"We condemn any interference in our national affairs. We are a state of dignity and sovereignty that is able to take the appropriate decisions for our interests," said Venezuelan President, Hugo Chavez, in reply to U.S. Department of State spokesperson Richard Boucher's criticism of Chavez' visit to Iraq.
Boucher had stated, "It is not an honor for the first democratically-elected President of Venezuela to visit the Iraqi dictator."
Chavez's actions have added a political dimension to the economics of the petroleum world that needs to be considered.
High Prices: The Big
Lie. The price of a barrel of oil no longer has a significant effect on the economic structure of industrial countries. What an industrial country spends to import crude oil represents only a margin of its total expenses. Several studies have been conducted on this topic. For example, the French Power Research Institute reported that, at the end of 1999, the increase in the price of oil from $28 to $30 (U.S. dollars) had not affected the economic growth of industrial countries by more than 1%.
What then is the motive behind the political clamor of officials such as the U.S. Secretary of Energy that current oil prices may endanger the flourishing economy of industrial countries?
70% of Oil Revenues Are Spent on
Imports . For the most part, crude oil prices have increased only gradually since 1960 when OPEC was established. However, there have been occasions when 1960 prices per barrel soared as much as ten times. The average annual increase, though, has been less than 3%.
Statistics should not be evaluated independent of correlative factors. When considering fluctuations in expenses, one must also take into account fluctuations in revenue and vice versa. As well, the actual impact of economic fluctuations is relative - those who argue that increased oil prices hurt industrial countries choose to ignore the even higher price increases on imported goods that oil-exporting countries face. More than the 70% of oil revenues by these countries is exchanged for goods from industrial countries, with the rate of increase on prices for such goods superceding oil price increases. Economists express this reality as a decline in the purchasing value of oil revenues. In their point of view, the price of crude oil is far less than it ever was before the escalation of prices in 1973.
This is the perspective expressed by Chavez when he said, "We should not kneel any more," in response to the decrease in oil prices to less than $10 in 1998 which was choking oil-exporting countries. The question arises: how do we best deal with western nations who call for oil-producing countries to lower their prices, in order to maintain their own standards of living, while refusing to lower prices of products to the oil countries? How is it that they justify their one-sidedness?
Western Tax Treasure. The greatest allegation forwarded in the campaign against oil price increases is that they lead to an increase in costs to the consumer. If this contradiction is believed, the identification of alternative sources of power becomes a priority, and the threat can be made to oil-producers that their price increases will lead them to competitors.
The distortions present in this argument include the fact that there is a discrepancy between the price paid by a consumer or a production company for a thermal unit in the West, and the actual profit gained by the oil producer.
Taking inflation into consideration, in 2000, we find that consumer costs have actually increased ten times over 1973 prices, while the profits of oil producers are lower than before. We might then pose the question: are oil states really responsible for the increase in the costs of energy in the West, and if not, where does the huge difference between consumer costs and producers' profits lie?
The answer is simple: taxes that western nations impose. Oil states gain 15% or less of consumer dollars - sometimes as low as 10% - whereas 65-75% goes to the treasury of each country as taxes. The remainder is refinery and transport costs, and western production company profits. This reality led Chavez to state that we must contrast the actual profits made by oil producers with the high taxes imposed by consuming countries on oil. These huge tax revenues enable industrial countries to spend billions of dollars to fund projects to search for alternative sources of power - again at the expense of non-western peoples
