Fortunes shift as prices soar
Oil makes the world go ‘round. Each day, more than 85 million barrels of black gold are pumped from the ground -- that’s nearly 70 ounces for each of the 6.6 billion men, women and children on Earth.
Since January, the price of a barrel of oil has almost doubled and is now approaching $100. Blame tensions in the Middle East, speculators on a quest for profit and the hunger for energy of rising powers, including India and China.
The ripples from this price surge are washing up on every shore. It’s creating new wealth in such locales as Moscow, where oil barons are almost at a loss about how to spend their riches. But the effects in some other places are less predictable. Israelis fear a rush of people will chop down trees to heat their homes. Farmers in northern Iraq are abandoning their fields to sell gas. Fishermen in France, stung by the price of diesel, have rioted.
As Californians cope with gasoline near $3.50 a gallon and other Americans brace for a winter of high heating bills, we asked Times correspondents how the skyrocketing prices are affecting their corner of the world. Here’s what they found.
MOSCOW
Helping oil barons spend their wealth
What do you buy when you can have anything? At the Millionaire Fair, which opened Thursday at a sprawling exhibition center in northwest Moscow, Yelena Kudozova is trying to provide suggestions -- a lot of them, since 45,000 people with fistfuls of cash are expected to cross the red carpet over the exhibition’s four days. Many are getting rich thanks to oil.
Last year, there was a private island for sale, yachts and helicopters, baby bottles made of gold and a dress sewn entirely from dollar bills. This year, the fair’s 35,000 square feet of exhibition space will feature diamond-encrusted USB flash drives; two Kandinsky paintings never before exhibited in Russia; and a sneak peek at Volvo’s new XC60 concept car with its six-cylinder, 3.2-liter ethanol engine (after all, gas here has risen to the unheard-of price of $3.26 a gallon).
“It is really symbolic that the time when oil prices are about to reach $100 a barrel coincides with our fair,” said Kudozova, the event’s director. “Russia is growing more and more influential, and it consumes more and more luxury. I can’t even imagine such a fair to be held, for instance, in 1991 Russia. A Millionaire Fair in Russia at that time would have been an oxymoron!”
High oil prices helped produce a bumper crop of billionaires in Russia this year -- 53 to be precise, according to Forbes magazine, compared with 34 in 2006 -- not to mention the country’s 103,000-plus millionaires. The oil business was a key component in the fortunes of at least 16 of those billionaires, Forbes said.
Russia’s oil and gas revenues have quadrupled since 1998. Oil export revenue this year is likely to reach $63.9 billion, lubricating not only the oil tycoons but also many other businesses, including retail, services, construction and real estate.
Kudozova had no problem filling up the fair’s gala opening night. The 15,000 tickets for the event, priced at $742 apiece, sold out.
Attendees at opening night were treated to shows by the Italian fashion house Giancarlo Ferre and Bond Street jewelry designer David Morris, performances by the Blue Man Group and pop music artist Sergei Mazayev, and all the Piper-Heidsieck Champagne they could drink, which is to say, thank you very much, quite a lot.
-- Kim Murphy and Sergei Loiko
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SHANGHAI
Tour operators try to cut fuel costs
Rising oil prices are making waves for tour boat operators who ply Shanghai’s historic Bund waterfront.
At Touring the Huang Pu River Co., sales and marketing manager Feng Haiping is struggling to cut fuel costs for his 18-boat fleet, which conveys as many as 5,000 sightseers on a typical day -- and burns through as much as $865 in diesel fuel an hour. This month, government regulators hiked wholesale gasoline and diesel prices 10%.
Competition among tour operators is fierce, so the company can’t raise the price of tickets, which sell for $6.70 to $26.80 depending on the vessel, to pay for more expensive fuel, Feng said. Instead, the company has made other adjustments, such as reducing from two to one the number of trips its new red-and-gold, 187-foot Dragon Boat luxury cruise liner makes each day.
The company also plans to boost the rate it charges for private charters, and it is paying closer attention to vessel maintenance, Feng said. Captains have been trained to operate the boats for maximum fuel efficiency and to choose the most direct routes while traveling along the river, past landmarks from the colonial era and the Oriental Pearl TV tower, one of China’s modern icons.
