BEIJING, June 11 -- 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 U.S. subprime crisis and widespread inflation, could
not but feel exhausted as the international oil price remains high after
topping 100 U.S. dollars a barrel early this year and reaching $135 a barrel
recently.
Leading oil guzzlers the United States 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 United States, 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 United States 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 U.S. 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 U.S.
dollar has depreciated some 25 percent since 2002. The United States, 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 U.S. dollar on the international market, the depreciation of the U.S.
dollar prompted many holders of strong non-U.S. 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
dollars a barrel if the U.S. 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 U.S. 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 United States 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 United States and other developed
countries are responsible stakeholders as they want the world to believe
they are. The United States 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
(Source: China Daily)
