The Observer: Oil at $70 a barrel? It's no big deal yet: it has long been rumoured Shell could fall prey to a bid from its French rival, Total. But what if the boot was on the other foot and Shell took a pop at Total? Would an Anglo-Dutch oil giant be allowed to swallow Total, viewed as a family jewel by the French government? I think not.: Sunday September 4, 2005
Oil prices have soared, and petrol is up 14 per cent since January. But no angry motorists are venting their spleen on garage forecourts. Neither do many economists believe the world faces recession as it did in 1973, when oil prices shot up following an Opec embargo in response to an Arab-Israeli war.
The most remarkable thing about the current energy crisis is that there has been relatively little panic and few serious economic repercussions to date. Who would have believed that the Bank of England would be cutting interest rates when the oil price has doubled in 18 months to $70 a barrel?
Clearly, there is a tipping point when oil becomes so expensive there must be serious consequences, but we are not at that point yet. There are several reasons why things are different this time. In 1973, Opec simply turned the taps off and that was the end of it. A western world that had grown accustomed to cheap oil in abundance was thrown into a tailspin.
Today, the price of oil is high because of soaring demand from China and India as well as OECD countries such as the US and Britain. The price of oil has risen because the world economy is firing on all cylinders - and the oil-producing nations are still able to crank up supply to meet additional demand, even though they are operating close to capacity.
Something else has changed: we are less dependent on oil than in the 1970s. Yes, we consume more of it than 30 years ago, but the proportion of GDP linked to oil has slumped by 40 per cent. This is largely because the British economy has changed out of all recognition. In 1973, energy-intensive manufacturing industry accounted for nearly a third of GDP; today, that figure has come down to 13 per cent. Technology and service industries play a much bigger role.
But what explains the absence of the sort of fuel protests that flared around the country in 2000? After all, petrol is more expensive now than it was then. The answer is that those protests were largely about the amount of tax the government was taking as a proportion of pump prices. The government has been careful ever since to limit or freeze duties on petrol. As a consequence, tax on a litre of petrol is 10 per cent less than it was five years ago.
But oil is a finite resource, so there is pressure to come up with alternative sources of power. If we fail, the economic fall-out could be dramatic, making the 1973/4 recession look like a teddy bear's picnic.
Protectionism turned into a French farce
So, Jacques Chirac is putting up the barricades: Paris has published a list of industries which will be shielded from foreign takeover. This stupid move is criticised by many French businessmen, who realise the short-sightedness of their government and understand that France will be poorer as a result.
Why should the starting point be that foreign takeovers are bad? Inward investment brings jobs, new technologies and - quite often - superior management techniques. Take Nissan's car plant in Sunderland: it is one of the most profitable in Europe and has brought numerous benefits to the local community. Likewise, Honda in Swindon.
At first glance, taking steps to prevent strategic technologies in the defence sector from falling into foreign hands look sensible enough. But this is not a decree that seeks merely to protect the French arms industry. Look what else is on the hit list - casinos and many areas of computer technology.
But we all know that the list is not comprehensive and that the French are sensitive about almost everything. You may remember the fuss this summer when it was rumoured that Pepsi-Cola was interested in Danone, the dairy foods group. The reaction from French government officials was overwhelmingly hostile.
Remember too what happened last year when the merger of two predominantly French drugs companies - Sanofi and Aventis - was suddenly put in jeopardy by a 'white knight intervention' from Swiss group Novartis. Again, hostile remarks by French ministers brought about a rapid retreat from the Swiss.
Now consider this: it has long been rumoured Shell could fall prey to a bid from its French rival, Total. But what if the boot was on the other foot and Shell took a pop at Total? Would an Anglo-Dutch oil giant be allowed to swallow Total, viewed as a family jewel by the French government? I think not.
French protectionism is wrong for many reasons, but above all because it is hypocritical: French companies are allowed to invest in Britain with impunity. Besides, the French are shooting themselves in the foot because France - like any other country - could benefit from an infusion of outside talent and ideas.
The European Commission, which is charged with ensuring that EU countries allow the free movement of capital between member states, should not hesitate in throwing out these preposterous proposals.
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