Monday, November 12, 2007

High oil prices change the world

One of the consequences of high oil prices is a worldwide transfer of wealth. Buyers of crude oil have to pay $4 billion to $5 billion more each day than they did only five years ago. The result is that in just this year alone over $2 trillion will go to oil–producing countries. What this means is that countries like Russia, Iran and Venezuela will have more money to foment trouble for the world. In the case of Iran and Venezuela, they can buy more armaments and war-making toys to plague the United States; Venezuela in particular can use increased oil revenue to spread its influence throughout South America. For Russia, it means that they can flex their muscle around the world with the confidence that increased wealth brings to the regime.

Naturally most Arab countries will continue to misuse their newly acquired additional wealth; for example, Saudi Arabia is planning to build a megalopolis for $27 billion that will be three times the size of Manhattan. Dubai is a better investor of oil profits on the world scene but even they feel an extraordinary indoor ski facility is a must for their desert residents.

Vladimir Putin came to power in Russia in 2000 shortly after the ruble tanked on the world market and Russia owed $17 billion that year, chump change by today’s standards. The increasing price of oil not only allowed Russia to pay off their debt and increase their annual national budget 1,000%, they now have the third largest gold and hard currency reserves in the world. Is there any doubt that the increased oil and gas revenue is responsible for Russia’s increased influence in Europe and their mischief-making for the United States?

Like the unwise Arabs, Nigeria has failed to capitalize on their increased oil revenue to improve the lives of Nigerians. For reasons known only to them, gasoline prices for Nigerians have also increased. However, cities in Malaysia and Sudan are booming with construction of high-rise buildings and luxury hotels.

China is a different story as far as higher oil prices is concerned. Since China is a buyer, not an oil producer, gasoline and diesel fuel have been rising and shortages are increasing in the growing economy. China consumes about 9% of the world’s oil production. Cars are a status symbol in China, and even in South Africa. The greater number of cars in these countries also impacts the demand for oil.

Japan is an interesting case. Even though Japan imports about 100% of its oil requirements, the country has made strides in reducing oil imports by investing in conversion of electric power plants to natural gas, coal, nuclear energy and solar power. Japan is responsible for 48% of the worlds’ solar-power generation compared to 15% by the United States.

Despite Britain’s North Sea oil production (which is actually declining), cost of petrol is $8 a gallon even though Britain produces all the oil the country needs. A lesson for the U.S. is that 80% of the fuel price at the pump is for taxes (are we heading there?).

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