Lately, there is only one problem you hear discussed incessantly in cafés, offices, on public transport, and all the way up to the high ministerial ranks: the continuous rise and destabilisation of the price of oil. This phenomenon has made citizens, firms, corporations, and states think increasingly seriously about the price of “black gold”.
This instability is constantly accompanied by rising prices and political debates in institutions and even in parliament. Their discussions, driven by specific agendas, have left the broad mass of citizens in a state of confusion.
The situation is dramatised to such an extent that some housewives go so far as to buy a month’s worth of food or six months’ worth of laundry detergent. It is laughable, but true!
Such actions have not been seen since the Second World War. But let us set aside individual actions, conduct an analysis, and answer the questions: Why is the price of oil failing to find stability? What are the factors? What is our role in this “game”? What do the World Bank, the European Bank, and the International Monetary Fund say today?
The problems are varied and deep, but in this article, we will try to discuss the main ones, which are not few in number.
The fall of the wall of East-West competition is undoubtedly one of the key points of the problem in question. The fall of this wall disrupted and destabilised the global balance, primarily the economic one, not to mention the rest. Let us accompany this with a few small facts.
In the East, production fell drastically, whether in agricultural food supplies or industrial clothing, and so on. The East had to turn its face to the West for machinery, power plants, and factories with more advanced, contemporary technology. Today, Ukraine has to get its tractors from the USA, but such a product in America is manufactured at a cost based on a per capita income of 34 thousand dollars a year, while its buyer in Ukraine earns 5 thousand dollars a year. Nowadays, 70% of these expenses are covered by the West. Is this not an over-burden of production?
True, the fall of the East was a necessity, but today, twenty years later, the world is facing other unforeseen problems. They push the world towards new, immediate solutions to avoid a dangerous crisis.
The “poor little brother” today demands from the West not only freedom of thought and free speech, but primarily economic freedom. He was fed up with the ideas of the Russian father, but his belly remained empty. Today he demands everything at once: a good life, pleasures, good roads, electricity, healthcare, and so on, and for all of this, he looks to the West. Bear in mind, overnight the West was joined by another Europe just as large, or larger, which seeks to take profits from its pocket, lowering its standard of living and squeezing it in the grip of a crisis.
Another problem is the widening gap between supply and demand. While demands are constantly growing, supplies are moving at a slow pace, for many reasons. The expenses for finding new resources are huge. Everyone knows that the existing ones are not eternal. This undoubtedly increases the cost.
Add to this the new contemporary technology, factories, drilling tools, and so on. The latter alone have eaten up 20% of global profits. The International Monetary Fund says that OPEC must increase production. The major oil producers in the Middle East—the United Arab Emirates, Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman—earned 410 billion dollars from exports last year (while gas brought in 30 billion dollars). These countries invested 230 billion dollars globally. Entire fairy-tale cities are being built in these countries, as is the case with Dubai. These investments have eaten up 2 billion dollars of the economy. The producing countries are turning into superpowers holding the keys to the global economy. The stock market is in their hands. And now they know how to play their card at economic and diplomatic tables. They are more or less turning into independent powers. This development in these countries and the economic decline in the West have created new problems.
We must also add the rapid economic growth in China and India. Just to do a little analysis: these two states are a cog that drives the movement of the growing demand for oil, making its price increase inevitable. Today, these two countries have the highest economic growth in the world,
at 9.3% and 7.4% respectively.
The USA also plays a destabilising role today. The fall of the dollar and its conflicts in Iraq, Afghanistan, and Venezuela have cost it a 1.6% increase in prices and a 7.3% drop in economic development.
This causes the most powerful country in the world to somewhat shake the global economy. In this arena, Europe is proving powerless. It is not setting its own economic and political tone; instead, all the participating states do not want to ruin relations with the USA for known reasons, or for others playing out behind the scenes. Europe is only fighting to close the wounds that America opens in Afghanistan, Iraq, and elsewhere. NATO’s military movements through the globe’s hotspots, or its wars, are costing the growth of people's prosperity billions of dollars, not to mention environmental pollution and decreased life expectancy.
One thing is clear. The world needs oil, and yet this same world imposes embargoes on Iran and, previously, on Iraq. We wage a war looking further ahead in Iraq, but it costs us dearly, and now we need years to set its gears, which we destroyed, back in motion. We think about tomorrow, without considering that to get there, we must travel down the road named today. The method of destroying in order to fix yields no results, yet it is still preferred as the only and best way to solve problems.
There are facts that astound you. Two large oil tankers, filled since last spring, each holding enough fuel to supply Europe for ten days, remain anchored for six months. They were loaded when the price of a barrel was 58 dollars and are sold six months later when the price is 85 dollars. The profits? Colossal for the corporations. The result? Crisis!
These and other problems have brought the firm “Taçi Oil” into conflict with the state and its officials. The rest are just games played on stage to pull the wool over the eyes of the national public.
Moving on, who benefits from the rising price of oil? This too is a major issue. It is known that the former Eastern bloc countries extract oil, but they are out of the game because their extraction costs are high. Russia has its oil at depths of 6,000 to 12,000 metres, while Iraq or Kuwait have it at 400 to 100 metres, and so on. Then it is simple to do the analysis. The price must rise to cover the cost so that other competing partners can be added to the oil producers.
Despite the environmental risks, oil companies are pushing north. “The Arctic will take on an important role in global energy production,” predicts Halvor Engelbretsen of the Norwegian oil giant
“Statoil Hydro”. The region, Engelbretsen says, will join the three most important energy markets: Europe, North Africa, and Asia.
However, the extent and quantity of the oil reserves hidden beneath the white surface of the Arctic still remain unclear. According to a frequently cited study conducted in 2000 by the United States Geological Survey
(USGS), a quarter of the total undiscovered global reserves are hidden in the Arctic. But this impressive figure does not go undisputed, especially if we consider the reputation of the USGS experts, who are known for their optimism.
John Calder, director of the Arctic Research Office at the US National Oceanic
and Atmospheric Administration (NOAA), spent four years working to complete the report titled “Arctic Oil and Gas”—along with 150 other scientists who are part of the “Arctic Monitoring and Assessment Programme” (AMAP) project. The presentation of the study to an audience of 500 experts was the hottest point of the “Arctic Frontiers” conference, which took place some time ago. This battle for the Arctic involves the Scandinavian countries: Iceland, Canada, the USA, and Russia. Meanwhile, Russia holds the lion’s share in the Arctic. Russian companies produce 80% of Arctic oil and 99% of its gas.
In conclusion, we can say that the problem of the rising price is a necessity dictated by the conditions we discussed above, and others we did not mention but which we know and see in every movement of our small family economy, and so on. After all that we read, and the daily analyses on television and in newspapers, anyone might ask: “Then, what is to be done? What is the solution to the ‘Oil’ issue?” All
these questions unfortunately lead us down difficult paths, with little or no light. Because, as we can see, “black gold”,
as we are used to calling it, holds within its blackness many products of economic and political interests.
(There is no reason for the price of oil to rise just because an American ship passes the shores of Iran or the Mediterranean Sea).
These products of “card” interests have their importance—how they are played at the tables, the conditions, and the time in which they are played. The rising price of oil is indeed accompanied by a crisis, but at the same time, by comprehensive development in all four corners of the globe.
Thus, despite the contradictions and delays, the arrows of the “compass” fight to steer the world towards the north, towards development and prosperity.
By Pilo Zyba
