In January 2010 oil prices briefly surged past US$ 80 a barrel, prompting US Energy Secretary Chu to add more proof that high-priced oil, if not global warming is taken seriously by high level national deciders and policy makers.
Chu's concern over high priced oil, despite the positive effect of higher energy prices on investment for developing usually costly new and renewable energy sources, is now echoed by Al Gore, who with Rajendra Pachauri is probably the world's best known promoter of what they call "catastrophic global warming".
In a late February interview with New York Times, Al Gore said: "It would be an enormous relief if the recent attacks on the science of global warming indicated that we do not face an unimaginable calamity requiring large-scale, preventive measures to protect human civilization as we know it.
“Of course, we would still need to deal with the national security risks of our growing dependence on a global oil market dominated by dwindling oil reserves in the most unstable region of the world, and the economic risks of sending hundreds of billions of dollars a year overseas in return for that oil."
This new approach, also used by world environment ministers meeting in Bali, Indonesia in late February, links the "unimaginable calamity" of global warming, with more down-to-earth and practical themes: what are called high oil prices.
As Al Gore and economic deciders like Ben Bernanke of the US Federal Reserve and Jean-Claude Trichet of Europe's Central Bank have many times said since late 2009, economic recovery from what the IMF calls the worst economic recession since 1945 is, they say, threatened or menaced by high oil prices.
It is important to compare the oil price, with other global macroeconomic indicators, factors and trends. If we only take global equity markets, these have shown growth and recovery quite similar to recovery of the oil price since the lows of 2008.
In December 2008 the January 2009 delivery WTI contract price on the US Nymex was traded at about US$ 32.40 a barrel. Many equity markets have grown by over 50 per cent since early 2009, taking headline index composite values. Gold prices have also shown strong recovery and growth since 2008.
In the case of gold this price growth is encouraged by the weakness of the US dollar against other world moneys, which also advantages the oil price. One major reason for the weakness of the US dollar, GB pound, the Euro, and certain other major moneys is national debt and government budget deficits.
The US budget for financial year 2009, recently announced by Obama, is a major example of this huge debt problem: the deficit for FY 2009 will be about US$ 1 300 billion. Many other countries have budget deficits equal to 10 per cent or 12.5 per cent of total annual economic output, or GDP.
This spending deficit is due to economic recession and accumulated, very large national debts, in many cases equal to more than one year's GDP. Restoring economic growth is therefore vital.
There is no alternative to this, except devaluing national money to depreciate the real value and real cost of repaying debt, or in extreme cases simply repudiating national debt. When or if any major country is forced to this extreme solution the global economy would suffer extreme instability and very, very intense economic slump.
Low and cheap oil prices are in no way capable of changing this situation, over and above the fact that financial and debt crisis in the major countries is not due to the oil exporter countries.
A few simple facts underline, using the example of the US economy.
Recent official monthly trade data for the USA shows that US total net imports of crude oil, after re exports, were 245.45 million barrels (about 8.16 Mbd) in November 2009.
Total payments made by US crude oil importers were US$ 17.81 billion for an average barrel price of US$ 72.54. Other energy imports, specially natural gas, added about US$ 5.4 billion to energy import costs. At the average monthly oil price for November 2009, for a 12-month period, the total annual US crude oil import bill would run at about US$ 214 billion.
This can be called "very large", by well-known speakers such as Al Gore, or economic deciders such as Ben Bernanke, but it must be compared with the US budget deficit for FY 2009. The oil import bill is under one-sixth of the budget deficit.
We can next compare the annual oil import bill with the deficit-financed aid, support, low cost loans and bailouts made to the US financial industry and to car makers, certain airlines, and other economic actors since late 2008. Taking only the Poulson Plan of late 2008, under G W Bush, and the Geithner Plan from 2009, under B H Obama, this adds up to about US$ 1 500 billion - equivalent to more than 7 years of total oil import costs at an average US $ 72.54 a barrel.
Even more important however, oil is a "real resource", not a "paper resource".
Payments made by oil importer countries like the USA to the exporter countries quickly result in increased demand for world exports of goods, machinery, equipment and services.
This is shown by detailed IMF studies on the recycling of windfall gains by all commodity producer countries, producing all kinds and types of commodities, since the late 1990s.
Up to oil price levels that Al Gore calls "very high", global economic growth is favoured by stable and remunerative oil prices. High oil prices offer a real world, real economy solution to current very grave financial and monetary challenges.
The process is what I call "Petro Keynesian Growth", and growth is badly needed. Only economic growth can counter the debt menace, certainly not the proposed "Carbon Money" that was discussed, and rejected in private sessions at the Copenhagen climate summit.
Present debt levels in OECD countries, and other countries must be reduced, and the only way for this is economic growth.
This will tend to raise oil prices, but if they are around US $ 90 a barrel this will not at all cause "economic catastrophe", but will strengthen growth.
Source: Alrroya.com
