TEXT OF COMMENTARY
Scott Jagow: It’s day two of the Middle East summit in Annapolis, Maryland. Yesterday, Israelis and Palestinians agreed to revive peace talks. Their goal is to sign a treaty by the end of next year. Commentator David Frum has these thoughts.
David Frum: As half the world gathers at Annapolis, markets will want an answer to one question: If somebody ever could persuade the Arabs to make peace with Israel, how much would the price of oil come down?
Short answer: probably not a dime. Oil is hitting record prices — nearly $100 a barrel — for two big reasons: our old friends Mr. Supply and Madame Demand.
Twenty years ago, China and India barely registered on the world oil market. Today, China is the world’s second biggest oil consumer and number three importer, and India is the world’s sixth biggest consumer and number eight importer).
While the demand side booms, the supply side looks gloomy. Of the world’s top 15 net oil exporters, only three at most — Norway, Canada and, charitably, Mexico — offer secure investment regimes and reliable political stability. The rest of the list looks like a roster of international danger zones: Russia, Iran, Venezuela, Nigeria. Then, of course, you have the Arab oil producers, whose oligarchic regimes frustrate their young, underemployed populations.
People connect oil to Mideast peace because of the experience of the boycott during the 1973 Yom Kippur War. They forget that the Arab exporters imposed a similar boycott in 1967. That first boycott failed because market conditions were against it. The second succeeded because in the inflationary 1970’s, market conditions favored it.
It’s the market conditions — not the political decisions — that matter. We cannot predict now the exact path by which future oil supply and future oil demand will adjust to today’s painful prices. We can only be certain that they will.
And when they do, they will be driven by market events, not the will o’ the wisp of Annapolis.
Jagow: David Frum was a speech writer for President Bush. He’s now a resident fellow at the American Enterprise Institute.