Oil prices increase on account of Asian economic growth
Oil prices have once again reached record levels. And this is a difficult phenomenon to explain.
Indeed it is true that some time ago a terrorist suicide attack put the Iraqi oil terminal in Bassora temporarily out of operation. However if the terrorists' goal was to block crude oil supplies from reaching the rest of the world, they have lost the battle: Just a few days after the attack oil exports had gotten underway again.
Simple logic tells us that prices are bound to drop. The world's largest exporters of oil, Saudi Arabia and Iran, have wasted no time in stating that they would increase production to defeat the terrorists' objectives.
Moreover, next week, OPEC member states will gather at the organization's June 3rd plenary session, where they are expected to make an official decision to increase production.
In the face of so much news about the open and growing willingness to step up production shortly, crude oil prices are likely to drop. If, instead, they remain at record levels it is clear that the phenomenon is not due to Middle East tensions but to some other largely unforeseen factor.
Many people now recognize that, as AsiaNews had already anticipated, such a phenomenon is due to the explosion of energy demand in China and throughout Asia.
At the research division of the British-owned Barclays Bank it has been estimated that Chinese demand, compared to its annual need, has increased 41% in the first quarter of 2004 (including that of the underground economy). This figure is six points higher than the official one previously reported by AsiaNews.
Perhaps such a figure has bewildered more the experts than those whose field of expertise is not economics. On the other hand, economic growth across Asia has been breathtaking. Following incredible growth spurts in China and India, even Thailand, South Korea, Indonesia and Japan have shown enviable increases in their gross domestic product (GDP).
In the first quarter of 2004, Japan's GDP stood at 5.6%, a figure much lower than the official Chinese GDP (9.8%). However such an increase in GDP for Japan, a country coming out of a decade of uninterrupted stagnation, is extraordinary, even if stained by the country's unprecedented increase in public debt.
The point is, therefore, that Asia's first real and solid economic upswing after the crash of 1998 has had an immediate effect on the region's energy needs and demand for raw materials in general.
In terms of economic theory, it is worth asking just how much truth there is in highly touted claims about technological progress and efficient use of energy supplies, that is to say, regarding the reduction of the total amount of energy needed per unit of increase in a country's GDP.
According to the International Energy Agency (IEA) China will consume 6.24 million barrels a day in 2004, that is, 750,000 more a day than in 2003 (i.e. nearly half the entire volume of Iraqi exports).
Hence oil prices do not go up because Iraq and Al Qaida are found on the front-page headlines of the world's newspapers. If Persian Gulf oil supplies were really interrupted or in serious jeopardy, in our opinion crude prices would hit 60-90 dollars a barrel.
Oil prices increase because Asia's economic growth is not a contingent fact but a structural and long-term one. Before the British brought opium (a Turkish product grown on plantations according to the Indian Bengal model) into China aboard fast-sailing American clipper ships, China's economy was one of the largest in the world. In 1820 China's GDP was 20% of that of the entire world; today it is just 4.8%.
Inspired not so much by communist ideology (which it really does not believe) but by a form of nationalism uniting the country's past, present and future, China's ruling class is thus trying to win back their formerly held positions, while taking the rest of Asia along with them.
The world's consumers must realize that even the Chinese want their share of raw materials.