Shocked! How the oil crisis has hit the world

By Andy McSmith, Jerome Taylor and Nigel Morris
Saturday, 31 May 2008

British pensioners who cannot afford to heat their homes. European hauliers and fishermen whose livelihoods are under threat. Palestinians forced to fill up their cars with olive oil. Americans asked to go down to a four-day week.

All around the world, in a multitude of ways, the soaring price of oil is hurting rich and poor alike. For the lucky ones, it is simply a matter of changing their lifestyle. But those most vulnerable to the price of oil have been driven on to the streets in angry protests, which raise a fundamental question: what can we do to survive in a world where a barrel of oil costs $127 (£64)?

Great Britain

The rise in the oil price could not come at a worse time for Gordon Brown. After a week that has seen hauliers blocking roads and air passengers facing higher surcharges, yesterday it was the impact on fuel bills that came to the fore. The Prime Minister's attempt to ease the pain felt by pensioners and low-income families from rising fuel bills was dismissed as a "sticking plaster to hold back a catastrophe". It consists mainly of advice on coping with the cost of heating rather than extra money.

The number of Britons in "fuel poverty" – 10 per cent of their income goes on energy – is thought to have reached four million. The average annual household bill for heat and light is now more than £1,000. The Government plans to reform data protection laws so that low-income families can be contacted directly by the companies and offered help. The aim is to ensure that the "social tariffs" get to the people that need them most.

Alistair Darling, the Chancellor, said the energy suppliers had agreed to increase "social assistance" from £50m a year to £150m by 2011. The money will be used to switch consumers to lower tariffs and insulate homes.

Kate Jopling, the head of public affairs at the charity Help the Aged, described the measures as a "sticking plaster to hold back a catastrophe". She said: "While it is welcome news ... this initiative does not go nearly far enough to deal with the looming fuel poverty crisis."

The Government's announcement came at the end of the week in which Mr Brown saw a rerun of the political crisis he faced in his early years as Chancellor. Lorry drivers blockaded roads into London and in Wales to demand that a planned 2p rise in fuel tax be scrapped and that "essential users" should be granted a rebate. The only time between the 1997 and 2001 elections when the Labour government looked vulnerable was when Mr Brown suspended rises in fuel taxes after a similar blockade.

Separately yesterday, Britain's Silverjet airline announced it had stopped flights after failing to get a $5m loan from Abu Dhabi-based investors, becoming the third London to New York business class-only carrier to run out of money.

Europe

Luxembourg's Finance Minister, Jean-Claude Juncker, who chairs the commission of European Union finance ministers, issued a call to all EU governments yesterday to hold their nerve and avoid the temptation to use the tax system to relieve the misery of high oil prices. He reminded them that, when they met in Manchester in 2005, they agreed that such a move would encourage demand and send the wrong message to oil producers.

That is not what France's President, Nicolas Sarkozy, wanted to hear yesterday, after a week of protests by French truckers and fishermen left several motorways blocked and ports paralysed. M. Sarkozy suggested capping fuel taxes if the oil price rose further.

In the Netherlands, the protests caused less inconvenience, but made more noise when, at 11.45am on Thursday, lorry drivers across the country simultaneously blew their horns in protest at diesel prices. In Bulgaria, lorry and bus drivers launched a joint protest.

The protest spread to the seas yesterday, as fishermen across Europe went on a one-day strike, blocking ports. The biggest demonstrations were in Spain and Portugal where 10,000 protesters converged on Madrid. Some handed out free fish to underline their point that, with the current cost of fuel, they are practically giving their catches away. Passers-by pushed and shoved to get their hands on the free hake.

Meanwhile, the Newcastle to Scandinavia ferry route is being cut by the Danish company DFDS Seaways, who said it was a loss-making service incapable of being turned around. The company blamed "dramatically increasing oil prices, over-capacity in the travel marketplace and the economic slowdown".

