November 20, 2001	Tuesday	Ramazan 4, 1422

LONDON, Nov 19: The slump in oil prices triggered last week by a row between major world crude producers over output could provide a timely boost to the struggling global economy, analysts believe.

Crude prices fell some 15 per cent last week bad news for the world’s major oil exporters locked in a nerve-wracking battle for market share, but good news for oil importing western economies that are flirting with recession.

Not that major importers like the United States, Japan and the European Union should be willing oil prices to plunge to pitiful levels. Ridiculously cheap crude would present a new set of problems, destabilising the Middle East and encouraging wasteful use that would aggravate global warming, analysts say.

But for now, economic managers in Washington, London and Tokyo grappling with a testing economic downturn will be happy with recent developments on crude markets.

An icy row between the 11 countries grouped in oil cartel OPEC and independent producer Russia about output has sparked a market slump the likes of which has not been seen since 1998.

The Organization of Petroleum Exporting Countries (Opec) argues that all producers should be cutting back production now to trim supply in line with falling demand, hence allowing weak prices to recover.

Russia publicly disagrees. It wants to grab as much market share as possible, and is happy to engage in a game of dare with Opec and its key player Saudi Arabia.

The result was that crude prices slumped heavily last week to levels not seen since June 1999, before stabilising on Friday around 18 dollars a barrel.

Lower energy costs are widely accepted as a blessing to industrialised economies that are heavily dependent on oil imports.

Some analysts roughly figure that five dollars off the price of a barrel of oil gives the same stimulus to economies as a half-point off interest rates. Others liken it to a tax cut. Either way, lower energy costs keep inflation tame, keep costs down for business and leave motorists with more money in their pockets.

If the price remains below $20 for some time, that will help the cause of lower inflation, which will increase household purchasing power and boost consumer confidence, which is very important for economic recovery, said Christophe de Boissieu, economics professor at the Sorbonne in Paris.

In the euro-zone, lower inflation could also encourage the ECB to cut interest rates, he added.

Conversely, high oil prices have proven damaging to economies in recent years. The four large spikes in oil prices since World War II in 1974, 1979, 1990 and 2000 all led into global recessions.

Expensive oil is tremendously damaging for the world economy, said Andrew Oswald, a professor at the University of Warwick. You can view it as a tax when the oil price shoots up, he told AFP, adding that the recent drop in crude prices is a very good thing for the global economy.

Oswald argues that changes in the oil price can take up to 18 months to have a concrete economic effect. Hence the current downturn can be traced back to the dramatic oil price shock of September 2000.

The economy is like a giant liner, he said. You can throw over the wheel but the whole thing doesn’t move for a while.

How far the wheel is thrown over will prove important too. Kuwait has warned that the current row could lead to $10 oil. Though the stimulus to western economies would be great, the fall-out could be even greater.

The last time oil slumped to $10 a barrel, the bottom fell out of the Russian economy, with the consequences felt on markets as far afield as New York and Frankfurt.

There would be some problems from extraordinarily cheap oil, Oswald said. Those countries that have oil as their main output would be badly hit. The Middle Eastern nations would be badly affected and that would be destabilising for peace.

If oil became ridiculously cheap it would be bad for global warming and it would be bad for long-term exploration as well, he added.—AFP