G8 'powerless' in face of oil shocks
The latest record-setting spurt in oil prices will concentrate the minds of Group of Eight finance chiefs in Washington this weekend, though if experience is any guide their deliberations will have little impact on the market.
But the ministers, representing Britain, Canada, France, Germany, Japan, Italy, Russia and the United States, can at least take comfort in the knowledge that the rise in crude prices over the past two years has done little evident damage to their economies.
Their annual meeting, which precedes the spring session of the policy-setting bodies of the World Bank and the IMF, comes at the end of week in which oil prices in London and New York jumped to new records.
Oil could 'dampen growth'
At their meeting in April two years ago finance ministers and central bankers gave voice to fears that oil prices — then at barely $30 a barrel — could dampen growth and spur inflation.
But since then the US economy has posted healthy gains while recoveries have finally gotten going in the eurozone and Japan.
The much dreaded inflationary risk posed by higher energy prices to other sectors of the economy has been held in check in the Group of Eight. Nevertheless, given political instability and uncertain security situations in several parts of the world, oil prices remain a concern for the G8, according to Thomas Mirow, German finance ministry state secretary.
Can't absorb oil prices
The Group of Eight powers, which account for about half the world's oil consumed each day, worry that they might not forever be capable of absorbing the impact of volatile oil markets.
French Finance Minister Thierry Breton said this week that when Group of Seven ministers — the G8 minus Russia — convene on Friday he will call for "reinforced storage and refining capacities" as well as measures "to react rapidly to speculative developments".
But experts warn that such steps, assuming they are implemented in the face of opposition from the oil industry as well as public opinion, will only be effective over the long term.
At the moment, oil dealers are preoccupied by diplomatic and military upheavals in Iran, Iraq, Nigeria and Venezuela, along with gasoline shortages in the United States. By most accounts, the oil market is currently well-supplied with crude.
For Antoine Brunet, chief strategist at the bank HSBC CCF, the world's most powerful nations will in effect remain powerless in the face of oil shocks until they act to reduce their consumption and rein in speculation.
"Eighty billion dollars in speculative funds are invested in oil," he said. "It's clear that if they weren't there oil would be cheaper."