Wednesday, November 21, 2007

Oil price nears new record as OPEC loses control

by Alan Shipman from Finance Week (UK)

Saudi support for a lower price is motivated by fear that present levels will cause a stalling of growth in the US, Europe and Japan. This, and the direct impact on higher prices on big emerging-market oil importers like China, India and South Korea could send the world into recession, ultimately shrinking OPEC’s market and leaving its members poorer than if they had moderated prices earlier. The Saudis also have strong political reasons for insulating western allies, especially the US and UK, against high oil prices and the consequent strength of rogue states like Venezuela and Iran. From Riyadh, as from Washington, the high-price policy favoured by Caracas and Teheran looks like a strategy to exert neo-imperial authority over the west, and over mineral-poor emerging economies like Cuba, Bolivia and Tanzania. But the Saudis are on the defensive against other OPEC members who now oppose its economic strategy for oil as much as the Wahhabi brand of Islam that has always caused tensions elsewhere in the Gulf. The Saudi government has had to concede the rise towards $100/barrel partly to counter demands within the organisation for a switch away from the dollar, whose ongoing depreciation would have meant a steady drop in income unless the dollar price kept rising.

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