Anatole Kaletsky isn't just getting older; he's getting worse. Now styled as "Editor-at-large" of The Times, Anatole graces today's issue with his urgent solution to the problem of high oil prices. In essence he wants to drive the oil price down by strongarming the Saudi Royal Family (no, I'm not making that up), then curb demand by pushing up taxes in order to....raise the price of oil to consumers! So are high oil prices a problem or not? Apparently, for Kaletsky, it depends on whether the producers or the taxman are cornering the spoils.
The full story is behind the Great Paywall of Murdoch, but let's parse a few choice snippets.
"Since the first Arab embargo of 1973, there have been five global oil shocks, in which oil prices have doubled in the space of a few months. All these shocks — in 1973, 1979, 1990, 1999 and 2008 — have been followed by global recessions".
There's an element of "post hoc, ergo propter hoc" reasoning there, but it's certainly factually correct. However, it marks a big change for Kaletsky, if he's now saying that the recession of 2008/09 was caused by higher oil prices. Up till now he's always claimed that there was no serious problem in the world economy or financial system until Hank Paulson pulled the plug on Lehman Brothers.
"There are....two broad strategies for America, Europe and Asia to protect their economic interests.
The first is to force the Saudi regime, as long as it survives, to push down prices by supplying the market with every barrel of oil that it can produce".
Saudi crude, with its high sulphur content, is a poor substitute for the sweet Libyan crude that many European refineries are geared to accept. But let's leave that aside for a second. "Force the Saudi regime"? How? Back to Kaletsky:
"Whatever the Saudis’ motivation, the West can now call their bluff, for we have something the princes need even more than we need their oil. That is protection for their personal wealth and safety. With the rest of the Muslim world now polarising into democracies and terrorist theocracies that hate the Saudis almost as much as they hate America, the princes can no longer rely on comfortable exile among their neighbouring dictators and despots. If they have to flee their country, they will rely entirely on the goodwill of Western nations.
That goodwill should depend on how co-operatively the Saudi rulers behave. If the Saudi princes treat their own citizens humanely and co-operate to stabilise the world economy, they can hope for a comfortable exile if they are eventually overthrown. On the other hand, if they defy global political norms and economic interests, they should expect treatment similar to Mubarak or Gaddafi. If they are deposed, their homes, shares and financial assets in America and Europe should all be subject to confiscation as property of the post-monarchical Saudi state. Such arguments should be sufficient to persuade the Saudis that their interests now lie in relieving the oil shock rather than making it worse".
Blackmail is an ugly word, but in this case it's accurate. It's insulting in the extreme to the House of Saud, and it is sure to occur to them that the West can't actually deliver anyway. As long as they remain in Riyadh, the West can't protect them, and if they are forced out, any successor government would be certain to come right after them in the courts in order to recapture all their assets.
But let's look at what Kaletsky would do if the Saudis bought into his scheme:
"It should now be clear that long-term demand reduction is needed, not only for environmental and geopolitical reasons but also because of the economic instability created by oil. Ratcheting up oil taxes and using part of the revenue to subsidise other energy sources is the best way to achieve this. The right objective is not a “level playing field” between oil and other technologies, as in today’s British energy policy. Instead, nuclear power and alternative energy should be heavily subsidised".
So, having blackmailed the Saudis into selling their current oil ouput at less than the market would allow, Kaletsky proposes that governments should seize for themselves the "economic rent" foregone by the Saudis, then use the money to subsidise alternative energy sources. To put it another way, he wants to use money that would otherwise go to the Saudis and the rest of OPEC in the short term to make investments that would premanently undercut the long-term value of these countries' only natural resource. Can't see any reason why the Saudis wouldn't jump at that proposition.
There's a little coda to Kaletsky's piece, saying that financial investors should be barred from cornering markets in physical commodities. That might be a good idea in principle, but as always with Kaletsky, even his good ideas rarely look practicable.
What a piece of work! Kaletsky and today's article, both.
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