Gordon Brown took a day trip to Jeddah in Saudi Arabia this weekend to attend an emergency summit of world bigwigs, called to discuss the spiralling oil price. But despite the PM’s best efforts, he doesn’t seem to have persuaded all the oil-producing nations that an increase in production is needed to stabilise prices. So despite a Saudi promise to pump out more oil, and despite a ceasefire in Nigeria, the oil price was back up above $136/ barrel this morning. Not quite the desired effect...
The problem is that nobody can agree what the problem is. The big oil consumers (including Britain and the US) seem to think that the current volatility of the oil price is because of supply concerns: they say the market is worried that there’s not enough oil being pumped out of the ground to meet growing demand, particularly from China. Brown says demand is going to keep rising over the next few years, and has called for the oil producers to boost production, while investing some of their huge recent profits (a whopping $3trn, he reckons) in renewable technologies.
However, OPEC (the oil producers’ cartel) says it’s nothing to do with supply: president Chakib Khelil reckons supply and demand is 'in equilibrium', and blames speculators for pushing the price up. As the Indian finance minister pointed out over the weekend, the oil price has doubled in the last 12 months without any massive increase in demand. Although given that its members make more money when the oil price is higher, you might argue that OPEC isn’t exactly an impartial witness.
So it’s not really any surprise that this weekend’s talks failed to yield any real resolution to the problem. To be fair to Gordon and co, he and the other world leaders have at least persuaded the Saudis, the world’s biggest exporter, to increase production slightly to 9.7m barrels a day (which is probably just about enough to cover a few return flights from London to Jeddah). But although the other oil-producing countries vaguely accepted that ‘an appropriate increase in investment’ in production was probably needed, they don’t seem to be coughing up more oil yet.
Of course, it will take more than a few hundred thousand extra barrels to stop the oil price rising, given that the world guzzles about 80m a day – particularly with the trouble in Nigeria and the growing tension between Israel and Iran. So we can’t really expect the PM to solve the problem in a day trip. But given that his best diplomatic efforts this weekend seem to have fallen largely on deaf ears, it doesn’t exactly bode well. After all, what's in it for OPEC to help get prices down...?