Lessons from the past

Oil prices struck a new record high yesterday, throwing international markets into turmoil. Having eclipsed the $40-per-barrel threshold in the United States, with European prices following suit, the specter of elevated oil prices once again looms over the economies of the West. The $10 to $15 per barrel price range of the 1997-1998 period, as well as OPEC’s $22 to $28 a barrel level for crude oil are no more than a distant memory. As with every major crisis, the skyrocketing oil prices are a consequence of geopolitical factors. The US-led war on Iraq, America’s political and military deadlock in the occupied country and, most importantly, the unbridgeable chasm among the Arab and Muslim oil-producing countries in the Middle East, caused by Washington’s policies in the region, are the main reasons behind the current surge in oil prices. In addition, the crisis in US relations with Saudi Arabia, the West’s traditional bulwark against oil price hikes, fuels a climate of uncertainty which plays into the hands of international speculators who push prices upward. The replacement of America’s strategic petroleum reserves and heated demand in China and India, which are often cited as causes of strong oil prices, are in fact offset by increased OPEC supply which hovers at about 2 million barrels a day, and by the lower demand in the scant-growth, developed industrial countries. The two previous oil crises have left Greece with bitter experience. The first oil crisis in 1973-1975 triggered a wave of stagflation, while a second in 1979-1981 brought Greece’s industrial production to its knees. The government must intervene to contain the negative fallout from soaring oil prices. A first priority should be to keep a close eye on the domestic refining and distribution network. It is an open secret that the system has been hijacked by profiteers who drive up fuel prices (note that Greece has the lowest fuel tax rate in the European Union). The government must also take short-term measures to minimize the negative effect of elevated oil prices on the Greek economy (on the assumption that this will be an ephemeral trend). In this context, and notwithstanding the temporary reduction in state revenues, further tax breaks on fuel would provide a much-needed tonic for the economy for as long as strong oil prices persist. The painful experience of the past dictates that the State must sacrifice short-term profit for the benefit of the economy in general.

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