May 23, 2011
In a declaration published May 20th , the Governing Board of the “International Energy Agency”, which represents the 28 major energy consuming countries, has expressed serious concerns about rising oil prices affecting global recovery by reducing household incomes and putting pressure on inflation and interest rates.
This declaration, which represents a call upon OPEC countries,when they will meet next month, to open their oil taps, is unusual by all standards. OPEC countries should ignore it as an undue interference in their internal affairs.
The world economy keeps booming, especially in Asia and the Middle East. It is therefore strange to affirm that the high oil price will have a negative impact on the world economy. It is equally strange to claim that it will aggravate “global imbalances”,i.e. the colossal US deficit vis-a-vis China and its intolerably high oil imports.
The oil price, expressed in USD, has risen by 40 percent over May 2010, which is half the increase of US corn prices! Since early May it has fallen by 10 percent; and forward prices for July indicate that the present level of $ 112/ will be remain constant.
Inflation in the EU continues to stay below 3 percent, despite a lax monetary policy. Long-term interest rates in Europe are less than 5 percent, just enough to offer a minimum yield in real terms.
The plea for lower oil prices is therefore anything but convincing. But most shockingly, it ignores the solemn declarations by heads of government for energy efficiency and rapid transition towards renewable sources.
Of course, high oil prices are politically undesirable. They hurt consumers, especially those in the USA that are still stuck with gas-guzzling cars and do not benefit from the in-built price stabiliser of high European petrol taxes.
The US Administration is understandably under pressure from voters to fight for lower oil prices. That is also why it has just authorised American oil companies to extend off-shore drilling to the Atlantic coast.
But the response should not be lower oil prices. Obama should have the courage to tell his citizens that they have no choice but to brace for higher oil and gas prices and adapt to them by investing in low- emission housing and cars.
It is regrettable that European IEA members have put their signature to this awkward declaration. One would have expected more consistency between short-term political convenience and long-term necessities. We know we have to cut our consumption of fossil fuels, dramatically. We see climate change accelerating every day. We seem incapable of curbing fossil energy consumption by international agreements. So we should be happy to see market forces do the work. The world needs high oil and gas prices! There is no more effective way to get human beings consume less fossil energy.
The IEA has not done itself a good service by giving in to political pressure from the USA!