Publications: Notes at the Margin

Tables Turned (June 14, 2021)

Forty-two years ago, almost to the day, the world’s largest industrialized countries met in Tokyo for an economic summit. This weekend, the leaders of the same countries met in Cornwall in southwestern England. As in 1979, the key topics at Cornwall were energy and inflation. However, the situations then and now could not be more different.


The 1979 meeting coincided with an OPEC conference. At the latter, the OPEC members wrestled with setting crude prices and production levels as prices rose sharply due mainly to the Iranian revolution. Still, the OPEC countries agreed to a fifty-percent price increase. This decision infuriated the leaders of the industrialized nations, but they were powerless to act. The oil price rise was not stopped until the US Federal Reserve, battling inflation, pushed interest rates up to record levels.


The 2021 summit took place under similar circumstances. Oil prices are up eighty-six percent from year-ago levels. Inflation has become a worry. The world’s leading countries are also determined to reduce hydrocarbon consumption quickly. Those efforts could gravely damage the oil-exporting nations in the long term. At the same time, China, the largest economy not at the G7 meeting, is also confronting rising inflation. To combat it, China is releasing its strategic stocks of commodities. Sales from its extensive crude oil inventories will drive oil prices down sharply over the short term, causing immediate grief to oil producers.


The tables have been turned.


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