Blood may well be thicker than water but oil is thicker than both. The black stuff – oil rather than Guinness – is the lifeblood of countries and economies, and directly impacts our daily lives. And, as we all know, it’s only once the proverbial ‘man on the street’ feels the pinch that it actually exists. As such, the events in Libya are eagerly watched for a host of reasons beyond the potential humanitarian crisis that an increasingly isolated Gaddafi might launch against his own people.
Yes, oil is once again the subject de jour. This vital commodity is edging up in price as tensions in Libya continue. Libyan oil output is down an estimated 75 per cent due to the revolt and analysts at the investment bank Merrill Lynch believe supplies from the country could be disrupted for months and may potentially represent the eighth largest supply shock since 1950.
The commodity markets have always been subject to the varying trials and tribulations of political regimes but the travails of Libya are supplemented by the unique wave of social discontent across the Middle East and North Africa. As a result, major oil producers have had to take concerted action since panic in the commodity markets is contagious; hence Saudi Arabia’s announcement on Monday – via Saudi state oil company Aramco – that all the demands for extra oil had been met.
The Qatari energy minister has also attempted to assuage fears: “We think there is no shortage of supply. Others inside and outside of Opec can make up for the loss in Libya. The capacity is there, and there is no reason for nervousness whatsoever.” While this action might temporarily placate a jittery market, the geopolitical situation in the region is still a hotbed and shows no signs of cooling down any time soon. All this suggests a continued surge in prices – possibly up to $200 a barrel if Opec cannot continue acting as a guarantor by pumping more oil, according to KBC’s analyst report.
So, should we be worried by increasing oil prices? Beyond the bevy of articles that will inevitably reference the cost of petrol at the pump – perhaps so. Oil is often used as a key barometer for the global economy and the looming spectre of $200 oil is a scary thought for the market. Lord Heseltine has already sounded the alarm that rising prices could stifle Britain’s recovery. He has been joined by Transport Secretary Philip Hammond, who warned: “If oil prices rise and remain high, that will have a dampening effect on the economy not just in the UK but the rest of the world. That will be very bad news for all of us.” Hammond is perhaps well placed to provide comment given his aviation responsibilities. The International Air Transport Association (IATA) warned on Monday that airlines will face “a very challenging year” amid surging fuel costs prompted by Libya’s supply.
IATA’s worries highlight the importance and interconnectedness of the global market. Oil is not just another commodity but a fundamental ingredient of hundreds of related industries. Although big oil has a reputation for being led by faceless and nameless barons, the reality is that it is also a multi-billion dollar industry that creates jobs, opportunities and infrastructure. The industry is too often discussed in pejorative terms and frequent reference is made to those nations that are overly-reliant on this vital commodity. As such, perhaps it is worth looking at places closer to home for a more balanced view; take Scotland for instance. Five constituencies that make up Aberdeen City and Aberdeenshire have over 130,000 people employed in the oil and gas sector on what is widely recognised to be a major energy centre which leads the world in subsea technology. It has critical mass with hundreds of specialist companies offering high-tech expertise.
We are all reliant on the black stuff, not just the Gulf and Africa. It might seem trite to say but the oil industry really does fuel the global economy; without it, many nations will be running on empty.