$100 oil a cause to celebrate? The answer is, yes -- in the short term,
and no -- in the long term. The answer also depends on who you are and
where you sit.
Many oil exporting Middle Eastern government
officials may think that the oil bonanza is here to stay. However, oil
revenue is notoriously cyclical, with ups and downs wreaking havoc in
the national budgetary process.
Petrodollars -- or petro-euros
these days -- also have a nasty habit of causing a national addiction,
crowding out non-oil sectors and making countries, business, and
individuals dependent on one commodity only. This is hardly a
prescription for a healthy economic model.
Yet, oil companies'
owners, executives, and shareholders may be opening bottles of
champagne, despite the end of the New Year's celebrations. But the
business people, who run their agricultural, transportation, tourism,
and airlines, are threatened with the rising production costs caused by
high fuel prices.
Commuters are unhappy as an ever greater share
of their incomes is allocated to transportation. Tenants and homeowners
pay ever higher heating bills as energy costs correlate to oil prices.
these are high: The year opened with $100 for a barrel of light sweet
crude at the New York Mercantile Exchange, and there is no end in
sight. And the rest of the economic omens are dire.
2008 has begun with the greatest stock market price slide since 1983.
According to Bloomberg News, the Standard & Poor's 500 Index lost
21.20, or 1.4 percent, to 1,447.16, the most to start a year since it
fell 2.8 percent on Jan. 2, 2001.
The Dow average slipped 220.86
points to 13,043.96, predicting a weak year in the markets. The NASDAQ
Composite Index decreased 42.65, or 1.6 percent, to 2,609.63.
Gold is in almost-record territory at $860 an ounce, although lower than the all-time high of $875 in 1980.
Europeans in particular are feeling the pressure: The EU has cut growth
estimates for 2008 from 2.5 percent to 2.2 percent, and the EU Economic
and Monetary Affairs Commissioner Joaquin Almunia predicted a possible
further downturn, below 2 percent, if the oil prices keep soaring.
are at least three threats to the current Middle Eastern oil
prosperity. One is macroeconomic, one is policy/regulatory, and one is
On the economic side, the quintupling of oil
prices since 2002 is creating a drag on the largest economies in the
world: Europe and the United States. High energy prices hurt the
developing nations even more. And even the high growth engines, such as
China and India, may start to slow down. If this occurs, oil prices are
likely to plunge.
High oil prices are likely to spawn creation
of tomorrow's fuels, including sugar cane ethanol, genetically modified
and fermentable cellulose, and others -- just as the scarcity of wood
in England caused the switch to coal as the source of heat for the
burgeoning steam engine economy in the 18th century.
fund experimental car competitions. A paltry $10 million prize in grant
money is likely to contribute to development of cars capable of driving
over 100 miles per gallon of fuel.
Finally, on the policy and
regulatory level, increasing concerns in the developed world about CO2
emissions and the climate change are likely to squeeze out oil in favor
of natural gas, nuclear, and renewables (solar, wind, hydropower, and
others). These concerns are also likely to give a boost to energy
saving technologies that are likely to lead to a drop in demand for
Gulf states and other oil and gas producing
countries, from Algeria to Azerbaijan, need to look the future squarely
in the eye. The oil bonanza will not last forever.
To survive in
the post-oil world, these countries need to start preparing now, when
the times are good, just as Biblical Joseph filled the Pharaoh's
warehouses in Egypt while the bumper grain crops lasted. Today this
means preparing for competition and integration in the global economy
for the rest of the 21st century.
This means creating excellent
education systems which teach science and technology, and give students
access to the wealth of historic and social sciences materials that
adequately represent the richness of our world's cultures.
as the global practice shows, are educational establishments in which
both men and women enjoy equal rights and are integrated, which thrive
on diversity and do not segregate on the basis of gender, creed, and
Being future-oriented also means a transparent
and equitable legal system based on the rule of law, complete with an
independent and competent judiciary. Without it, those who seem today
the most blessed, tomorrow may found themselves cursed.
usual suspects, from Saudi Aramco to Rosneft and PDVSA may be
celebrating oil at $100 today. But without preparing for the future,
some oil states may -- in a few decades -- return to what they once
were: the harsh expanses of sun, sand, and sword.
Ariel Cohen is senior research fellow at the Heritage Foundation and senior adviser to the U.S.-Ukraine Business Council.