Pouring cold water on troubled oil
Is an oil disaster just around the corner? Barring political upheaval in the Middle East, which will not come right away, probably not. Rather, look toward benefits from falling oil prices by the year-end.
Each day brings fresh statistics purporting to show that the last drops of oil are being swallowed up by unstoppable global demand.
What can we make of all this? Ever since the Iraq war became more than just a gleam in the eyes of the neo-conservatives in the Bush administration, I have been forecasting that oil prices will shoot up towards $40 a barrel. I refer readers to my column in March 2003. Then, nearly all the experts reckoned that the oil price would fall back to below $20 once the Iraq campaign was over. Even Opec was cutting its production quotas because it predicted that supply would exceed demand.
Well, the experts and Opec have been proved wrong, because of two things: continued violence disrupting supply in the Middle East, and strong energy demand from China.
As I argued last year, the US administration would be quite right to expect that a victory in Iraq would have a domino effect. But the dominoes fell backwards, not forwards.
Most Arab oil producers suffer from major social and economic imbalances. Their youthful populations face high unemployment and are natural targets for a form of Islam whose ideology is anti-economic and will further impoverish them.