The King of Saudi Arabia is an honourable man. He has come out against high oil prices despite the fact that these very prices (propped up by greedy speculators!) have made him richer than the legendary Croesus of antiquity. We can all be sure that a large measure of His Majesty’s justifiable concern is based on the fact that he has boundless sympathy for the poor victims of high oil prices... the Indian peasant, the Chinese factory worker and the Sub-Saharan herder, not to mention the greedy American SUV-driver. He would prefer to sell oil at a more “reasonable” price so that the rest of the world would suffer less. It is only the harsh reality of commodity markets, both spot and future, that inhibits him from doing so.

One should hasten to add that along with his undoubted human sympathy, the sovereign of the Arabian deserts is also a rational economic maximiser concerned about the very real, very vital interests of the present and future citizens of his country. We have known for some time now that there are two distinct factions in the OPEC cartel. The first, to which belong shining Chavezian Venezuela and the enlightened Islamic Republic of Iran, are short-term revenue maximisers. They do not have that much in oil reserves; the more they can sell now at high prices the more money they have to pursue their brilliant millenarian dreams.

The second faction dominated by Saudi Arabia, with Kuwait as a junior partner, has a different world-view altogether. They are sitting on an enormous quantity of petroleum reserves beneath their sands. If the current oil price continues to stay high, then bio-tech and other entrepreneurs in different parts of the world will have a high-price umbrella under which they can invent and produce a petroleum substitute. A new molecule, a new process, a new genetically modified organism which can result in a comparable substitute may be viable if the competitive product is priced at $100 a barrel. This may be completely unviable if the substitute is priced at $60 a barrel.

... contd.