25 February, 2011

Back to a global green recovery plan?

A scenario of sustained high oil prices can no longer be discarded. If the uprisings in North Africa and the Middle East continue to spread to other countries over the next months, it is quite likely that oil prices will keep high, and may even reach new record heights. Not an unlikely development, particularly if protesters in Libya succeed in overthrowing Gaddafi. But instability will hardly stop with the overthrow of dictatorial rulers. Governance-building is a long process, with likely surges of instability. Attending the demands for jobs and income will not be easy. The global economy has not fully recovered yet, and the region’s troubled local economies need sweeping reforms before they can yield satisfactory results. Frustration of demands can refuel discontent and lead to new waves of instability.

This environment of uncertainty and stress can have an enduring effect on oil prices, leading to a relatively long cycle with frequent upswings, before prices start to settle down. This scenario could further deteriorate if this wave of revolt reaches Saudi Arabia. It looks rock solid today, but its gerontocracy has little future left. Change might be inevitable. Instability in Saudi Arabia would very likely determine a higher floor to oil prices. The effect of Libya’s instability on oil prices has do to with oil quality, rather than with the quantity at risk. In Saudi Arabia it is the other way around, it is about quantity. Sustained high oil prices would jeopardize the still shaky economic recovery in Europe and the US. It would also feed inflation. Food inflation that has resulted from extreme weather events all over the world over the last 14 months would be refueled. There is a clear and present danger of a setback to economic recovery.

Continuar lendo: NatGeo Blogs: The Great Energy Challenge

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