Higher prices at the pumps, together with the cost of parking in the popular tourist zone, have also prompted Feng to make changes in his personal life. Now, he drives to work only on weekends.
Most days, Feng said, “I take the bus.”
-- Dawn C. Chmielewski
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BAGHDAD
Taxi driver sees little benefit
For Ali Kadhim Khalaf, a 37-year-old taxi driver in Baghdad, rising global oil prices should be a good thing: Iraq’s government sets gasoline prices artificially low to insulate its people from price shocks, and increased oil revenue should help his petroleum-rich country rebuild after years of war.
But as he waited in line recently to gas up his 1985 Volkswagen Passat with the orange-and-white paneling typical of taxis here, Khalaf said he expected little benefit.
“Our wealth is for the others!” he exclaimed. “If the oil prices rise, neither you nor me will get the benefits. There is no use, because we do not have the right man in power. Everybody is taking what they can get and leaving.”
Iraq has the world’s second-largest proven oil reserves, but the industry has not been producing at full strength for decades. Investment from foreign oil companies, needed to jump-start production, has been slow because of the poor security situation, which has improved only recently.
Until about two months ago corruption in Iraq’s oil industry left Iraqis with almost no gasoline, and what was available was sold by black-market curbside retailers -- often diluted with kerosene -- at prices astronomically higher than what Iraqis historically paid. Queues backed up for miles and drivers could wait 12 hours to fill their tanks.
“I was spending most of my days in the fuel line, when I could have used the time working,” Khalaf said.
At its worst, Khalaf said, he was paying about $3.07 a gallon and buying just enough to cover his 150-mile daily routes. A year ago, gas was about 76 cents a gallon.
Now, thanks to a handful of reforms, domestic supply has recovered and Khalaf pays about $1.38 a gallon. The wait is sometimes just five minutes.
Still, Khalaf, who has a wife and four children, is nervous that the unstable times may return.
“If the price of gasoline rises, I would rather stay home and not work, because if I want to work I have to raise prices, and some people cannot pay,” he said.
-- Christian Berthelsen and Usama Redha
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SORAN, IRAQ
Oil fever strikes once-poor region
In northern Iraq, it’s a different story.
Record oil prices have transformed the economy of the relatively safe, three-province Kurdish autonomous area. The region, once mired in poverty, is flooded with businessmen from as far as Texas and Norway seeking oil and gas exploration deals.
Rates at the Erbil International Hotel have jumped from about $75 a night in early 2005 to $300 a night. Rents have increased 200% in the last two years and a whole service economy has arisen to cater to those grown rich off oil money.
Oil fever has also pushed people out of their traditional livelihoods.
Pusho Abdul-Kareem used to work as a farmer, tilling the soil for fruits and vegetables he would sell at market. But now, he and his 6-year-old son, Rebas, peddle gasoline instead of food to passing drivers along a desolate stretch of high desert.
“It’s a better business,” he says.
Each day he fills up dozens of 20-liter jerrycans with gasoline and lines them up in racks for customers. He sells different varieties, including cheap yellow-brown gas drawn from the Beiji refinery for about $2.20 a gallon and high-quality Iranian gasoline, probably smuggled across the border, for $3.20 a gallon.
Abdul-Kareem’s sole complaint is that his customers are too cheap. “Nobody buys the good stuff,” he says with a sigh. “They hear $3.20 a gallon and they drive away.”
-- Borzou Daragahi
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JERUSALEM
Heating bills drive illegal logging
With winter just around the corner, the prospect of high heating bills is on the minds of many Israelis -- particularly villagers high above sea level in the northern Galilee region, home to many of the country’s poorest families.
The higher the price of fuel, and the colder the weather, the more likely people are to invade Israel’s forests in search of affordable warmth. This month, police seized two trucks carrying 30 tons of wood felled without permit.
“We find a close correlation between this activity and the rise in fuel prices,” said Omri Bonneh, director of the Jewish National Fund’s northern region, which deploys 50 rangers to patrol tens of thousands of acres of forest. “It is driven by financial distress.”
