While politicians continue to blame high oil prices on surging demand in India and China, more evidence emerges of the role of speculators and the way in which Governments hidebound by free-market ideologies have contributed to the current situation.
Writing on Alternet, Pam Martens examines the role of Philbro, a publicity-shy American company that has operated in the commodities market for some years. What is fascinating about this article is the expose of how the regulatory authorities in the US effectively abdicated their responsibility, allowing oil and other commodities to be traded outside the usual regulatory regime. It shows that venerable institutions like the Federal Reserve have proved to be easy pickings for corporate lobbyists, and that big oil can all to easily get its way.
There’s a chilling quotation in the piece from Dr Mark Cooper of the Consumer Federation of America, testifying before the Senate Committee on Commerce, Science and Transportation on 3 June this year:
“The speculative bubble in petroleum markets has cost the economy well over half a trillion dollars in the two years since the Senate [hearings] first called attention to this problem. Public policies have made these markets the playgrounds of the idle rich, while consumers suffer the burden of rising prices for the necessities of daily life. We have made it so easy to play in the financial markets that investment in productive long-term assets are unattractive. The most blatant mistake occurred when Congress allowed the Commodity Futures Trading Commission to forego regulation of over-the-counter trading in energy futures. Because there is no regulation of this huge swatch of activity, regulators have little insight into what is going on in energy commodity markets. Large traders who trade in commodities in the U.S. ought to be required to register and report their entire positions in those commodities here in the U.S. and abroad. If traders are unwilling to report all their positions, they should not be allowed to trade in U.S. markets. If they violate this provision, they should go to jail. Fines are not enough to dissuade abuse in these commodity markets because there is just too much money to be made.”
It provides an all too plausible explanation for how the rise in oil prices fails to reflect the underlying fundamentals. But there is a more fundamental question here about when politicians in the West are going to stop talking about soaring demand from India and China, and are going to start examining the reality of the free-market ideology they expound. Martens is scathing about the ability of Congress to spot what is going on in front of its face; perhaps the shock of contemplating the impact of their ideology is too severe to contemplate.
I don’t doubt that, in the interests of the environment, demand for fossil fuels needs to fall, and the price of oil needs to reflect the externalities of environmental damage. But leaving oil prices and oil supply in the hands of speculators will do nothing for the environment, or for more general economic and social sustainability.