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Economics Writer Examines Oil’s Shifting Market Position

In the first in a series of NewsHour interviews on oil's standing in the rapidly changing world economy, author Vijay Vaitheeswaran discusses the causes and effects of the recent rise in oil prices and how energy technologies will impact future business practices.

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  • GWEN IFILL:

    Now, we bring you the first in a series of conversations looking at the implications of the rising cost of oil. Today, the price of a barrel of oil surged above $112, a new record.

    Judy Woodruff has our first conversation.

  • JUDY WOODRUFF:

    We're joined by Vijay Vaitheeswaran, global correspondent for the Economist magazine, who has written extensively about energy and environmental issues. He's also co-author of "ZOOM: The Global Race to Fuel the Car of the Future."

    Mr. Vaitheeswaran, thank you for being with us.

  • VIJAY VAITHEESWARAN, The Economist:

    It's great to be with you.

  • JUDY WOODRUFF:

    Oil has been bouncing around, what, around or over $100 a barrel since late February. Are we now at the beginning of a new era? Or do you define it differently than that?

  • VIJAY VAITHEESWARAN:

    Well, I think there are short-term reasons why prices will be high for a bit. But I think it's a fundamental fallacy, and a popular one, to think that we're in a world of $100 oil forever.

    In fact, I think it's actually a relatively questionable and risky assumption for two reasons. It's questionable because there is no real scarcity of oil.

    If you look to the Middle East, the Persian Gulf countries, there are vast reserves of oil. The problem is the companies that we're familiar with — the Exxons, Chevrons, the Western majors — are increasingly being shut out of access to that oil thanks to a wave of resource nationalism taking place in countries of the gulf, in Venezuela, in Russia, where essentially the welcome mat is being pulled out from foreigners.

    And so we're seeing one of a periodic episodes of resource nationalism and that is helping create tightness in the marketplace. The real problem with oil is not scarcity; it's concentration and, I would argue, carbon, in the sense of global warming gases.

  • JUDY WOODRUFF:

    So what does that mean…

  • VIJAY VAITHEESWARAN:

    I think those are the real challenges.

  • JUDY WOODRUFF:

    Let me, so what does that mean for the price? Are we looking at $100 as far as the eye can see out into the future?

  • VIJAY VAITHEESWARAN:

    I would say that this is a commodity product. And we've gone through maybe five or six new eras of oil in just the last half-century, and each one where people claim that oil prices will only ever be high for various reasons that seemed sensible at the time.

    What happens, as we saw in 1986, 1998, the oil price drops or collapses. The OPEC cartel is an imperfect cartel. The members start bickering. Groups overproduce. We might see, for example, as the world is on the edge of a very difficult economic situation, a possible recession, and demand destruction, substitution by alternative fuels.

    The old saying in the energy game is the best cure for high prices is high prices.