Oil prices continued to make headlines throughout the past weeks. Soaring prices of oil has become the talk of the town, augmenting fears that the global economy could see a wide-scale recession. Therefore, Energy ministers of the advanced nations last month expressed serious concerns about soaring oil prices and urged oil-producing countries to increase production through greater investment and provide more transparency on oil supply data.
These concerns came after Oil prices staged their biggest one-day advance to hit a record of more than $139 a barrel in the first week of June. The unexpected rise was blamed on two factors: firstly, the warning issued by the Israeli Transport Minister Shaul Mofaz about a potential military strike against Iran, if it failed to stop its nuclear activities, and secondly due to the unexpectedly bad US employment report upset the calculations of energy traders and triggered frenzied buying.
First, Mofaz stated that an attack on Iran was becoming “unavoidable”, if Tehran is to be stopped from acquiring nuclear weapons. The blunt warning that Israel’s government is ready to strike at its chief rival in the region was given by Mofaz, who also serves as a deputy prime minister. He added that “If Iran continues with its programme for developing nuclear weapons, we will attack it. The sanctions are ineffective.”
The second catalyst for the turmoil in oil prices, observers argue came when the US reported an unemployment rate of 5.5 per cent in May; the biggest rise in 22 years. Oil traders reckoned that the increase in joblessness would make the US Federal Reserve less likely to raise interest rates this year, so they sold dollars because of the prospect of lower returns.
The skyrocketing price prompted a meeting by the Group of Eight ministers, in which they called for “applying the blowtorch to OPEC”, which they blamed for the rise in crude oil. Ministers meeting in Aomori, northern Japan, said that current high oil prices are “unprecedented and against the interest of either consuming or producing nations.”
On his part, Akira Amari, Japan’s Trade and Industry Minister, called oil prices “abnormal” and blamed lack of investment for the fact that “production levels have hardly increased over several years”. Meanwhile, John Hutton, Britain’s Secretary of State for Business and Enterprise, said that “the most effective intervention is to ensure that markets are working as efficiently as possible. Clearly, they are not doing so at the moment.” He stressed the need for accurate data, both from producers and consumers to avoid new oil price hikes.
On another note, the meeting placed more emphasis on the importance of raising efficiency in oil-consuming countries, promising to form an international partnership for energy co-operation. The idea, according to the communiqué issued by the ministers, was to promote best practice by sharing technologies and by monitoring progress. Ministers also strongly backed the increased use of nuclear power as an inevitable alternative.
G8 heads of state will meet in Kokkaido, Japan, this month to tackle the issue of rising oil prices.