Saudi Troubles May Be Keeping Oil Prices High

The possibility that the price of oil will stay high threatens governments in poor countries the most.

But in Great Britain, where gasoline already costs more than $5 a gallon, mainly due to taxes, higher prices at the pump aren't regarded as a bad thing.

"In the US, the economy is growing strongly and the rise may actually improve productivity by forcing Americans to be less profligate with oil. The same can be said of China, where the economy needs to decelerate before it overheats and blows up. In Europe, the oil price rise has been mitigated by the fall in the price of the dollar, in which oil is priced. All of which suggests we can live with the current price."

"Oil power has traditionally bankrolled the potentates of the Middle East and given them the ability to make life difficult for the rest of us by threatening to turn the tap off. Oil also encourages the emergence of a rentier class of leaders -- Saudi Arabia has 3,000 princes -- who need do nothing more than grant a license to a foreign company to get rich.

"As a consequence, oil economies are short of entrepreneurs and lack other industries. When the oil price falls again, as history tells us it will, oil-producing countries will have to modernize their economies and even their political structures."

Some predict prices will fall by 2005.

But pessimism about Saudi Arabia will not go away. In Russia, Christopher Weafer, chief strategist at Alfa Bank, says terror attacks in Saudi Arabia are "almost certainly bringing closer the day when there will be a regime change in the country from the mainly pragmatic royal family (the House of Saud) to a potentially more belligerent and anti-U.S. regime."

Writing in the Moscow Times, Weafer says "Saudi Arabia's traditional role is now accruing to Russia and many assume it will be cemented by the end of this decade. In anticipation of that, we are seeing growing evidence of the Russian government's ambition to establish greater control over the oil industry, possibly including the creation of a new state-controlled oil company that would rank alongside the world's oil giants."