The oil prices have once again gone up, exceeding the $70 per barrel margin. In the earlier years analysts would have talked about “another psychologically important barrier”. Now this is no longer the case, as price increase is of no surprise for anyone. However, in Russia, the petrodollar flow produces controversial and neurotic reaction. On the one hand, everything seems fine. On the other hand, the things are getting scary. What is waiting ahead? Everyone gets a feeling that the end of the “oil era” is just around the corner.

Either the prices will drop, or Russia will run out of oil. Or, maybe it will no longer be used, replaced by something else. All these alternative forecasts come together at one point: something will go wrong. Whatever story would be behind it, the end is that of Apocalypse.

Meanwhile, a diversity of scenarios is a sign of the profound misunderstanding of the problem. The prices, of course, can dive, but not as a result of fall of demand, just like the recent spike is not a result of growth of demand. The world consumption of fuel has lately been becoming more intense, but not drastically. The true reason for uncontrolled spike is the excessive amount of dollars, just like it was in the 1970s. The anti-inflation measures, taken by the liberal governments, instead of finding way out of the problem merely deteriorated it. While the authorities were reducing the social expenditures and were privatizing the public sector, corporate expenses have irresponsibly been growing, the share prices have been going up for no good reason, and the pyramid of private debts was as fast in adding to its sizes. Trying to inhibit the symptoms of the illness, the governments only pushed it further. “Extra” money, which could not be spent on development (because of the anti-inflation policy), flooded the oil market.

In Russia, the petrodollars wouldn’t stay long: from the stabilization fund and the oligarchs’ business accounts, they are being moved to the Western financial markets, where they once again speed the inflation process up. The stabilization fund loses its value, with the oil prices simultaneously shooting up again, filling the savings of the Russian Ministry of Finance and the Central Bank. Circulation of Dollars!

And what about the talks concerning oil shortage? It is worth mentioning that fear to exhaust all the natural resources has seized people over centuries. One of the Saudi Arabian ministers made a saucy comment that the Stone Age was over not because people ran out of stones. The same thing is with the “oil era”. 

Why do the modern businessmen, short-term benefits oriented and absolutely impartial to any sort of plausible long-term economic or social consequences of their actions, suddenly start panicking about the oil, which resources are sufficient enough to provide for several decades in the least? As opposed to the clear drinking water, for instance, which is already tremendously scarce in Europe, however not sparking any motion of concern.

The crisis is not about the exhausted resources, but about the inability to use them efficiently in the given circumstances. This means that maintaining economic growth, using old methods, is not going to work. The increasing inefficiency gives rise to constant appreciation of the key resources, which is viewed as another evidence of their “disastrous shortage”. By the way, the same thing happened in the USSR by the end of the Brezhnev époque, when the country, having abundant natural resources, practically lacked everything. The end to this was put by the Soviet system collapse, as we all know very well. Now a phenomenon of the similar kind is taking place on the world scale.

The sensation of the oil era ending provokes search of new alternative energy sources. However worried we are about the global warming and ecological disasters, considerable investments into the research programs are being made only when the prices on the “black gold” go off scale. The options then are plenty – from artificially produced oil and synthetic fuel to alcohol engines and solar energy, not to mention that the majority of these methods have been known for decades (the very first oil crisis of the 1970s has called forth many innovations). But the fact is: new technologies not only failed to increase efficiency of global energy sector, they even failed to compete successfully with the oil and bring down its share in the world energy balance. And it’s not about them being expensive or underdeveloped. The earliest steam machines were no good either, but this couldn’t stop the industrial revolution from moving ahead. It is about the system, which will use the alternative energy as ineffectively as the oil has been wasted. It is about the consumer society, which will never have sufficient resources for its never ending expansion. Even if we have the entire Universe at our disposal, it will change nothing. According to the scientists, the space surrounding our planet is already full of orbital litter.

As we are solving a wrong question, we are doomed, no matter what method we choose, to get the unsatisfactory solution.

Sooner or later the principles, which form the base of the modern economy and society, will need reviewing. But as long as this is a way too complicated task to fulfill, and any discussion about alternative society is perceived as senseless and utopian, we’re in for bad news. The collapse of the USSR may serve as an excellent pattern, which facilitates forecasting the world processes. The funny thing is that, given such a forecast, one could view Russia’s future a lot more promising. Not worse, than the rest of the world has, at least. Providing the ineffective world economy with expensive oil, we take our time trying not to focus on our own problems. But to a certain extent, it’s a bad news. The acuteness of our own problems is our major, if not the only advantage over the West. The society, which will be able to change itself, may become a leader, and those, who will keep holding on to the old order will remain on the backyard.

Boris Kagarlitsky is a Director of The Institute for Globalization Studies.

April 27, 2006