Libya square 520.
(photo credit: Associated Press)
If any supplementary lessons were needed about the acute interdependency of economies in our globalized reality, then Libya is teaching them with fury.
Just days ago, the Israeli public was moaning about its pain at the pump, and the government backtracked from its latest excise hike on gasoline. It wasn’t a significant discount, but it was our local version of “people power.” That achievement looks like dissipating soon. This time, no domestic pressure will help because, in this case, our treasury is powerless.
The very suggestion that beleaguered Libyan despot Muammar Gaddafi might sabotage his own oil pipelines should his position become hopeless sufficed to send shockwaves through international markets. No notion, apparently, is too bizarre in the Libyan context and commodities traders are taking nothing in stride.
Even without gigantic flames licking the Saharan skies, the Libyan turmoil has already destabilized the international commercial system and we will all pay the price, regardless of our distance from and lack of involvement in Libya.
Libya’s importance as an oil producer perhaps explains the different reaction to its upheaval compared to that of its Egyptian neighbor. Though the cost in human casualties was nowhere as horrific in Egypt, world leaders quickly and explicitly called for Hosni Mubarak to step down. Condemnation of the Libyan bloodletting notwithstanding, there hasn’t been similar pressure for Gaddafi’s personal removal.
THE LIBYAN riots have upset stock markets worldwide like no other recent
regional mayhem. In a mere two days early this week, oil prices spiked
by 12 percent, and they keep climbing. In absolute terms, Libyan oil is
hardly indispensable. It accounts for some 2% of the overall world
supply, an amount which other OPEC countries can easily make up. The
Libyan output is some 1.6 million barrels daily. Saudi Arabia alone can
up its production by 3 million barrels a day if required.
But Libya is far more important in the European perspective, and its
European customers are wary. While analysts watched Egypt’s drama with
relative equanimity and half-ignored Bahrain’s internal strife – despite
the potential impact on its Saudi neighbor – Libya finally shattered
global composure. Gloomy predictions forecast a spiral that will take us
to $140 a barrel.
A decade ago, excessive oil prices were somehow tolerated, but today’s
economies are barely hobbling out of the recent recession. Game-changing
price hikes might well throw the entire international financial complex
back into a state of frantic flux.
Although Israel did better than most Western economies during the
credit-crunch years, we can afford no smugness here either, especially
in view of the “people power” euphoria. The public must be reliably
apprised of evolving conditions.
Much as governments are disposed to singing their own praises, the time
has come to present the populace with a bleak assessment. Inordinate
optimism leads to foolhardiness. We are already witnessing its twin
worrisome features: the bloated real estate bubble and growing demands
for wage rises.
With inflation lurking ominously, the Bank of Israel was obliged to
raise interest rates. However, that made the shekel yet more attractive
to investors/speculators. An artificially overvalued shekel cuts deep
into exporters’ profits, and runaway oil prices are sure to add to their
misery. This could well result in bankruptcies, plant closures and
With disproportionate self-congratulation and hubris, we collectively
kidded ourselves that we were economic miracle-workers and could
surmount any hurdle. But this is a dangerous presumption, one whose
direct upshot is the inflationary threat. Our government would do well
to abandon its feel-good PR line and warn the citizenry fairly and
earnestly of what’s ahead.
Any increase beyond the already high $100-a-barrel mark will redirect
all national reserves everywhere to pay for energy. The immediate
consequence is that Arab-sphere instability is bound to affect all raw
materials and manufactured goods prices everywhere. This means inflation
and higher interest rates.
For Israel specifically, it must not mean insatiable appetites at home
that would upset the very delicate equilibrium so painfully and
painstakingly maintained here, against the odds. Greed could turn us
into another Greece.