Middle Israel: Do the Arabs gain from the energy crisis?

Beyond the Riyadh summit's failure to manipulate an oil glut lurks an Arab failure to brace alternative energy.

amotz asa el 88 (photo credit:)
amotz asa el 88
(photo credit: )
An energy crisis is upon us again.As Israeli gasoline prices this week broke the psychological barrier of NIS 7 a liter, while the truckers threatened to paralyze traffic across the country in protest against gas taxes, it became clear even in this prospering economy that there can be no escaping the tumult that has already made Egyptian, Haitian and Yemeni mobs storm stores, while India and China slashed oil subsidies and Pakistan said it will not be able to pay for its signed oil contracts. The crisis is simple: There is too little crude around and too many people on queue to buy it. Understandably, then, many suspect that this crisis, like the oil embargo of the '70s, is good news for the Arabs. It isn't. True, the Arab oil states have made a lot of money over the past half decade. And yes, the many diplomats, statesmen and politicians now out to artificially pressure oil prices down have very good reason to act with a sense of alarm, even if the entire situation is largely their fault. Yet when this crisis finally abates, the price of crude will be governed by two new realities: more supply of energy, less demand for oil. Last week's summit of oil producers and buyers in Saudi Arabia got Riyadh to pledge a production increase, but still failed to impress the markets, where a barrel's price - long over the roof - now breached the $140 barrier and seemed unstoppably headed toward $150 and beyond, and all this in a decade that began with a barrel selling at just over $10, and talk of a single-digit-barrel rife. Hearings scheduled to be held in the US Congress last Tuesday were not likely to generate any better manipulation of the markets. THE CONCLAVE in Riyadh was futile because the Saudis can only raise production so much, and in fact all political efforts to affect the situation by helping increase the supply of oil, or by helping consumers pay its rising price, miss the point. Missing the point is also George Bush, who wants to squeeze more juice out of Alaska, and missing the point is also the government of Italy, that wants to tax oil companies, and missing the point are all those out to slash oil taxes - from John McCain to Israel's truckers - as are those in the US Congress who claim the problem lies in speculation; speculators can feed on market trends, but they can't create them. The point is that the energy markets are making an emphatic statement that what has traditionally fueled the industrial revolution will be replaced. Whoever will get this faster will be the next revolution's big winner. It follows that what the world needs now is not summits for the extraction of yet more petroleum, but for the creation of its successors. Chances that the world's current leaders will display the agility and vision this requires are slim. However, the business sector can be counted on to eventually get there, with or without the statesmen on board. That is why in the long term ventures like Renault's and Israeli entrepreneur Shai Agassi's electric car are more significant than all the well-dressed diplomats, ministers and princes that hobnobbed in Riyadh last week. And that is also where the repercussions for the Arab world become harsh. CONVENTIONAL WISDOM says the Arab world gained enormously from the boycott of the mid-1970s. That's unfounded. While it is true that initially OPEC managed to bully the free world, by the '80s its strategy had backfired, as the free world - besides efficiently exploring new fields like Norway's and Britain's - expanded electricity generation from nuclear plants, shrank the size of vehicles, increased home heating from natural gas and generally economized its energy usage. The result was a severe oil crunch that nearly crippled the economies that had made prices rise artificially and thought they could benefit indefinitely from a situation that was essentially momentary. The current crisis is not artificial, but it is also relatively momentary. With demand already under pressure - because of high prices - the increase and diversification of supply is only a question of time. And when the gap between supply and demand once again levels, the big question will be to what extent, if any, the great oil producers braced for its arrival. While the next energy glut will also call to task economies like Venezuela's and Russia's, its most prominent victim will be the Arab world. Yes, in the Gulf area today there is some very impressive construction happening as well as interesting educational initiatives, all of which should be welcome from any Western perspective. Yet the question is how far and how deep the current petrodollar windfall is spreading across the poor parts of the Arab world, the one that is ceaselessly sending immigrants into Europe's angry slums. The answer, unfortunately, is that Arab petrodollars, when not spent on extravagant construction in the Gulf states, are spent on arms, luxuries and assorted investments in Europe, America and the Far East. Recently, for instance, Kuwaiti and Qatari businessmen bought New York's GM Building for $3.95 billion, and their peers from Abu Dhabi are reportedly negotiating a 75%-stake in the Chrysler Building, while the Abu Dhabi Investment Authority - the world's largest national investment fund and second largest institutional investor after the Bank of Japan - is spending well more than half of its estimated $875 billion in the rich world's equity, property and bond markets. Meanwhile, Morocco last month had to beg various Gulf governments for a special $800 million loan to finance its oil purchases. That their fellow Arabs would plant in the Maghreb anything quite like what they habitually deposit between Tokyo and the Hudson is for now inconceivable. The oil-rich Arab governments think that the current crisis is essentially other people's problem, from America and Europe to China and India. If there is any truth in this at all, it is in the short run. In the long run, the current crisis will give rise to oil's successor. And then all this will have morphed into an Arab problem, because the Arabs will suddenly notice that they are not only underdeveloped but also poor. And when that day arrives, millions of Arab will surely ask: Back when the Arabs had money, and several hundred of their princes and sheikhs decided to park it by the Fifth Avenue Bergdorf Goodman rather than seed it in Casablanca's slums and Cairo's shantytowns - how did it never occur to us to ask them, what's in it for us? www.MiddleIsrael.com