by Jerome a Paris
Fri May 9th, 2008 at 12:25:31 PM EST
Part of the irregular Countdown to $200 oil series.
Oil price breaks through $126 a barrel
Crude oil prices surged on Friday, breaching $126 a barrel for the first time and putting pressure on Opec, the oil producers' cartel, to increase output in an effort to lower global energy costs and prevent further inflationary pressures.
The new record came a day after Abdalla El-Badri, Opec's secretary general, suggested the cartel would not increase its output in spite of a 100 per cent jump in oil prices in the last 12 months and warnings it could hit $200 a barrel.
Since hitting $100 in early January, the oil is up 26% in 4 months. Coincidentally, another 2 increases of 26% in 4 months will bring us to mid-January 2009 and almost exactly to $200 oil.
Of course, there is no particular reason for oil prices to continue to increase at the exact same rythm as before.
In fact, given that über-optimist Daniel Yergin of CERA (no peak, but a long "undulating plateau" fame) has finally given in and is now predicting $150 oil in the near future (after years of claiming loudly that oil prices would go down each single year), one might argue that it is a good time to bet on them actually going down this time.... (or maybe he's optimistic again and prices will go a lot higher than that!)
But the fact is, the next president will come to power at a time, in all likelihood, of really high oil prices. While the list of urgent priorities to be tackled is sadly already very long, I don't think that oil (or, more generally, energy) policy can fail to be near the top of that list, especially given the fundamental, if implicit, links with the foreign policy morass of Iraq as well as the tensions with Iran, Russia and Venezuela.
In addition, the economy will be in full meltdown mode by then, and oil and other commodity price increases are a large contributing factor - whether they are seen as a consequence of global world growth, or of the loose monetary policies of the past few years, they reflect inflationary pressures that have long been visible in asset prices and made tolerable to our policy makers because they did not translate into wage increases, thanks to global corpocratic/kleptocratic neoliberal economic policies. (In turn, wage stagnation was made tolerable by turning houses into ATMs and making everybody believe they could turn into a millionaire one day).
Oil price increases are just a real life manifestation of the precept that you cannot have your cake and eat it - real wealth - for the whole economy - needs to be created, not just shuffled around or looted (that only works for a few, and only for some time). Oil, and commodities, represent real wealth, and their price increases suggest that the rest of the economy is no longer producing as much actual value as it used to - a general depreciation of money.
I've already said that we're actually lucky to have a recipe that can take care of both the economy and the energy crisis at the same time:
- launch a massive plan to subsidize home energy efficiency improvements - that will help the devastated construction sector, create lots of jobs, and help reduce the energy bill massively;
- reinforce efforts to build renewable energy plants. The current support system works, and needs not be changed, but massive investment in the grid, and in working but still-too-expensive technologies like solar power should be done or supported by government. Again, this will create plenty of jobs locally, and will help move away from oil and climate-deadly coal.
- massive investment in infrastructure - in particular focusing on intercity rail and local transit networks and a large scale would also appear to provide excellent bang for the buck.
In addition to that, targetted tax increases to fund all this should be considered, and rigorous re-regulation of financial institutions (to limit their leverage and make bankng boring once again) ditto.
But whatever ideas are mooted, it is urgent to actually start debating them beyond the awfully-populist gas tax holiday, which means that it's urgent for the current campaigns to instill a sense of urgency about the issue. Tinkering will not work.
Or, rather, it will work only until January 2009. Then the shit will hit the fan and a new president that has not prepared the ground for serious action will be blamed for everythign that transpires then.