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Oil prices -- the marketplace is not enough

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An interdependent global economy poses some hard dilemmas for policymakers. Pursuing short-term advantages often puts in jeopardy longer-term needs. And the conflicts in immediate interests among various nations or groups may block cooperation necessary to advance shared long-term interests.

Oil and energy issues illustrate both problems. The oil-importing countries are delighted that OPEC has been forced by the current oil glut to cut its base price from $34 to $29. That is understandable. The price jumps in 1973-74 and 1979-80, which made oil 12 times more expensive, have been extremely costly for their economies. The $5 drop in price seems to signal a decline in OPEC control; indeed some foresee a further slide to still lower prices. Of course, for oil exporters like Mexico, Nigeria, Indonesia, and some smaller producers the reduced revenues will disrupt economic progress and complicate debt repayment with risks for some lending banks. But the oil exporters' loss appears as a gain for oil importers, at least in the short run. For them, the lower price should help reduce inflation, benefit their balance of payments, and spur recovery.

But the longer-run effects are more doubtful. Lower prices and uncertainty about the energy outlook could seriously impede many of the measures needed for secure energy supply for the coming decades. The current decline in oil exports is due in part to the economic recession as well as to the drawing down of inventories by oil firms in place of purchases. But it is also the result of energy conservation, recovery of more costly oil, and substitution of other fuels. All these changes, which have been promoted by the higher cost of oil, could be discouraged by a sharp fall in oil prices. Thus, with economic revival and depletion of oil inventories, the consequence could be another sharp rise in oil prices in the next year or so, made more severe by ''panic'' buying as in past crises.

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