Notes et baromètres

The challenge of cheap oil

Economic Note / November 2005

« Historic records » have followed one after another, we have been told on a regular basis since some months on the subject of petrol prices. It is true that the recent rise is spectacular. However, these reports are somewhat moderated if one takes into account the general price rises which have occurred over these last thirty years. The record registered in 1980 at the time of the second oil crisis has still not been reached. »

It is quite right to consider that the phenomenon is preoccupying since energy at low prices is a factor in prosperity. However, it causes contradictory reactions. One promotes political action to fight against this rise. It is this which inspired in France and in the United States the recent threats of an exceptional tax against oil companies. The other foresees the end of the petrol era and of civilisation such as we know it and thus implies that a continuous rise in its price is inevitable.

Ill founded, these reactions are based on a flawed diagnosis, proposing ineffective remedies likely to result in higher bills for consumers. Current policies that some propose to reinforce, such as taxation at nearly 80% of Super in France, can only force prices up. They are the main obstacle to the challenge of cheap energy. A true price fall is not possible except through the lifting of governmental restrictions on production.

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