x Abu Dhabi, UAESaturday 22 July 2017

A supply of energy and prudence

Oil supplies are dwindling but political and economic changes are making the role of oil suppliers even more important

They have paid $4 a gallon for petrol before. So while rising prices at the pump in the United States have created concern that a recovery in the world's largest economy would be at risk, it is less likely to have that effect this time around.

Americans were in for a shock when prices surpassed $3 (Dh11) a gallon after Hurricane Katrina in 2005 and blew by $4 a gallon during the summer of 2008 - so much so that many changed their long-cherished driving habits. But as rising global demand and instability in the Middle East push American petrol prices close to $4 again, it is likely to cause less of a stir.

But prudence remains the order of the day for oil producers. Higher petrol prices push the cost of all sorts of other goods upwards. Worries about the fragility of a global recovery linger less than three years after the worst global financial crisis in decades. Most critically, the cost of energy figures heavily into food prices, which are at record levels. If oil supplies are not managed responsibly, the greater the chance of instability in the developing world and slower growth in mature markets.

The decision of Kuwait, Nigeria and the UAE this week to increase output will help to ease anxieties. Their decision follows Saudi Arabia's announcement last month that it would redirect or increase supplies.

While the global economic crisis and the current wave of unrest have changed many things, it is also important to establish what hasn't changed for the long term. Oil resources are increasingly scare; demand for oil will increase as the economies of China and India continue to grow; and more efforts must be made both to develop renewable energy and to discover and maximise new supplies of traditional energy resources. All of these factors make the role and responsibilities of oil-producing nations more important to the global economy.