And Back to the Black Stuff

The unexpected political turbulence in oil-producing Arab states has seen a 70s revival in discussions of an oil price shock . But Jeremy Warner at the Telegraph has done the ‘math’, as he puts it, on likely demand going forward and argues that an inexorable thirst for the black stuff  in Asia will effectively lock in a much higher oil price.

If you’re George Osborne then you’ll be reaching for the fiscal levers if they’re still within reach. If you’re Mervyn King then you’ll perhaps be hoping that optimism can triumph over interest rate rises. If you’re Chris Huhne you’ll be arguing that the low-carbon economy reaches break-even point at $100 per barrel.

Especially at a time of fiscal constraint but in general, intervening to cut duty and lower pump prices is a really bad idea which has crude politics on its side. If Warner and a host of other commentators are correct, then for how long can a cash-strapped government provide fiscal buffers against long-term adjustments in a global commodities market? But echoes of the protests that took place in 2000 are already reverberating around Whitehall.

Huhne’s probably right, but his arguments are likely to fall on deaf ears in the treasury and also price signals alone may not shift incumbent technology. This suggests that we need to build a politics of investment in carbon-free technology with some early wins for motorists and others built in.

Anecdotally,  the market is already creating demand for alternatives, but there isn’t serious infrastructure in place to enable people to make  increasingly rational choices en masse. This isn’t insurmountable, but is unlikely to emerge out of a government ideologically hell bent on reducing the reach of the state.

Developing low-carbon technology to reduce our nation’s dependence on increasingly costly oil has a new-found logic to it. The market is currently working hard to help us; can the same be said of government?

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