Newspaper article The Evening Standard (London, England)

Wars and the Price of Oil

Newspaper article The Evening Standard (London, England)

Wars and the Price of Oil

Article excerpt

MANY OF us enter the New Year troubled not only by the possible consequences of military action in the Gulf but also by the likely effect of war on our wallets when we fill up our vehicles. Already the crude oil price has reached highs of over $30 a barrel. Prices could well rise above the 80 pence a litre level which sparked the road hauliers' fuel duty protests in September 2000. The threat of war in the Middle East inevitably brings back memories of previous oil price shocks, worst of all in 1973, when the Arab nations imposed an embargo during their Yom Kippur war with Israel, helping to plunge the world into dire recession. The outlook for 2003 is, however, very different. Back then, the Arab nations deliberately chose to use oil as a political weapon. This time, the Saudi-led OPEC cartel has learnt that oil embargoes don't work. Price hikes merely encourage energy conservation and searches for alternative fuels, while creating a huge incentive for cartel members to break ranks. None of that suits OPEC, which makes most money in the long run if it can see steady, predictable supply and achieve a price range of $22 to $28 a barrel. The oil strike in Venezuela (a key factor in the rise to $30) and another Gulf war could indeed put another 5p or so on a litre of petrol in the New Year. But motorists should remember that nearly four-fifths of the price motorists pay at the pumps in Britain goes in tax.

The impact of the underlying crude price is limited. There may be further pennies on the price if Iraqi oil production takes more than two months from the start of a war to reinstate. A dramatic disaster for American plans in the Gulf, especially in Saudi Arabia, could cause a sharp increase, yet even a radical new Saudi regime would need to sell oil. Motorists will feel some pain - but there is no reason to expect a return to the dark, expensive days of

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