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Energy security and its perils

There is edgy nervousness as businesses and consumers feel the shock of record-high oil prices, currently hovering below the $140-per-barrel mark. The Russian oil giant Gazprom, has warned that oil prices could climb to the $250 mark by the end of 2009.

This is happening amid growing realisation that the global economy is in recession. Some analysts state the 1970s’ spectre of stagflation could be in offing as rising cost of oil hits corporate profits and squeezes household and commercial budgets. The Paris-based International Energy Agency (IEA) this week lowered its forecast for global oil demand, albeit by a fraction.

Major global economies are in the process of initiating fundamental changes and IFA stated that it would take time to filter through. Hence, analysts are keeping a close watch over the future course of oil prices as costly oil is cutting demand worldwide. Last week, merchant bank Morgan Stanley joined Goldman Sachs in forecasting that oil prices might touch $150 per barrel in the next quarter. An IEA spokesman in Paris said the key emerging markets, rather than the U.S., were now dictating the direction of global oil demand.

OPEC has called a special meeting of oil producers on July 22 and there is speculation that it may decide to lower oil prices due to the volatile situation in both the developed and developing markets. There are fresh worries about global economic growth and prospects of surging inflation as manufacturers raise prices.

According to UniCredit, current data indicated that economic growth in the Euro zone may stagnate in the second quarter. European governments are worried about inflation and unemployment, and so far, despite high oil prices, they have managed to keep both inflation and unemployment in reasonable check. However, the growing unease over high oil is highlighted by mass protest by truck drivers, fishermen and average consumers, because in one year, crude oil price has jumped from $65 to $135.

With recessionary tendencies, residential and commercial property prices have fallen and no one is sure about the extent and consequences of this sector’s downward slide on both sides of the Atlantic. In the U.S., real estate prices have fallen by a third. In Western Europe, the prices have fallen by 10-15 per cent from the record high two years ago. It is argued that part of this fall could be attributed to routine market correction.

According to Group 8 countries, record-high oil prices have ensured that the global economy has been propelled into an era of high oil price and energy security has now become the foremost concern of government everywhere.

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