The $40-a-Barrel Mistake

The ever-swelling prices for crude oil worldwide have many consumers and governments concerned. The authors of this article – a former US energy official and an oil adviser to Saudi Arabia – attribute the problems to ineffective policies pursued by the United States and Saudi Arabia over the past year. According to them, the initial catalyst for these policy decisions was the 2003-2003 Venezuelan oil strike. To compensate for diminished supply, Saudi Arabia promised to increase output, and the US accepted, forgetting that shipments from Saudi Arabia take much longer than from Venezuela. Thus, the US process of obtaining oil slowed to a trickle at the beginning of 2003. To make things worse, they say, the White House's refusal to release oil from the US oil reserve effectively ensures that there is no price ceiling for oil. Since then, the strikes in Venezuela and Nigeria, and the situation in Iraq have all made Saudi Arabia the go-to backup nation for oil supply. Its inefficient distribution system, however, continues to hamper its efforts to support world oil consumption. The authors suggest globalizing Saudi oil distribution, moving storage centers to Asia, Europe, and North America for better access. To regain credibility on both counts, the US and the Saudis need to reform their policies around oil, the article concludes. –YaleGlobal