Batuk Gathani

IN LONDON

, OIL PRICES have hit a record high in the wake of Saudi Arabian King Fahd's death and there is nervousness in financial markets, as oil futures have jumped more than a dollar a barrel.

There is much speculation about the future course of events, as Saudi Arabia accounts for a fourth of the world's known oil reserves.

Happily, King Fahd's succession has been smooth and orderly, and Saudi Arabian officials have informally assured the markets that there are no prospects of "fundamental changes" in Saudi Arabia's future oil supply and price policies.

Despite such assurances, most financial analysts, oil traders and hedge fund managers remain confused as the initial news from Saudi Arabia triggered knee-jerk reactions in major financial markets.

Oil prices are at record highs and it is suggested that the market is in no mood to take any rise beyond $61 per barrel.

A chorus of comments have appeared in the media to sooth "market nerves". Only major oil companies seem to be delighting in the high crude prices, with many reporting record high quarterly profits. The surge of oil prices from $10 per barrel in 1998 to $50 in 2000 and now crossing $60 has not just cost oil consumers, but left them amid financial and economic uncertainty.

Many see the roots of the slowing global trade and economic recession in the high oil prices.

The debate about the "acceptable price floor level" goes on ad infinitum.

According to analysts, this may be around $30 a barrel mark but in the wake of current realities this may be Utopian. India, for example, imports close to 70 per cent of its crude requirement and recent price rises have had a deleterious effect on the health of its economy.

China's thirst for oil has prompted its oil companies to look at Africa and Russia for new supplies. In the more prosperous OECD countries, high oil prices are partly blamed for high unemployment and recessionary conditions. A little over 20 million workers in the European Union are unemployed and are living off social security handouts. The oil market is seeing an unprecedented combination of tight supply, surging demand and speculation.

Oil is a non-renewable resource and will run out some day. The global scientific community is moving at a frantic pace to develop alternative energy sources.

Already, auto, transport and aircraft industries are "retooling" for the new alternatives. If indeed a cost-effective alternative is found, then the crude price may have little relevance. Is a new age of discovery upon us?

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