Brown, OPEC and the Archbishop

Gordon Brown has been hosting a meeting of OPEC oil ministers in London. He has urged the producing countries to keep investing in new production facilities, even though the oil price has fallen precipitously from a peak of $147 a barrel to its current level near $40. Otherwise, he warns, the oil price will soar again once the global economy recovers.

OPEC has not reacted favourably to Brown's demands, which is unsurprising. For most of the OPEC oil producers (and for some of the larger non-OPEC ones as well -- Russia and Mexico, for example), the collapse in the oil price is a disaster. High oil prices have allowed these countries to provide extravagant benefits to their citizens (especially in the gulf states), or to pursue their foreign policy goals (particularly in Russia, Venezuela and Iran). The collapse in oil revenues makes all these things unaffordable, leading to growing risks of internal unrest (especially in Mexico, Indonesia, Nigeria and even Iran). The last thing the producers are likely to do is to heed requests from consuming countries for them to invest in higher production. What they want is higher prices.

So the oil price is all but certain to rise again once the global economy gets up off the mat. However, that doesn't mean that fears that the next spike will carry it all the way to $200 or more will necessarily be realised. Nobody can seriously argue that this year's rise to $147 was in any way reflective of supply and demand. It was the hedge funds what did it, and the fact that the price has fallen so fast has shown most of them up for what they are: not masters of the universe, but old fashioned trend-is-your-friend herd followers. There are a lot fewer of them out there now, and there will be even fewer by the time oil starts to go up in price again. As a result, the next price spike should be a lot more reflective of underlying conditions, which is likely to mean that it won't be as severe as the last one.

If Brown has got it wrong with OPEC, he's done rather better in a surprising spat with the Archbishop of Canterbury. Cantuar has joined the chorus of people saying that the recession is a salutary experience, and is criticising the government for borrowing more in an effort to cushion the blow. Brown, himself a son of the manse, has taken the "what would Jesus do?" approach. The government, he says, can't watch people suffering and simply walk by on the other side of the street. I wouldn't have thought the Archbishop should need reminding of the parable of the Good Samaritan, but we live in strange times.