DEVELOPMENT: The Era of Cheap Energy is Over, Says UNCTAD Chief

By Gustavo Capdevila Reprint | | Print |

Gustavo Capdevila

GENEVA, Sep 20 2000 (IPS) - The rising price of oil, nearly four-fold in the last 20 months, marks the end of an era of extremely cheap energy, ventures the secretary-general of the United Nations Conference on Trade and Development (UNCTAD), Rubens Ricupero.

The oil phenomenon, which market analysts failed to predict, reflects the uncertainty that threatens the world economy and the need for co-ordination and co-operation in confronting macroeconomic problems, said Ricupero Tuesday as he presented the UN agency’s Report on Trade and Development 2000.

The prices of crude had fallen to less than 10 dollars per barrel in early 1999, collapsing largely as a result of the Asian financial crises originating in 1997.

Those prices, adjusted to the 1974 dollar, were just one fifth of the prices recorded between 1973 and 1985. The era of cheap oil began in 1986, said the Brazilian diplomat.

Petroleum prices began to turn around in January 1999, and this week, the futures markets were pricing oil at 37 dollars per barrel.

In just one year of reduced oil prices, in 1998, the wealthy member nations of the Organisation of Economic Co-operation and Development (OECD) profited to the tune of 60 billion dollars, Ricupero said.

That sum was more than the total funds the wealthiest countries of the world designated that year for official development aid, he added.

Oil exporters are this year expected to recover the losses they experienced in 1998, when the sharp decline in prices affected what for most is their major source of income.

If the annual price per barrel of crude averages some 29 dollars, as industry analysts predict, the members of the Organisation of Petroleum Exporting Countries (OPEC) are expected to make 100 billion dollars this year, said the UNCTAD chief.

Ricupero observed that “when you see problems like the oil crisis affecting citizens in industrialised countries, you hear calls and exhortations for self-restraint and responsibility coming from the producers.”

“But, unfortunately, you do not hear the same calls when the phenomenon is the reverse, when, for instance, commodity prices are collapsing, as in 1988,” he said.

“And even though developing countries are still vulnerable to financial volatility, once the storm is over, people forget about the talk regarding a new global financial structure,” he pointed out.

As a result, the UNCTAD report warns countries “about the danger of a complacency, because despite the good times around us, significant amount of uncertainty still prevails – and the proof is the oil crisis,” stated Ricupero.

The UN agency emphasises “the need for great improvement in macroeconomic cooperation and coordination, with particular attention to the most vulnerable members of the world economy, that is, developing countries.”

Instead of focussing on these objectives, economists were planning “perhaps for a hard landing of the US economy, discussing the possibility of interest rate hikes by the Federal Reserve, or fearing a sudden collapse in the stock exchange or in technology shares,” Ricupero chastised.

So they were caught completely off guard by the return of oil price shocks, he said.

In the sphere of economic analysis, “there was an element of a hubris, or perhaps arrogance, concentrating on the idea of increasing productivity, of the new economy” that has been established in society.

“The economists were actually telling us that an oil shock would never be possible again because the economy was different. Industry was no longer playing a central role,” replaced by the service economy, technology, telecommunications, information technology – activities that were not so energy intensive.

Ricupero emphasised that analysts had forgotten a detail that is not insignificant: transportation is as dependent as ever on oil, perhaps more than it was previously.

Due to the low prices of crude in the 1990s, “oil consumption in the United States and in Europe jumped by 11 percent in one decade,” he said.

The UNCTAD secretary-general cited the critical situations of some developing countries that are caught up in “the worst of two worlds.” They are fuel-importing countries that will have to pay a higher oil bill, in addition to suffering complete dependence on commodity exports that continue to see depressed prices.

Along with the strong recovery in petroleum prices, a few other industrial raw materials, particularly metals and paper pulp, have also seen a relative recovery.

But for most commodities markets, price levels are still depressed, as is the case for tropical beverages, a major source of income for numerous developing countries, primarily in Africa, Ricupero stated.