Soaring fuel prices are sending shock waves through the developed and developing worlds, but high fuel prices may not necessarily be a bad thing.
Dr George Barker, Director of the Centre for Law and Economics at the Australian National University, says there is a certain hysteria about the present price of oil, but no one really knows what the best price for oil is, and higher fuel prices will encourage awareness of the limitations of petrol as a source of energy.
"A high [fuel] price is not necessarily a bad thing as long as it reflects its true scarcity," Dr Barker told The Epoch Times. "Through the price mechanism resources are allocated to their best uses."
Although oil slid back from a record $US139 a barrel on Friday June 6 to around $US134 on Monday June 9, at an $US11 spike, it was still the biggest one day jump ever, sending traders into a frenzy.
Dr Barker said the fact that prices had risen so quickly was part of the problem as neither the demand nor supply side of the equation are able to change quickly. But change they will, he says.
"It is dim witted to expect that things would not change." Unfortunately in the short run certain industries would be hit hard by rising fuel costs, like the trucking and airline industries.
Positives in Higher Fuel Costs
Higher fuel prices, however, will force the development of cheaper sources of energy, new technology and alternative sources of transport.
"The great thing about this perhaps is that we can at last invest in public transport," he said. "Demand substitution" is also already becoming apparent around the world with reports consumers are preferring to stay at home for holiday weekends rather than travel out of town as they used to.
In the United States, where gasoline consumption is more than one-tenth of the world's oil consumption, the average pump prices rose above $US4 a gallon for the first time, last week. A survey, released by Ipsos Public Affairs last week, found that 74 per cent of Americans would change their driving habits if prices were to top $4, Associated Press reported.
Referring to the recent parliamentary debate in Australia about whether to subsidise fuel price rises, Dr Barker said it was "inconsistent" to talk about cuts to greenhouse gas emissions and climate change on the one hand and tax cuts to soften fuel price rises on the other. It was further not wise to subsidise oil consumption as some countries do, as this contributes to the demand for oil and the price rises.
It was not the first time fuel prices had risen to behaviour changing levels, he said. As oil had reached the equivalent real dollar value in UK pounds per barrel as today in 1978. That period of similarly high fuel prices had inspired considerable transformation in the way energy was produced in the United States at the time.
"The US moved away from petrol based energy, and there was a move towards less regulation of the energy sector and more competition," he said.
Last weeks price rally was considered to be partly blamed on a comment from an Israeli cabinet minister that Israel could attack Iran if it did not halt its nuclear programme. Israeli Prime Minister Ehud Olmert has since distanced himself from the comments.
Dr Barker, however, said he believed much of the blame for present crude oil prices hinged on the OPEC oil cartel.
"The fuel problem is the cartel," he said, "it is not operating effectively…The OPEC cartel does set production quota and it could deliver increases in supply in the short run."
Saudi Arabia appears to agree. Information and Culture Minister Iyad Madani said earlier this week that there was no justification for the present high oil prices. He has called a meeting of oil producing countries and consumers, saying the kingdom will work with OPEC to "guarantee the availability of oil supplies now and in the future".
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