It’s about oil

Fingers pointing in every direction

Crude oil prices are hitting $40 per barrel and staying there regardless of Saudi verbal and drilling efforts. America alone consumes more than a quarter of the world’s oil and its summer driving season is just around the corner. Around the next corner are the US presidential elections. All this amid fears of a global oil crisis that can severely damage the global economy. As is becoming increasingly a sign of our times, both America and al Qaeda are being bandied as the chief culprits.

The Bush administration has naturally received a lot of the blame – both for damaging the status quo in the Middle East and failing to bring on line the much promised Iraqi crude. Given the insurgency in Iraq, security of existing pipelines and facilities is in doubt. It is unlikely that Iraq will be able to pump enough oil to radically change the supply situation. America’s role in the domestic turbulence in Venezuela (another oil producing country) has not helped either. Meanwhile there is plenty of speculation about secret deals between the Houses of Bush and al-Saud designed to help keep Bush in power and the Saudis in favour. Bush’s consistent refusal to open up the Strategic Petroleum Reserve and hence drive down prices has drawn criticism from John Kerry, the Democratic presidential candidate.

Some economists meanwhile have blamed America’s balkanised distribution network for much of the squeeze: different states have different environmental safety requirements that create supply bottlenecks. The learned also repeat that oil prices today are in real terms much lower than those during previous crises ($80 in the 70’s and $60 in the 80’s).

But the Americans are blaming the Saudis, the OPEC cartel and China’s enormous appetite for oil.

Saudi Arabia is being blamed for not doing enough to drop prices. It is generally believed that OPEC countries are producing to their fullest capacity in order to make a quick buck at the current high prices. But nothing the Saudis are doing seems to be working even as they fend off domestic insurgents who have started targeting oil installations.

But the Saudis are blaming speculators for driving up the price of oil.

So are the Chinese. They feel China constitutes a small component of the world’s demand and while it may have a psychological effect, the main culprits are speculators and those with ‘ulterior motives’. Meanwhile, China too has started work on its strategic petroleum reserve and will start stockpiling soon.

The speculators are indeed worried about a terrorist attack on Saudi installations – which may jeopardise global oil supplies and cause the oil prices to spike.

That remains a very real danger.