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Essay on Escalating Oil Prices and the Global Economy
Today's international oil industry is radically different from what it was in the 1980s. Yet it remains as highly politicized as it was in the heyday of resource nationalism two decades ago, when oil occupied the attention of Western governments and the press. Those concerned about oil have dwindled in number, save for the oil exporters who recently had to bear an extraordinary burden of adjustment when petroleum prices collapsed after January 1997. Even so, petroleum issues remain significant in a wider political setting. Less than a decade ago, the United Nations, under U.S. leadership, fought a modern war over petroleum after Iraq seized Kuwait and its oil resources. More recently, the United States has been brandishing the oil weapon through its sanctions policy, conducting the very policy that it fought against a quarter of a century ago.
Since the collapse of the Soviet Union and the end of the Cold War, a new political economy of oil has been evolving. It is characterized by open access to resources not only in the Persian Gulf, where most of the world's oil is located, but elsewhere in the world as well--especially the Caspian Sea basin. This new era is also marked by dramatically improved technology and a shift from government control to government and industry cooperation. Despite the differences between oil politics today and those of yesteryear, however, there remain important continuities between the two eras.
Since the balance of power in the market was tipped toward sellers, oil prices could be raised at the discretion of governments, which, if they so desired, could increase the rents from oil exploitation and force a shift in income and wealth from the consuming countries. This set the stage for another critical element of the old political economy of oil --the use of the oil weapon...........
