Analysis

Back before the 70 s oil from the Middle East was very cheep, and in North America, it was about $4 a barrel. But then, the leaders of the Middle East discovered that everyone needed their oil, so they formed OPEC (Organization of Petroleum Exporting Countries). Practically overnight, they jacked up the prices of oil by limiting the supply. This was the first oil crisis. It lasted for a while, but then they got greedy, and started supplying more oil, in hopes to make more money. But then there was more supply, so the price of oil started to fall. Just recently, they are getting back together, driving oil prices up again, and making these few countries rich.

Over the past two years, oil prices have increased very sharply, with the Fund's reference price rising from a 25 year low of $11 per barrel in February 1999 to a peak of close to $35 per barrel in the first week of September 2000, now settling around $30 per barrel. The recent World Economic Outlook contained an extensive discussion of the potential impact of higher prices. This is a trend because for the past few months, oil and gas prices have been steadily rising, and there is a growing concern for the energy needs of the world.

This trend will greatly affect Canada s future because Canada continues to use a lot of oil in everyday life. A large amount of people own cars, and use oil to heat their houses. This oil that nearly everyone uses is becoming increasingly more expensive, and is depended upon many variables that we cannot control. Because there are very few efficient substitutes, Canada must remain dependent upon oil. A lot of this oil, we have to import from the Middle East, which is not such a good thing. Many countries in the Middle East are in turmoil, which makes it very difficult to depend on them for oil. If they go to war, oil prices would be expected to drastically change. There are a few places in Canada, which are very rich in oil. Alberta has a lot of oil, and because of the rising prices, Alberta has made a lot of money. They are the only province with no provincial debt. If the technology can be invented to extract more oil from different parts of Canada, then it can be used in Canada and sold to the U.S.

Rising oil prices could affect Canada s economic policy because prices could rise to the extent where the Government has to step in and try to drive prices back down. The U.S. tried to drive the price of oil down by releasing a reserve of oil. This unfortunately did very little; leaving North Americans paying whatever the Middle East decides what to charge. The Canadian government may have to step in to try bringing the price of oil down because so many Canadians and Canadian businesses depend on it.

North Americans and other parts of the world that buy oil from OPEC should try to terminate this trend. The countries in the Middle East are not selling their oil, which the rest of the world requires, at a fair price. They have enough oil to last the world for 200 years, yet they are limiting the supply just so that they can make more money. One way to terminate the trend would be to extract oil from other sources like in Canada. This way, developed countries would not be so dependent upon the Middle East and the oil will be cheaper. A second alternative would be to get these countries to sell their oil at a reasonable price by force. The U.S. alone has a big military advantage over the Middle East, so the U.S. could tell some of the countries in the Middle East to either sell their oil at a fair price, or the U.S. could just take over those countries. If the U.S. were to invade the Middle East, they could take all their wealth that they acquired from selling expensive oil, and then oil could go back to being around $5 a barrel, giving the economy the boost it needs to prevent or pull out of a recession.