The glory of oil-price increases

ONE can’t help but take note of a Washington Post item earlier this month on how large increases in oil prices of late are actually resulting in a global shift in wealth. In particular, the benefits of higher oil prices, estimated at $700 billion annually, are obviously flowing to the world’s oil-exporting countries—Iran, Russia and Venezuela.

As the article noted, oil consumers worldwide were paying $4 billion to $5 billion more for crude oil each day compared to five years ago, and contributed more than $2 trillion to the profits of oil firms and oil-producing countries in 2007. And aside from the three countries mentioned above, another case in example is Alaska. Unlike the rest of US economy, which has been suffering from lackluster performance of late, oil-rich Alaska is enjoying a boom as crude-oil prices near $100 per barrel in the world market. Only last September, the annual oil dividend paid to every man, woman and child living in that state already hit $1,654, which was up significantly by $547 from last year.

In the same manner, Iran, Russia, Venezuela and even Saudi Arabia are experiencing resurgence. Had it not been for the Gulf War, perhaps even Iraq would now be reaping the benefits of the global oil-price rise. In the case of Russia, gold and foreign-currency reserves have reportedly risen significantly, with the soaring price of oil even helping the country increase the federal budget tenfold since 1999 while paying off its foreign debt. It now holds the third-largest gold and hard-currency reserves in the world, about $425 billion, the Washington Post reported. In fact, using energy revenue, the government has reportedly built up a $150 billion rainy-day account called the Stabilization Fund.

A consumer boom is likewise evident, with sprawling malls, 24-hour hypermarkets, new apartment and office buildings, and foreign cars now becoming commonplace not just in Moscow and St. Petersburg but in provincial cities, the Post said. Average income has, in fact, doubled, and the number of people living below the poverty line has been cut in half. And all that with petrodollars earned in recent years.

With its additional wealth, Saudi Arabia is reportedly building four new cities, with the proposed King Abdullah Economic City in the kingdom’s west coast, with an area three times the size of Manhattan in New York City, reportedly costing $27 billion. The Washington Post also reported that Saudi Arabia, despite massive spending on infrastructure, was enjoying a budget surplus and was boosting its foreign-exchange reserves, even after paying down much of the foreign debt it accumulated in the late 1990s.

“There is no end in sight to the redistribution of more than 1 percent of the world’s gross domestic product. Earlier oil shocks generated giant shifts in wealth and pools of petrodollars, but they eventually faded and economies adjusted. This new high point in petroleum prices has arrived over four years, and many believe it will represent a new plateau even if prices drop back somewhat in coming months,” the Washington Post reported. “There’s never been anything like this on a sustained basis the way we’ve seen the last couple of years,” it quoted Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund. Oil prices “are not spiking; they’re just rising,” he was quoted as saying.

The sad reality, however, is that as oil-exporting countries reap the benefits of higher oil prices, oil importers like the Philippines will just have to contend with spending more on crude oil and fuel. And even while the peso is doing fairly better today against the US dollar, this is not exactly a source of comfort. Ultimately, what will truly help the economy is a weaning from fossil fuel and a gradual reduction over time of dependence on imported crude. The Malampaya natural gas project is one positive initiative taken thus far, as well as the recent bidding for part of the government’s stake in state-run PNOC-EDC, to allow much-needed private-sector investment and involvement in geothermal projects. 

Comments to matort@yahoo.com

YOU’D have to give it to the Burmese junta to find the argument for fending off the thinly veiled warnings from its neighbors in the Association of Southeast Asian Nations (Asean) to release Aung San Suu Kyi and other political prisoners and carry out democratic reforms, as the 40-year-old regional bloc stands in peril of ridicule for finally forging a charter that it cannot universally enforce on all members anyway.

ONE can’t help but take note of a Washington Post item earlier this month on how large increases in oil prices of late are actually resulting in a global shift in wealth. In particular, the benefits of higher oil prices, estimated at $700 billion annually, are obviously flowing to the world’s oil-exporting countries—Iran, Russia and Venezuela.

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Servant Leader: ‘Patronage’

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