The Oil Shock that Never Was

The price of oil was supposed to skyrocket after September 11 th due to political instability in the Middle East. Instead, it has dropped by 30% to under $20 a barrel, the lowest level in two years.

This drop is due to three causes. First, recession has hit certain high oil consumption sectors such as air transport hard and so demand for oil has gone down. Second, American policy has (until now at least) avoided an open confrontation with the countries of the Persian Gulf; and Afghanistan, thank God, is not an oil producer. Third, Russia, coming out of its post-Soviet crisis, seems decided to continue expanding of its own oil production, despite its recent sop to OPEC.

But this short-run fall in the price of oil should not let us lose sight of the long-term political problem; namely the fact that the major part of the present oil production is concentrated in countries governed by autocracies which use oil resources to maintain repressive patronage regimes, finance extravagant consumption by the elites, and acquire a terrifying amount of arms. The existence of the enormous oil revenues and their unequal distribution are a continuous source of internal instability and external aggressiveness, as demonstrated by Iraq's recent history.

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