In a bid to curb illegal logging, the Jewish National Fund -- a major landholder and custodian of Israel’s forests -- launched a program to sell needy families as much as 3 tons of firewood at $19 a ton, one-fourth the market price. The program is now in its third year.
“This is a lovely project,” said Amnon Nahmias, 50, who began lighting his fireplace in the northern community of Amuka early this month. “It serves everyone -- the public, the forests, the environment.”
Israel punishes unauthorized tree-chopping with fines up to $3,250 or prison terms up to six months. Officials say they prosecute 70 to 120 violators a year but believe that 10 times that many get away. The cheap firewood program has somewhat diminished the rate of illegal cutting, Bonneh said.
The Jewish National Fund supervises the cutting and distributes wood according to need. Later, the group will open some forest areas so people can chop and collect their own wood, up to a limit, free of charge.
-- Batsheva Sobelman
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CARACAS, VENEZUELA
Motorists share in energy bonanza
Oil could rise to $200 a barrel and not ding the pocketbooks of Venezuelan motorists.
Gasoline here has been subsidized for decades: A gallon now costs about 15 cents, according to the official exchange rate.
It’s the government’s way of letting motorists share in the energy bonanza of their country, the world’s fifth-largest oil exporter. The government is collecting more than $1 billion a week from oil sales.
Venezuelans think the subsidy is their birthright, and not even hugely popular President Hugo Chavez has dared rescind it. He’s mindful of the deadly riots that broke out in 1989 when President Carlos Andres Perez tried to reduce the subsidy and raise public transit prices.
Still, Chavez is known to want to cut the subsidies to leave more cash to fund his ambitious domestic agenda and give more foreign aid. After all, the subsidies have a minimal benefit for his main constituency: the poor, few of whom own cars.
Chavez frequently complains about an automobile-centric society, most recently at a news conference last week. He has committed vast sums to expand or develop mass transit systems in Caracas, Valencia and Maracaibo.
But cheap gas and a flood of oil dollars have raised consumption across the board, and vehicles are no exception. Venezuelans bought nearly 50% more cars in the first nine months of this year compared with the same period in 2006.
Chavez now is dealing with his concerns about cars in a different way. Starting next year, the government will restrict the import of autos, which is likely to cause prices to rise and perhaps damp demand.
Managers of several Colombian auto plants, which supply about 10% of the Venezuelan car market, are unhappy about that. They are concerned that Chavez’s program will cost jobs.
-- Chris Kraul
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PARIS
Fishermen cause a stink over fuel
The fishermen of Brittany dumped dead fish onto the highways. They burned tires, blocked traffic for miles and defaced customs boats with paint, creating chaos from port to port all along the Atlantic coast.
Then the president showed up.
Since 2005, French fishermen have been complaining, like many business owners, that if fuel costs went beyond about $1.69 a gallon they couldn’t make a living. Currently, the fishermen pay about $2.81. (That’s a bargain compared with motorists, who pay about $6.23, because they’re not exempt from the tax on regular consumers of fuel.)
The price of gas has risen 15% in the last year in France, but the price of fish at auction has stayed relatively stable.
“The slightest profit margin we’ve had over the past years has been eaten by the cost of gas,” said Philippe Le Moigne, vice president of the local fishermen’s association.
The government has refused to create subsidies to protect businesses from rising gas prices. But French President Nicolas Sarkozy turned up at the port of Le Guilvinec early this month with a plan to cap the price of gas for fishermen at $1.69 a gallon, allow them to adjust the price of fish according to gas costs and exempt fishermen from employment and social security taxes for six months.
The government has ruled out reducing its oil tax, which last year brought $28.2 billion into its coffers. But it’s exploring other avenues.
In a recent meeting with oil producers and distributors, Finance Minister Christine Lagarde asked them to lower their margins to ease the burden on consumers. She has also urged the French to conserve by using their cars less.
“Christine Lagarde suggested that we take our bikes to travel rather than our cars,” Le Moigne said. “Why not fish with pedal boats while we’re at it!”
-- Achrene Sicakyuz
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