Oil Prices: Escalating Trends

  • 28 February 2007

With the Iran-West dispute entering a new stage of uncertainty because of the hard-line positions of both parties, oil prices in the international markets rose to over $61 per barrel last week, thus recording the highest point since the beginning of the year. International oil markets speculate greater tension in the Middle East situation that could further raise oil prices. The world economy was able to contain escalating oil prices better than expected in the last three years, although this price rise exceeded all probabilities thought through by international governments and organizations. However, a new rise in oil prices may pose considerable danger to the world economy, as it is expected to enter a sluggish phase this year.

Amidst increasing tensions and conflicts in the Middle East on many fronts, sharp and unexpected changes may lead to an unprecedented increase in crude oil prices and the international oil market. However, what is certain is that everybody will be affected by any unlikely and unjustified rise in oil prices, including petroleum-exporting countries themselves. Such a crisis will vary from one region to another, for example the European Union states could afford an increase in oil prices more than any other bloc, thanks to the strength of the Common European Currency, which absorbs a great deal of oil price fluctuations, by virtue of oil transactions in US dollars. These states also enjoy a high level of efficiency in energy management. They are probably more efficient than the United States, which will definitely be the greatest sufferer in case of an increase in oil prices. As regards Asian countries, the increase in oil prices will have mixed impact on countries, although the immense economic growth enjoyed by some of these countries in general could provide them with a cushion that may not be available for others. As regards petroleum-exporting countries, although a major increase will provide them with short-term benefits; it would have numerous adverse effects in the longer term.

Accordingly, in light of the pressures on oil prices that are linked to many variables and the non-availability of viable energy alternatives to oil until now, political tensions in the Middle East would continue to plague the world economy, and a reasonable price for oil would be difficult to guarantee unless peace and order are restored in the region.