Turmoil and chaos have been a byproduct of oil ever since the world chose it as the main energy resource. It may be hard to judge the choice as right or wrong, but when people realized that the cost and the risk of abandoning this energy source would be even greater than of using it, they chose to find ways, be it economic, diplomatic or military, to shore up energy "security". The sad reality is the process of seeking "security" would give rise to more elements of insecurity and one of the symptoms of this condition is the shockwave of high oil price.
The world economy, through efforts to improve efficiency, energy conservation and use of alternative energy, has become more flexible and resilient after surviving the last two oil crises. Even so, the world economy, already reeling from the US subprime crisis and widespread inflation, could not but feel exhausted as the international oil price remains high after topping $100 a barrel early this year and reaching $135 a barrel recently.
Leading oil guzzlers the US and the European Union are currently facing more pressure than others. Frustrated by their own inability to ward off the impact of high oil price on the domestic front immediately, some American and European politicians are rehashing the old trick of diverting public attention elsewhere by blaming other parties for pushing the oil price sky high.
The short list of scapegoats they have produced begins with the OPEC nations for their refusal to increase output, followed by developing countries like China and India for their growing demands for energy resources. They are also blaming Russia and Venezuela, where oil and natural gas production is being nationalized. People should not be surprised when some American or European politicians add Iran and even Osama bin Laden to the blacklist for causing oil price to soar by destabilizing the Gulf region and terrorizing the whole world.
By pointing fingers at other parties they apparently hope to convince the public that the US and the European Union are the most innocent victims in this crisis. But are they really?
I do not know if this is a case of "a thief crying, stop the thief", but I do believe the US and Europe, especially the US, are the main cause of the soaring oil price.
First of all, the weak US dollar is a key driving force behind the oil price hikes.
Since it flared up last year, the subprime crisis has deeply hurt the American economy from the inside and left the mighty US in a really bad state. The Federal Reserve has taken heavy measures repeatedly, only to cause severe side-effects instead of removing the root cause of the problem. The Fed's seven interest rate cuts in a roll sent the US dollar into a nosedive, which triggered severe turbulence on the international financial and commodity markets and pushed the global economy to the brink of a major slump.
According to international weighted calculation, the US dollar has depreciated some 25 percent since 2002. The US, instead of habitually accusing other countries of exchange rate manipulation, should really undertake a thorough checkup of itself.
Because both spot and futures prices of oil are traded in the US dollar on the international market, the depreciation of the US dollar prompted many holders of strong non-US dollar currencies to buy oil futures as well as those who have a lot of US dollar to hedge their losses caused by the dollar depreciation.
The mad dash to exploit or compensate the dollar devaluation has been pushing oil futures price upward. The rotating EU president and the energy minister of Qatar have both warned the oil price could exceed $200 a barrel if the US dollar continues to drop.
Secondly, it has become the main trend for American and European speculative capital to flow under the disguise of avoiding risks.
The power to decide oil prices has been taken over by the oil futures market in New York from the OPEC group since the 1980s as futures trading became synonymous with profiteering. Some studies indicate, however, speculative trading accounted for less than 10 percent of the total trading value of the New York Mercantile Exchange (NYME) before 2003 and did not dictate the long-term trend of oil prices.
In recent years, by hyping the so-called Chinese demand factor on the world oil market and driving up marketable surplus in an underhand manner, the US has managed to increase the generalized speculative trading volume to more than half of the total on NYME and turned profiteering into the dominant trend of investments.
One of the "symptoms" of this "epidemic" is that huge amounts of US pension funds and investment banks, driven by the need to avoid risks and increase value, have become little different from the traditional experts in speculation - the hedge funds - and frequently dive into the oil and other futures markets.
As the volume of speculative trading grows and the amplifying effect of rumor-mongering adds to it, any geopolitical stirring would cause a tsunami on the oil futures market. The speculative investment mania has reached such "unprecedented" severity that the US Commodity Futures Trading Commission announced not long ago it had begun extensive investigation into the suspected oil price-fixing activities on the New York Mercantile Exchange.
Citing Japan's suspension of rice futures trading to prevent profiteering as an example, Malaysian Prime Minister Abdullah Ahmad Badawi even suggested that international oil futures trading should also be suspended to contain rampant price hikes.
Lastly, the US and the EU acted on a whim to advocate bio-energy resources and misguided international energy investment.
Motivated purely by their own interests, the US and the EU have pushed for the use of biofuel, but it failed to stabilize international oil price predictions and caused grain prices to soar worldwide instead.
Olivier de Schutter, the UN's newly-appointed special advisor on food, recently called on all governments to rethink the policy of replacing fossil fuel with bio-alternatives and halt investments in the production of biofuel, calling it "irresponsible" to formulate such policies blindly.
Saudi Oil Minister Ali al-Naimi, meanwhile, expressed the OPEC nations' sentiment by stressing that the wrong assessment of energy resources development prospect has wasted billions of dollars on alternative fuels such as ethanol, while the persistent shortage of investment in the oil processing sector, which is another reason for soaring oil price, is still waiting for the attention it deserves.
The US is aggravating global concern about oil supply stability by purchasing an average of 70,000 barrels of petroleum a day to increase its strategic oil reserve in total disregard of the record-setting oil price hikes. Its total volume of strategic oil reserve has topped 701 million barrels, but Washington has yet to even hint at the possibility of using it to stabilize oil price.
People cannot but question if the US and other developed countries are responsible stakeholders as they want the world to believe they are. The US and the EU have been not only stakeholders in the world economy but top beneficiaries as well. Now it appears they have earned the title of leading wreckers, too.
The author is a researcher with China Institute of Contemporary International Relations
(China Daily 06/11/2008 page8)