[Outlook]A coming crisis

International oil prices have surpassed $130 a barrel and will likely rise to $200, according to an official statement by the chairman of the Organization of Petroleum Exporting Countries and an analysis by Goldman Sachs. An even more serious problem is the growing possibility of an oil crisis, in which oil prices and oil supply and demand change abruptly, disrupting healthy economic growth.

Oil prices have remained high for the past five years, but there was no crisis. During that time, there weren’t any major problems in supply and demand.

As such, experts have refrained from using the term “crisis.” But things are different now, particularly when one looks at the movements of international oil markets over the past month. The average price for oil among OPEC countries was $50 a barrel in 2005, $60 a barrel in 2006 and $70 a barrel in 2007.

But it is now shooting toward $200 per barrel. Oil prices have increased by more than 150 percent in the past 16 months. This year they surged by 70 percent, 20 percent of that over the past month. Without any serious problems in supply, the margin of increase in prices has grown to resemble that of the oil crisis of the 1970s.

The shock from a short-term increase in oil prices is worse than it was in the 1990s, and is growing more and more like 1973.

As OPEC members refuse to produce more oil and some oil-producing countries are suffering from political insecurity, the world’s reserves of crude oil are at around 2 million barrels ? half the desired amount. This increases the possibility of drastic changes in the market. This is the first piece of evidence that an oil crisis has arrived.

The second is that the markets are showing limitations in determining prices. Starting last month, stocks of crude oil and natural gas have begun to increase much more than previously expected. The International Energy Agency forecasted that global demand for oil would decrease by 400,000 barrels per day this year.

The OECD expected oil demand to go down for three straight years. In advanced countries, prices have started to function as a powerful factor in the markets. Since last month, the prices have been increasing by a larger margin than before. That is because demand for oil in non-OPEC countries, such as China, is expected to go up by 3.7 percent, or 1.3 million barrels per day, while speculation continues on the market. Most believe that leadership of the world’s oil markets has been handed over to new markets where previous principles don’t function properly.

If resource nationalism also comes into play, the oil market naturally fails. There is even a possibility of a long-term oil crisis. For example, oil futures prices to be delivered in December 2016 are around $120 per barrel. This means that the market has admitted the possibility that oil prices will continue to be high for the next eight years.

More proof that an oil crisis has already arrived can be found in the fact that stagflation has occurred. The economy is in bad shape while commodity prices are high. In theory, if oil prices continue to be over $100 per barrel for more than six months, there is a big possibility for economic slowdown. A major side effect of past oil crises was stagflation.

Oil prices have been higher than $100 per barrel since early this year, causing side effects. The international financial crisis broke out after the U.S. subprime mortgage crisis and prices of raw materials have risen around the world. Judging from these trends, we are now in the early stages of an oil crisis.

High oil prices have the potential to change the order of the global economy. Oil-producing countries are preparing for the time after all the oil has dried up and reducing their dependency on advanced countries such as the United States.

In the past when oil crises occurred, negative effects were reduced by the reflux of oil dollars. But the same thing can’t be expected to happen these days. On top of this, because of resource nationalism, some countries are attempting to fundamentally restructure their value system regarding natural resources like oil.

We must be prepared for the worst-case scenario: stagflation, a depreciated dollar, resource nationalism and an additional surge in oil prices.

We need to look into the possibility that countries that possess natural resources and advanced countries make an agreement between them. Measures that can be implemented immediately are needed.

*The writer is a professor of energy engineering at Ajou University. Translation by the JoongAng Daily staff.

by Choi Ki-ryun