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EU: High Oil Prices Affect Economies, Societies

The Organization of Petroleum Exporting Countries' decision yesterday to raise oil production by 800,000 barrels a day is not expected to have immediate effects on the price of gasoline paid by the consumer. The higher prices are making a strong impact across Europe, provoking protests in some areas and threatening to reverse the continent's economic recovery. RFE/RL correspondent Breffni O'Rourke reports.

Prague, 11 September 2000 (RFE/RL) -- OPEC's production increase, representing some 3 percent of the cartel's overall crude oil production, is a comparative drop in the ocean of world demand. Two previous production rises, each of 500,000 barrels a day, have notably failed to halt the price rise of oil to its highest point in a decade.

OPEC member states -- while clearly appreciating the immense extra revenues generated -- appear to be aware of the anguish being felt by the oil-consumer nations. This is particularly felt in the European Union, where the fear is that economic growth will be strangled by high fuel prices. Accordingly, Saudi Arabian Oil Minister Ali al Naimi struck a conciliatory note at yesterday OPEC's gathering in Vienna:

"It [the boost in production] will improve and moderate the price, and if it doesn't, we have a mechanism to trigger some more."

That was seen as a suggestion that a further rise in production is in the offing if the present one is not effective in cooling the market.

Industry analysts doubt that the latest cut will achieve much. Jens-Uwe Waechter, a Deutsche Bank analyst, says he thinks that the momentum of the price rises is so great that oil consumers will have to endure paying about $30 a barrel until the end of the year.

Speaking to RFE/RL from Frankfurt, Waechter said that oil prices are feeding inflation in the EU's 11-country euro zone, especially because of the weakness of the common currency against the dollar, the currency in which crude oil is sold. But Waechter says that is not the main problem:

"The weak euro is adding to the price pressure coming from high oil prices, but that is only one part of the whole story. The more important thing appears to be that we have this worsening in terms of trade effects -- I mean that we have an income distribution from oil importing countries towards the oil exporting countries."

Waechter says this is the impact which counts most at the moment, in that it could threaten the economic recovery which is well under way in the EU countries. He says:

"[This effect] is diverting income which could be used for domestic consumption spending, and even more importantly for investment spending, and is directed [instead] towards the import of oil or oil-related products. And this draws away national income, and this of course dampens the growth effect in euro-land."

Another, and less expected, effect of the current oil price rises is the way they have led to spontaneous consumer demonstrations across much of Western Europe. These started in France, where enraged truckers and farmers blocked roads, transport terminals and oil refineries last week to demand that the government in Paris cut the taxes on fuel to offer some relief to those whose livelihood depends on fuel use.

Faced with an outburst in the streets typical of the French tradition, the Socialist government of Prime Minister Lionel Jospin offered the traditional response: it gave in -- at least in part. French media estimate that the government granted concessions totaling some $750 million. But Jospin held the concessions to a certain point, and refused to go further. The truckers and others finally lifted the blockades.

But the French example has provoked similar demonstrations in other countries, including Britain, Germany, and Belgium. In Britain, truckers blockaded oil depots at the weekend, making fuel scarce. In Scotland, truckers and farmers formed an alliance to block main roads. In Brussels, truckers, bus drivers and taxis blocked the center of the Belgian capital on Sunday, in what they called a "first warning" to their government.

However, the story has also taken another turn, with direct action to lower fuel costs running into strong opposition from the EU environment lobby. Environmental groups say that oil prices actually need to be higher, to encourage alternatives to this highly polluting fuel. Michel Raquet, an analyst for the international organization Greenpeace, told RFE/RL from Lyons:

"There is an ambiguity in trying to save the planet by trying to reduce the amount of fossil fuels in the atmosphere, in that you have to pay the price for it -- and the price of oil at the moment does not consider the external [environmental] cost. So, I mean, we think that the price is not as high as it should be, in order to promote energy efficiency."

The environmentalists say it's hypocritical for the international community to say it is committed to reducing air pollution substantially under the environment process begun at the Kyoto conference several years ago -- while at the same time seeking cheap gasoline and diesel to ease the cost of motoring.