The United States

There are signs that the fuel crisis is persuading Americans to think about leaving the car in the garage. In March this year, the number of miles driven by American motorists was 11 billion fewer than in March 2007, according to the Transportation Department. That is the sharpest drop year on year that the department has ever recorded, and the first fall of any kind recorded in the month of March since 1979.

The US Energy Department projects that this year, domestic gas consumption will drop by 190,000 barrels a day and overall petroleum use by 330,000 barrels a day, the first annual fall since 1991. But those figures look less impressive when expressed as percentages. Eleven billion fewer miles is a drop of 4.3 per cent and 330,000 barrels is less than 1 per cent of the country's total daily consumption.

Even so, this is good news for the environment, since the US's greenhouse gas emissions fell by nine million tonnes in the first quarter of 2008. And insurance companies report a sharp drop in road accidents.

An increasing number of employers, anxious to keep their staff, are offering them the option of working longer but fewer days, to cut out journeys to work. There is a plan to offer public employees on New York's Long Island the opportunity to work four 10-hour days, instead of five eight-hour days – a move which, it is reckoned, would save more than 30 barrels of oil a day. When Kent State University, in Ohio, offered this opportunity to 94 security staff, 78 of them snapped it up.

But the changing travelling habits have created problems for America's bus and subway systems, which are having to cope with a sudden increase in passengers at the same time that they are paying more for fuel. In Eugene, Oregon, 16 per cent more people took the bus this month than in April, but the town's main bus company, Lane Transit District, is losing money and cannot afford to expand.

Airlines, which are struggling to break even, are reluctant to raise the price of tickets and are introducing fees for baggage handling instead. American Airlines has slapped a $16 fee on the first piece of baggage checked in by economy-class passengers. Other airlines have followed.

But Southwest Airlines, in California, is laughing, because it took a gamble at the start of the year and bought 70 per cent of the fuel it estimated it would need in a full year for a paltry $51 a barrel – two-fifths of the current price. It is probably the only US airline that will be able to make a profit without increasing charges.

In Northern California, one man thought he had found a way to profit from the crisis. He was spotted rummaging around in the garbage behind a Burger King, with a tube and a storage bin. When police caught up with him, they found that he had 2,500 gallons of used fryer grease stolen from various restaurants. Chip pan fat is worth more than four times what it was a few years ago, making that haul worth more than £3,000.

Outside Seattle, the owner of a pizza restaurant is thinking of installing a CCTV camera over its 50-gallon cooking-oil barrel to keep rustlers away. "Fryer grease has become gold," its owner, Nick Damianidis, told The New York Times. "And just over a year ago, I had to pay someone to take it away."

South America

With some of the most prominent oil producers operating outside of the Middle East and a preponderance of left-wing governments insulating their populations from fuel price increases with heavy subsidies, South America has so far managed better than most with the fuel crisis.

In fact soaring oil prices have bulked up budgets to record levels in countries such as Venezuela. Badly scarred by the oil crises of the 1970s, many Latin American nations have since diversified their energy mix by encouraging the use of biofuels. In Brazil, the world's largest ethanol producer, biofuels account for more than half of transport needs. But while biofuels have kept petrol prices down, food prices – particularly in Central American countries such as Mexico and Haiti – have shot up as vast tracts of arable land are switched from producing food to fuel.

Asia

Daily protests have erupted across Indonesia this week after the government removed subsidies on fuel, leading to an overnight price jump of 30 per cent. Despite being south-east Asia's largest oil producer, Indonesia has struggled to meet even domestic demand due to aging wells and declining investment. On Wednesday, Jakarta announced it would quit Opec because it was unhappy with the way the international oil cartel was dealing with the crisis. But Indonesia's poor have been left reeling by the removal of fuel subsidies and have taken to the streets.

Malaysia has told petrol stations to stop selling fuel to Singapore-registered cars. Singaporeans often take advantage of cheaper oil prices in Malaysia by driving over the border and filling up there. At the same time, airlines across the Asia-Pacific region are scrambling to cut flights and increase surcharges to boost their haemorrhaging cashflow.

