Gas prices are above two dollars per gallon, making the antiwar chant “no blood for oil” sound even more naive than usual. Gasoline prices in Europe and Japan are, as usual, running more than twice American prices.
According to research by the International Energy Agency (IEA), in cooperation with the Organisation for Economic Co-operation and Development (OECD) and the International Monetary Fund, a sustained $10 per barrel increase in oil prices (from $25 to $35) will result in the OECD as a whole losing 0.4 percent of GDP. Inflation would rise by half a percentage point, and unemployment would also increase. The adverse economic impact would be even greater in developing countries whose economies are more dependent on imported oil. Developing countries are also less able to cope with the financial strain from higher oil-import costs.
The dramatic increase in oil prices over the last year comes from both decreased supply from OPEC and increased demand by China.
OPEC pledged on March 20, 2003, to make up any decrease in oil production resulting from the war in Iraq. By April, however, OPEC was facing the prospect of increased oil exports from a liberated Iraq, which would put downward pressure on world oil prices. The world price was then about $24 per barrel, in the middle of the OPEC price band, which runs for a low of $22 to a high of $28. On April 24,...