several Middle Eastern members during the Of course, the price is falling because demand adjusted terms, but it was also very sudden,
1980s to a dispute over production quotas, is shrinking, and that’s due to the recession. with the price almost trebling in around 18
which created an incentive to overstate But what caused the recession? The obvious months. So it seems highly likely that even
reserves). But OPEC also failed to raise its culprit is the banking crisis, which has clearly without the credit crunch, the oil market fun-
game, and this is unlikely to have been the been extraordinarily damaging. But so too are damentals would have been sufficient to push
result of deliberate market manipulation. At oil price spikes; every major recession since us into a global recession.
$147 a barrel, the incentive to pump more oil World War II has been preceded by one. Far from being a source of relief, today’s
rather than risk destroying demand would It’s not hard to see why: the global trans- relatively low oil price is as damaging in its
have been irresistible, if it were possible. In portation system – moving goods, workers own way as the spike. Oil companies around
fact, there are good reasons to suspect that the and consumers around, thereby enabling an the world are cancelling or delaying invest-
cartel’s members have been exaggerating the increased level of economic activity to take ment in planned production projects, because
size of their reserves for decades. place – is almost entirely fuelled by crude oil. they are uneconomic at current levels; $60B of
So OPEC’s collective inability to respond When the price of oil soars, almost all aspects investment in the Canadian oil sands was
to record prices by raising production may of modern daily life become more expensive. shelved in the three months to January alone.
suggest its output is approaching its geologi- And as the oil exporters accumulate more of At the same time, existing global production
cal limits. If we have not yet arrived at the oil the world’s money, so everyone else has to capacity is constantly shrinking, as oil fields
peak, we seem at least to be in the foothills. make do with less. age and reservoir pressures decline.
The subsequent oil price collapse is just as The 2008 spike not only set a new record The International Energy Agency (IEA)
misunderstood as the spike that preceded it. high oil price, in both absolute and inflation- estimates that capacity is currently shrinking
Sustainable Business ❘ May 2009 23
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36