This week Hong Kong's Cathay Pacific and Taiwan's China Airlines announced they were considering scaling back some long-haul routes whilst Korean Air said it would temporarily cut flights on 12 international routes over the summer. Much of the regional strain placed on Asia's oil reserves comes from China's near-insatiable consumption of energy. But in an indication of how the country is struggling to import enough fuel, at least three major Chinese cities brought in diesel rationing yesterday.

Africa

Africa is at the sharp end of the oil shock and the inter-related surge in food prices. With millions living on the tiny margin between subsistence and starvation, fuel costs can quickly become a matter of life and death. Governments already under pressure from food protests, and in some cases such as Mozambique violent riots, have now to contend with a new problem.

In South Africa, the government announced yesterday that petrol prices for next week alone would rise by 5 per cent. This brings the increase in petrol prices so far this year to 33 per cent, while the price of diesel, used extensively in farming and heavy industry, has leapt 49 per cent.

There are also growing fears that rapidly increasing fuel prices could have a knock-on effect for aid agencies in countries such as Ethiopia, which are struggling to pay for fuel. This week the Red Cross said in its annual report that rising oil and food costs would mean it now needs much more money than last year just to keep the same level of aid distribution. Africa remains the largest area of Red Cross spending, accounting for 45 per cent of the field budget in 2007.

Middle East

Not even the region with the world's largest oil reserves has escaped the pressures. As major importers beg major producers such as Saudi Arabia to release millions more barrels on to the world markets those Middle Eastern countries unlucky enough not to be sitting on lakes of black gold are facing growing resentment from their own populations over fuel prices.

In Egypt, petrol prices have risen by as much as 40 per cent in a year. Yemen has been rocked by riots in the south, which is home to only a fifth of its 22 million population but produces 80 per cent of the country's oil. Young men and separatists, angry that very little of the nation's oil wealth has trickled down to ordinary people in the south, have been protesting since April, raising concerns that Islamic militants could exploit the unrest in the notoriously fractious country.

In Gaza this week, where fuel shortages have long been a major source of seething discontent due to rationing by Israel and Hamas, Palestinians were forced to fill their cars with olive oil instead of diesel.

Iran is acutely vulnerable to rises in fuel prices because, despite being the world's second largest producer, it is still forced to import about 40 per cent of its petrol because of a lack of refining facilities. Protests last year over fuel prices brought in rationing, which is still in place in Tehran and other major Iranian cities.

Australasia

As Kevin Rudd's newly elected government tries to stem a wave of discontent over prices at the petrol pumps, the airline Qantas announced this week that it was intending to slash hundreds of jobs, freeze executive pay and shut down some domestic rural routes.

Its low-budget offshoot, Jetstar, announced it would cut the number of routes it flew by 5 per cent angering many of those living in Australia's vast interior who rely on the low budget airlines. In an indication of just how much pressure the world's airline operators are under, Qantas estimated that this year's fuel bill would be £500m more than last year. Petrol prices in Melbourne this week hit an all-time high of 164.9 cents [80p] a litre on Wednesday.

Arctic

With the threat of the world's oil reserves one day running out, energy-hungry nations are frantically looking towards the more inaccessible areas of the world for new sources. This week, the five main powers bordering the Arctic – Canada, Denmark, Norway, Russia and the United States – met in Greenland for a two-day summit to discuss their various claims of sovereignty over the Arctic Ocean seabed.

The summit was a bid to stop the Arctic becoming a flashpoint between the nations because of the natural resources it is thought to contain. Oil prospectors believe it could be home to a quarter of the world's undiscovered hydrocarbon reserves. In August, Russia upped the stakes by planting a flag under the North Pole. The five countries at the summit agreed to let the UN rule on conflicting territorial claims for the region's seabed.

Environmental campaigners, who were not allowed to attend the summit, are concerned that a new scramble for the Arctic has begun and are worried that future exploration could damage the area's sensitive ecosystems. They have called for a similar treaty to that which currently regulates the Antarctic, which bans all military activity and mineral exploitation.