferred from its $US350
billion State Pension Fund, once known as the Petroleum Fund. Most of
the fund is earmarked to pay the future pensions of Norway's 4.6 million
people.
The discipline is structural, said Johan Nic Vold, a consultant and
former executive at Royal Dutch Shell. Without it, the demands on
politicians to use the oil revenue would be almost insatiable.
Dubai has taken a similarly long view. Treating its oil reserves as
temporary, it used the proceeds to expand pell-mell into tourism, trade,
real estate and construction. The oil sector now accounts for only 5 per
cent of Dubai's gross domestic product.
But perhaps no country has revelled in its oil wealth like Russia.
NetJets Europe, the private-jet company, plans to open an office in
Russia because the traffic between Moscow and London has become so dense.
"Russians have kept London's high-end real estate market buzzing. There
are a lot of Russian buyers around who are prepared to pay a vast amount
of money," said Michael Chetwode of the Home Search Bureau.
Back home, Russia's oil wealth is trickling down. Mr Putin is using it
to finance priority national projects, like improved health care and
education, and access to affordable housing.
Oil may also help Mr Putin cling to power. As he noted recently: "We all
remember what state the country was in seven, eight years ago." (When
oil was $US16 a barrel.)
The New York Times