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International News Title: Oil price creates a new world order As the price of oil surges above the symbolic milestone of $US100 ($106) a barrel - with Malaysia's TAPIS crude hitting $US100.54 yesterday - it is creating new winners and losers across the globe. In southern China, high oil prices forced Wang Pui, a truck driver, to wait in line 90 minutes the other day to fill up, just to be told he could pump only 98 litres, as China faced spot shortages of petrol and diesel. When Vladimir Putin was making Russia's bid to be host of the 2014 Winter Olympics last July, he reached into the country's deep pockets, bulging with oil profits, and pledged $US12 billion to turn a Black Sea summer resort into a winter-sports paradise. Russia, which was nearly bankrupt a decade ago, won the Games. The prospect of triple-digit oil prices has redrawn the economic and political map of the world, challenging some old notions of power. Oil-rich nations are enjoying historic gains and opportunities, while major importers - including China and India, home to a third of the world's population - confront rising economic and social costs. Managing this new order is fast becoming a central problem of global politics. Countries that need oil are clawing at each other to lock up scarce supplies and are willing to deal with any government, no matter how unsavoury, to do it. In many poor nations with oil, the proceeds are being lost to corruption, depriving these countries of their best hope for development. And oil is fuelling gargantuan investment funds run by foreign governments, which some in the West see as a new threat. "Five months ago, readers would not have recognised SWF as meaning sovereign wealth fund," said Daniel Yergin, chairman of Cambridge Energy Research Associates, referring to the funds set up by Russia, Norway and others to invest their oil profits. "And yet now," he said, "they're recognised as one of the fundamental forces of the global economy." The basic calculus of expensive oil still holds: exporters enjoy a windfall and importers bear a heavier burden. But some unexpected countries are reaping benefits, as well as costs, from higher prices. Consider Germany. Although it imports virtually all its oil, it has prospered from extensive trade with a booming Russia and the Middle East. German exports to Russia grew 128 per cent from 2001 to 2006; exports to the US grew just 15 per cent. Throughout Europe, the rise of the euro has acted as a hedge against fluctuations in the dollar-denominated oil market, while the heavy taxation of fuel has made rising oil prices less jarring to motorists. "For Europeans," said David Fyfe, a senior oil market analyst at the International Energy Agency in Paris, "$US100 oil is mostly symbolic." Elsewhere, it is much more. For developing countries, oil can be a tool of national transformation, whether the goal is a middle-class standard of living or a utopian society. In Venezuela the President, Hugo Chavez, is pouring oil proceeds into a socialist revolution, creating free health care, free education and cheap food; enabling heavy public spending that has helped fuel four years of economic growth. The trouble, says Theresa Paiz, a Latin American director for the Fitch ratings agency, is that it's not really clear how the money is invested. Mr Chavez's government is steering large chunks of money to development funds and state-owned companies not subject to audits. Transparency International, an organisation that tracks corruption, ranks countries from least to most corrupt, and in its 2007 index Venezuela was at 162 out of 179 countries. Concerns about corruption are even more pronounced in Nigeria and Angola. Oil-rich Angola is taking in 2½ times the cash it did three years ago. Hotels in the capital, Luanda, are booked months in advance, largely by foreign oil companies. Sales of luxury cars are booming and the International Monetary Fund projects the economy will grow 24 per cent this year, one of the world's fastest rates. Yet analysts for the Catholic University of Angola's research centre say two in three Angolans live on $US2 or less a day, the same ratio as in 2002, when the country's decades-long civil war ended. The Government of Angola is eager to show that oil wealth is benefiting ordinary citizens. It has rebuilt 3800 kilometres of roads, refurbished four airports, and laid 690 kilometres of railroad tracks. But many Angolans take it as a given that oil has enriched public officials most of all. In 2003 a newspaper in Luanda identified the 20 richest people in Angola: 12 were government officials and five were former officials. Angola's growing muscle means it is now the biggest oil supplier to China and the sixth biggest to the United States. This is leading it to rethink its global position. It recently joined the Organisation of the Petroleum Exporting Countries and is limiting its cooperation with the IMF. China has become Angola's financier, lending Luanda as much as $US12 billion for the country's reconstruction, in return for guaranteed oil supplies. The contest among importers to secure access to oil supplies has become fierce. China, a one-time oil exporter that now must import half its oil, is facing politically troublesome shortages of fuel from Shenzhen to Beijing, as Chinese refining companies refuse to supply diesel at unprofitable state-regulated prices. To head off a crisis, China raised retail prices for fuel nearly 10 per cent on November 1. India is potentially even more vulnerable than China. Although it consumes a third as much oil as China, it imports 70 per cent of its oil. It also has no strategic reserves and demand is growing faster than in any other economy except China's. Like China, India subsidises fuel, particularly the kerosene used by lower and middle-class families for cooking, a policy that costs it some $US12 billion a year. If oil reaches $US100 a barrel and stays there, analysts say, India will be forced to roll back those subsidies. Sooner or later, prices are going to bite, said Subir Gokarn, Standard & Poors chief economist in Asia. Without an increase in retail prices, officials at the Ministry of Petroleum and Natural Gas warned recently, they might no longer be able to buy adequate supplies of crude for India's refineries. Unless consumers are paying for what they consume, said M. S. Srinivasan, the petroleum secretary, the ministry is going to be left with a big hole in its pocket. But raising fuel prices could ignite even greater civil unrest in India than in China, where a man was killed recently after jumping a line to buy petrol in the city of Xinyang, in Henan province. Even in developed countries like Canada, rising oil prices can cause dislocation. The region around the oil sands in northern Alberta is the closest thing the developed world has to a 19th-century boom town. The influx of workers has created a shortage of skilled labour in neighbouring British Columbia, where construction is under way for the 2010 Winter Olympics. In comparison, the problems faced by other oil producers seem almost benign. For them, the most burning question is what to do with all the money. Norway, the world's 10th-largest oil producer, wants to guarantee every child a subsidised kindergarten spot by the end of 2008. It has increased spending on kindergarten to $US3.3 billion this year, from $US2.75 billion, partly using money transferred from its $US350 billion State Pension Fund, once known as the Petroleum Fund. Most of the fund is earmarked to pay the future pensions of Norway's 4.6 million people. The discipline is structural, said Johan Nic Vold, a consultant and former executive at Royal Dutch Shell. Without it, the demands on politicians to use the oil revenue would be almost insatiable. Dubai has taken a similarly long view. Treating its oil reserves as temporary, it used the proceeds to expand pell-mell into tourism, trade, real estate and construction. The oil sector now accounts for only 5 per cent of Dubai's gross domestic product. But perhaps no country has revelled in its oil wealth like Russia. NetJets Europe, the private-jet company, plans to open an office in Russia because the traffic between Moscow and London has become so dense. "Russians have kept London's high-end real estate market buzzing. There are a lot of Russian buyers around who are prepared to pay a vast amount of money," said Michael Chetwode of the Home Search Bureau. Back home, Russia's oil wealth is trickling down. Mr Putin is using it to finance priority national projects, like improved health care and education, and access to affordable housing. Oil may also help Mr Putin cling to power. As he noted recently: "We all remember what state the country was in seven, eight years ago." (When oil was $US16 a barrel.) The New York Times
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