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Wednesday, June 18, 2008

Ahmadinejad claims oil price increase 'fake'

At a meeting of the OPEC export countries in Isfahan (Iran) on Tuesday, President Mahmoud Ahmadinejad declared that the record high price for oil is fake and deliberate, and that the oil market supplies are plentiful, and he blamed the weakening of the US dollar for the skyrocketing prices.The US and other consumers want producers to boost their output but Iran, which is the fourth largest exporter in the world, has said it sees no need to do so. Ahmadinejad suggested that a bank of OPEC members be created to act as a counterweight to US influence in the world.

Let's go to the videotape and then I will have some comments.



The high price of oil sure looks real if you're paying for it in dollars. But even if you're paying for it in Euros or Shekels it still looks real. I wouldn't characterize it as 'fake' and I certainly wouldn't blame all or even most of the increase on the weak dollar.

The price of oil has gone up because of increased demand from industrializing countries like India and China. There are two ways to bring prices back down, each of which essentially comes down to increasing supply. Those ways are directly increasing supply, either through increased sales by OPEC members or by other countries that are new to the market, and indirectly increasing supply by pursuing alternative fuels and energy sources.

In the short run, the only thing that is likely to help is increased supply from OPEC. That's why President Bush pushed the Saudis on the issue during his visit there last month. But in the long run, the other two methods must be pursued. We've known that the world oil supply is vulnerable for nearly 35 years now, and very little has been done in terms of either exploring for new sources of oil or developing alternative sources of energy. This morning, US President George Bush is set to take a step in the right direction on oil exploration, urging Congress to drop a long-standing ban on offshore oil and gas exploration. But more must be done.

We must continue to pursue alternative energy sources even at times when oil prices are stable. As was the case with recycling - which did not seem to be economically viable thirty years ago, but which is now regarded as an absolute necessity in much of the world (unfortunately not in much of Israel) regardless of its costs - so too we must pursue alternative sources of energy even if they don't seem to be profitable at first. If necessary, the pursuit of alternative energy sources should be pursued by the incentive of tax breaks for significant investments. The alternative is leaving the civilized world dependent on the likes of Mahmoud Ahamdinejad and Muamar Gadaffi. And that's not something we ought to want to leave to our children.

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