Higher oil prices in the second half of last year had taken a considerable toll on the economies of oil-importing countries, and this caused world economic growth to slow noticeably in 2005 from strong expansion in 2004, the UN found in a recent 160-day study entitled "World Economic Situation and Prospects 2005."

The possibility of international sanctions on Iran and a cut-off of Iranian oil has also been plaguing the market.

New York crude futures had topped U.S.$66 per barrel on February 6 after the International Atomic Energy Agency voted to refer Iran to the UN Security Council over its controversial nuclear program.

This, in turn, sparked concerns that Iran could retaliate by halting oil exports. But Iran on Tuesday said that it had resumed enriching uranium and vowed it will not back down on its nuclear fuel research activities. As a result of easing supply concerns, the world oil price fell with the New York’s main contract, light sweet crude for delivery in March, dropping to $60.25 per barrel on the same day.

Iran is the world’s fourth-largest oil producer, pumping some 3.9 million barrels a day, according to U.S. Department of Energy data. Of that, some 2.7 million barrels are exported per day.

Stephan Auth at Federated Investment argued that the problem was not only Iran, but that oil supplies could be affected by strife or political change in Sudan, Nigeria, Latin America and elsewhere. "The higher level of geopolitical risk is likely to be transmitted to financial markets via energy prices." Thus, he said, "much of the recent strength in oil prices seems to trace back to nations attempting to build up oil reserves to offset the risk of a sudden supply disruption."

Oil prices and energy security also dominated the weekend’s meeting of finance ministers of the Group of Eight global powers.

In a communique, they warned of the threat of high energy prices to the world economy in 2006. "Overall global growth remains solid and this is expected to continue in 2006. Risks remain, including high and volatile energy prices." Runaway horse

The International Energy Agency (IEA) predicts a rise in global energy demand of 50-60 per cent by 2030. But oil supplies show signs of running out; this, combined with concerns about rising demand and political instability, conspired to force prices up from $40 a barrel at the beginning of 2005 to over $60 now.

Given the fact that the size of proven oil reserves is uncertain, many countries have set out short-term and long-term solutions aimed at ensuring energy security.

The U.S., the world’s biggest oil consumer, has its own energy stockpiles. Of around 24.4 million barrels of oil used in the U.S. per day, a third is produced by the country itself and the rest is imported from other countries. U.S. President George W Bush earlier this month called for a 75 per cent cut in U.S. oil imports from the Middle East to wean the country of its "addiction" to energy from that region. Bush has encouraged the construction of new U.S. refineries to address crucial supply fears and record crude prices following hurricanes Katrina and Rita last year.

The EU is discussing plans to increase its storage capacity and to introduce a system that would oblige countries to share stored gas in cases of emergency. It is also looking forward to the construction of a gas pipeline from the Caspian region to Europe via Turkey. EU energy commissioner Andris Piebalgs said: "As long as we use more energy we will be getting more and more dependent

[on suppliers], and we should be looking at the energy sources we have here in the European Union."

Twenty years after the Chernobyl disaster, nuclear power is again under discussion in Europe. France, Italy and Britain have not ruled out building new plants. In Finland, construction is already underway. France said it would build a pilot nuclear reactor by 2020 designed to produce less waste and operate more efficiently. Germany – the EU’s biggest gas importer – is at odds over a commitment to phase out nuclear plants by 2020.

Earlier this week the EU proposed boosting the production of alternative fuels like biodiesel and ethanol by spending millions of dollars in research and investment to meet the set goal of a 5.75 per cent biofuel content in fuel by 2010.

For energy-hungry India, which imports up to 2 million barrels of oil per day, energy plays a decisive role after food security, Prime Minister Manmohan Singh said. To meet the growing energy demand, India has reconciled with Pakistan to reach an agreement on building a gas pipeline from Iran to China in 2007.

Every nation has its own ways to cope with the rising cost of oil, either by reducing oil consumption or by finding energy alternatives. But whatever they do, they should bear in mind that every type of energy has its downside. There is no such thing as a free lunch, no matter where you look on the menu.

(Source: VietNam News)