It isn't called the "devil's excrement" for nothing. Last week the price of oil took another lurch upwards, ending the week near $45 a barrel on international markets — a more than 30% increase since the start of the year. For all the talk about security worries in the major suppliers in the Middle East and elsewhere, the real underpinning for the rise is the unexpectedly large surge in demand from Asia, as well as from the traditional oil guzzlers of Europe and north America. Earlier this year many experts were expecting oil prices to subside back to around $30 a barrel. Yet most suppliers are already producing at near full capacity. As a result industry analysts are talking of oil reaching $50 or $60 in the near future — which suggests prices will continue to rise until demand tails off in response.
The higher crude oil price is a great benefit for the Russian economy, as the country's best export earner. Yet the "devil's excrement" carries its own curse, and Russia's oil windfall may reignite inflation there, as the central bank prints roubles to exchange for the extra dollars earned. At the same time the government's crackdown on Yukos and the arrest of its founder Mikhail Khodorkovsky, on trial for tax evasion and fraud, has undermined confidence in Russia's economy. Coupled with a banking sector in turmoil, more than $5bn worth of foreign currency has fled the country in the first six months of this year. This raises the spectre of a Russian financial crisis similar to 1998.
John Kerry has thus chosen a good moment to unveil plans to make the US self-sufficient in energy in 10 years. Until the developed economies take serious steps to reduce their dependency on oil, the "devil's excrement" will continue to curse both its consumers and its producers.
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