THE RISE in the price of oil, which reached a record $139 a barrel last Friday, has produced a predictable and angry response from consumers, business and politicians. Fishermen have protested in several Irish ports at soaring energy costs. In Spain, truck drivers have blocked roads. In France, fishermen have blockaded ports. And in London, lorry drivers recently carried a coffin to the doors of parliament at Westminster to dramatise the financial plight of the haulage industry.
There are, however, no quick or easy solutions to this global energy problem, which is largely explained by a growing imbalance between supply and demand for a finite resource, oil. The supply of oil has been outstripped by strong growth in demand in India and China, whose expanding economies have pushed up fuel prices. Other less convincing explanations have been offered for the high cost of energy. Commodity speculators and hedge funds, multinational oil companies and the Opec cartel, have all been blamed.
For consumers, soaring oil prices are seen as a form of stealth tax which reduces spending power and squeezes household budgets. For business, they mean lower profits. Politicians have been under public pressure to respond but are unable either to increase global oil supply or to significantly depress energy demand.
Last weekend, the energy ministers of the G8, representing the advanced industrialised nations, expressed "serious concern" about soaring oil prices while offering no real solutions. President Sarkozy of France has proposed that EU countries should suspend VAT on fuel above some unspecified threshold to offset the impact of high fuel prices. Mr Sarkozy may well be setting the stage before France assumes the presidency of the EU on July 1st. His proposal, however, makes little economic sense and is unlikely to win the unanimous support of member states required for its introduction. For the most likely beneficiary of a fuel tax reduction would be the oil-producing countries. Opec would, undoubtedly, take the opportunity to raise oil prices.
The International Energy Agency has again lowered its forecast for global oil demand this year. But because growth in oil supply has remained weak, the agency said "higher prices are needed to choke off demand to balance the market". And lower fuel taxes, such as Mr Sarkozy proposes, would be "absolutely the worst response". What is a market problem, the imbalance between oil supply and demand, requires a market solution - and not a misguided French political intervention.