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Oil money better spent by the Gulf than on US's wars

The minister of energy of Qatar, Abdullah al Attiyah, once made what sounded like an indecent proposal to US President George W Bush.

The minister of energy of Qatar, Abdullah al Attiyah, once made what sounded like an indecent proposal to US President George W Bush.When Mr Bush was on a tour of the Gulf a couple of years back to complain about rising oil prices, Mr al Attiyah offered to give his nation's oil away free if importing countries agreed to give back in return the tax they charge on fuel.Unlikely as it might sound, governments of oil-importing nations make much more money from taxing fuel than producing nations do from exporting the stuff.

So after all the hullabaloo over the summer, when pump prices in the US topped US$4 (Dh14.70) a gallon, it may come as no surprise that some opinion formers in the US are proposing a return to those prices through higher taxes.Petrol at $4 a gallon certainly did not help American consumers weather the worst recession in a generation, but prices below $2 a gallon now threaten to negate progress towards conservation and developing alternatives that some see as even more important policy goals than extra cash in the pockets of consumers.

The difference this time is that the extra cash would flow into the government coffers in Washington, not those of oil exporters in the Gulf and elsewhere.The international price of crude oil should be kept low to starve "petro-dictatorships" of funding, argues Thomas Friedman in The New York Times, while taxes should be increased to spur innovation in renewables and free the US of its addiction to imported oil forever.

The proposal comes at a critical time in the US, in the run-up to a change of administration, when policies are being fundamentally rethought in the light of the collapse of the financial system.The tax burden on fuel in the US is much lower than in Europe, where levies amount to more than 300 per cent in some cases, so some see room for a big increase.From an oil importer's perspective, this is a great idea. Politically, these taxes are seen as more palatable because those hurt by it - apart from consumers, that is - are foreign countries that have no stake in the political system.

But the real driver behind the proposal is a kind of liberal nationalism that equates money spent on importing oil as tantamount to funding terrorism against the homeland.It was T Boone Pickens, a man who became a billionaire thanks to oil, who said America's $700 billion annual oil import bill was funding a war against the US. No prizes for guessing that he was looking for funding for a massive wind farm project, which I now hear is suffering from the credit crunch.

Mr Friedman says the case for higher taxes is win-win because it would dry up funding for what he sees as hostile regimes such as Russia, Iran and Saudi Arabia.Barack Obama, the man who takes over from Mr Bush in three weeks, appears to have bought this line, promising to end oil imports from the Middle East within a decade.But from an oil exporter's perspective, all this illustrates two things. First, crude oil at the current price of $35 a barrel is too cheap. Second, the nations of the Gulf have to do more to make their case for keeping the cash.

Nations in the Gulf who still hold, by dint of nature and history, huge reserves of oil, have an opportunity to charge more than it costs to extract. Rather than pumping their oil so cheaply that consumer governments tax it at several hundred per cent and deprive this region of resources, oil exporters have a chance to become energy innovators themselves.King Abdullah of Saudi Arabia has recently pegged the fair price for crude oil at $75 a barrel. To justify this price, Gulf governments must do two things. First, they must use their revenues wisely, investing in their people to become contributors to the world community. Second, they must transform their economies from petroleum hubs to energy hubs of the future.

They must fight the idea that money spent on oil imports is used to fight a war against consumers in the industrialised world.The UAE is already using oil windfalls to gain expertise in solar technology, build a carbon-free city and decarbonise heavy industry by injecting the gases blamed for global warming underground.Even Saudi Arabia is experimenting with its first solar project.Within this transformation in the Gulf, the transfer of technology from the developed world to the Gulf will be a decisive factor.

And this is where trade agreements with the US and other industrialised nations, such as the nuclear trade deal currently meeting resistance in Washington, become so important. Instead of seeing enemies everywhere in the Gulf, US opinion formers should try to identify where oil wealth is being used to help solve the problems facing the planet, from energy to social issues. As Mr al Attiyah's offer to Mr Bush makes clear, oil imports per se are not the problem. The issue is where governments get their money and how they spend it.

In the case of the US, it seems others may already have decided where to use the $500bn annual savings from the oil price collapse of the past few months. The annual savings are almost enough to cover the first bailout of the US banking system, or about half the cost of the wars in Iraq and Afghanistan, with a price tag nearing the $1 trillion mark since 2001. Surely, the Gulf can find better ways to spend it.


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