We have seen no improvement since then in the Clinton administration's passive policy toward OPEC's cartel. Instead, the government has chosen to intensify its attack on corporations for high gasoline prices, in effect giving encouragement to the Organization of the Petroleum Exporting Countries that the quota system is okay with the U.S. government. High gasoline prices should be blamed on oil prices and as a side effect of de-commoditizing gasoline, which causes a price premium for each type of gasoline in the same way that corporations use product differentiation to charge higher prices. High oil prices are causing two major problems for the world economy.
Expensive oil is a tax.
Like taxes, the high oil price distorts investment decisions, with negative implications for current and future growth. In addition, high oil prices cause inflation, at least temporarily. This invites central banks to run tighter monetary policies than they otherwise would, increasing risk. We still think oil prices will fall sharply, creating a bullish scenario for the global economy and financial markets. Among the reasons for optimism is that oil prices are at their highest premium to gold since the oil embargo of the mid-1970s.