Nevertheless, since 2004, 2005, supply constraints have started playing a role. You have a group of oil-producing countries that are very efficient, mainly in the gulf, and that are making huge reinvestments for future capacity. But you have other areas in which efficiency in energy production has not been updated. And that has created supply concerns. Now, with spare capacity low, you have increasing geopolitical concerns: Nigeria, Iraq, Iran, you name it. With no fundamental economic changes, there are big shifts in price. To give just an example, the Saudi representatives have expressed the view that no less than $20 per barrel was a geopolitical premium.
That’s not true anymore. What is clear is that the world has grown more, even with higher oil prices, because China and many emerging economies have grown more. One reason is that all the commodities have increased in price–probably everything except cotton has gone up. So people have been paying more for oil, but also selling their own commodities at higher prices. That has to play a role. What is surprising is that because of more credibility of monetary policy in most countries and more global competition, we have not seen second-round effects of oil prices–inflationary pressures–materialize.
Nothing is permanent. We will see only increases as the curve of private consumption changes in new emerging economies. So energy is a key question for economic policy. In the United States and Europe you need diversification of energy, new investment in refinery capacity and the right price incentives to encourage conservation. In other places you have to eliminate subsidies that are very disruptive, or to promote more efficient oil production.
Well, it’s true that OPEC had established $28 as a relevant value. That has changed. We all know that. But what you see in the gulf is very important investment: billions, tens of billions of dollars. Some are also trying to diversify their economies away from oil. That means infrastructure, education, opening markets for investment in other sources, becoming more integrated in the global economy. Other countries are not that efficient.
The target price of OPEC has changed, that’s a fact. But what I’m trying to say is that that price is part of their financial planning for the future. They’re investing a lot. And that, I think, is good for the world, and it’s good for them. And today they also will tell you, “Nobody was ask-ing us to increase the price when the price was $8.” I think they also know very well that it is in their interest to have a stable price for the world economy. So I don’t think there is room for too much criticism in that area.
