It was only a matter of time before the ever-rising price of oil became a diplomatic issue. The latest manifestation is plans by Gordon Brown, Britain’s prime minister, to engage with Saudi Arabia and to put oil on the agenda for this weekend’s meeting of the Group of Eight finance ministers. Summitry on the subject makes sense; the question is whether oil-consuming nations have enough leverage to persuade oil exporters to take action.
For Mr Brown, beset by domestic political woes and threatened with protests over high fuel prices, it is convenient to shift the focus to the international oil market. But he is still right to do so. Tax cuts on oil – which are inefficient and likely to be ineffective – are the only domestic policy that could bring down fuel prices in the short term. International deals may have little effect but are unlikely to do any harm.
To have any impact, diplomacy must either increase the supply of oil or reduce the demand. The former, at least in the short term, looks like a forlorn hope.
With oil at $134 a barrel, consumers do not have much to offer the suppliers of Opec, especially the swing supplier Saudi Arabia. The carrot that Mr Brown hinted at – allowing oil exporters to invest in alternative energy in consuming countries – is a bit odd. Turkeys do not vote for Christmas; the owners of oil wells are unlikely to vote for wind turbines and solar power.
The veiled threat of a shift to nuclear power is a little more promising – a nuclear building spree by developed countries could threaten export markets for oil – but there are three problems. First, there is little alternative to oil for transport and the chemicals industry. Second, it is not clear that there is enough uranium fuel to feed the 1,000 new reactors that Mr Brown talked about. Third, it will take a decade for any of these reactors to be built.
A better option is to appeal to the self-interest of oil exporters. Nations such as Saudi Arabia may not want lower oil prices but they do want stability. After the 1970s oil shocks the slowdown in demand was delayed but, when it came, it was dramatic. Oil prices fell to a level that barely covered the operating costs of its extraction. If the oil exporters can pump more, they should, or there will be a repeat.
It is in promoting a slowdown in demand that international co-ordination can do most good. Oil-consuming nations can agree to support new energy technologies. They should halt subsidies for biofuels, to stop food prices outpacing those of fuel. Finally, they can agree to cut fuel subsidies (and not to cut taxes) in order to keep consumption down.