Dominic Lawson: The sheer hypocrisy of this debate on oil

Oil makes hypocrites of us all. Ban Ki-moon, the UN secretary general who last year took office declaring that his main goal was to fight “man-made climate change”, has spent most of his weekend in Jeddah attempting to persuade King Abdullah of Saudi Arabia to ramp up the kingdom’s oil production.

This is just the global edition of Gordon Brown’s earlier plea to the Saudis to “do something” about the high price of oil; a remarkable display of diplomatic chutzpah from a man who, as Chancellor, spent a decade telling us that increasing the price of petrol on British forecourts through fiscal means was very much in the best interests of the whole planet.

Meanwhile the US Senate has threatened to launch a prosecution of OPEC for its alleged fixing of the world oil market, to the detriment of the American consumer. The American legislature’s hypocrisy in this matter takes a different form to ours: the politicians who are now howling with rage about the shortage of oil supply are in essence the same people who have long blocked the oil industry from developing vast deposits both in the Arctic National Wildlife Refuge and off their own coastline – about 80 per cent of the US continental shelf is out of bounds, on environmental grounds.

I imagine that when King Abdullah told Mr Ban that “national policies in the West” were partly to blame for the current very high price of crude oil, the Americans’ refusal to drill for oil in their own most geologically promising territories might have been one of the factors he had in mind.

Ban Ki-moon was not, needless to say, acting solely as an emissary for the United States: he was representing the teeming billions in nations as diverse as China, India and Malaysia. Yet if you look at this seizure in the oil market from the point of view of demand, rather than supply, then these same countries have also contributed directly to the problem they have asked Mr Ban to sort out for them.

All have for years had a policy of subsidising the price paid by their consumers and industry for oil products – and on a vast scale. According to the head of the International Energy Agency, Nobuo Tanaka, such subsidies are currently running at a rate of about one hundred billion dollars a year. In other words, these countries’ biggest energy consumers are being shielded from the effects of high oil prices, and therefore are not adjusting their consumption downwards – quite the reverse, in fact.

Nowhere is this more obvious than in the People’s Republic of China. Beijing has a rigorous price cap, which means it simply pays companies such as PetroChina and Sinopec vast sums to compensate them for a state-imposed inability to pass on their increased raw material costs to the end-users. While crude oil prices have doubled, the price of a tank full of petrol on the forecourts of the Middle Kingdom has not increased by a single renminbi – and is not likely to do so this side of the Olympic Games.

In this context, the article by the vice-premier of China’s state council in yesterday’s Financial Times was almost comical. Wang Qishan argued that his government “gives high priority to energy and resources conservation and the protection of the environment”. No one can doubt the pressures the Chinese Politburo is under to meet the aspirations of its people and neither should we in the West criticise their desire to enjoy the opportunities which industrialisation bestowed on us. But still, how can the representative of a government which pays its industries to burn more fuel expect to be taken seriously as a proponent of “energy conservation”?

This seems, on the surface, to be one of the greatest paradoxes of the modern world: while democracies such as those in the European Union have been sufficiently insensitive to the wishes of their consumers as to have provoked disturbances over the price of petrol and diesel – augmented as they have been by very high taxes – totalitarian states such as China have pre-empted the possible political consequences of high domestic gasoline prices.

Perhaps it is because the rulers of such countries know their people do not have the safety valve of elections to let off steam; so if things get ugly they could get very violent indeed. There is a less charitable explanation. In China, only the wealthiest two per cent own a motor car; the proportion is not much more in many of the other developing countries with high petrol subsidies: so we are seeing the subsidisation of the richest in the Third World at the expense of all.

This is not unusual: indeed it is absolutely standard in the upside-down world of market intervention. It is exactly the same as the global food market, in which subsidies ostensibly designed for the benefit of everyone are in fact disproportionately directed at the richest, paid for by national exchequers which supposedly represent the interests of nations as a whole.

Just as in agriculture, while the West is rightly condemned for the distorting effects of its subsidies, the developing world tends to escape criticism for the consequences of similar policies, which are ultimately to the greatest detriment of its own people; BP’s chief economist, Christof Ruehl, pointed out last week that the developing world uses more than three times more energy per unit of Gross Domestic Product than the developed countries of the OECD.

So it’s not just that these poorer countries are building up their national debt to subsidise the use of oil; their economies will ultimately lose out in competitiveness to those in the West, where prices are liberalised. It won’t seem so at the moment to heavy users of fuel in a developed world, naturally: but in the long term, if oil prices stay at these levels, the countries which change the way they use energy will suffer the least pain.

It is, despite all the dire forecasts which are now the rage, not certain that the unprecedented high price of oil will hold. The Saudis have no long-term strategic interest in the world learning how to cope with much less oil. That might possibly be why last weekend King Abdullah told Ban Ki-moon that the kingdom would increase its output by 500,000 barrels a day in July.

The strange thing is that there isn’t an absolute shortage of oil in the markets, despite the sentiment of fear which haunts them. There’s already a sufficient amount of the black stuff to go round to meet current levels of demand, as the Saudis have wearily insisted often enough over the past few months.

In fact, King Abdullah’s pledge to the UN secretary general is the purest politics, simply to get the weight of the world’s opprobrium off Saudi’s kaffiyeh. I don’t blame the King, however; when hypocrisy abounds it is hard for anyone not to pay homage to it, even an absolute monarch.

The Independent

http://www.independent.co.uk/opinion/commentators/dominic-lawson/dominic-lawson-the-sheer-hypocrisy-of-this-debate-on-oil-848517.html

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