By Sean Condon
The federal government can not be directly blamed for soaring gasoline prices, but it should intervene in order to cushion the blow to the economy.
When the Organization of Petroleum Exporting Countries (OPEC) started to tightly limit the amount of crude oil they export, it caused the cost of crude oil to triple to roughly $30 US per barrel. In turn, gas prices have reached 80 cents a litre in parts of Canada. If oil prices continue to rise, the effects on Canadian business and the economy could be damaging.
However, Canada does have the resources to take care of itself. While OPEC nations control a considerable amount of crude oil, it only amounts to about 40 per cent of the world’s total reserve. Canada, on the other hand, is the world’s 11th largest producer of crude oil. It also has an estimated reserve of 9.4 billion barrels of crude oil.
But Canada is unable to flood its own market with cheap oil. Part of the problem is that it does not actually own much of this oil. The federal government currently owns only 18 per cent of Petro-Canada, one of Canada’s three largest oil companies. While the federal government does have the power to create some form of oil-pricing policy, it is unlikely that it would intervene as big oil companies have made huge financial gains during this crisis.
Canada also has its hands bound by international trade treaties such as the North American Free Trade Agreement and the World Trade Organization. These treaties tend to protect the interests of big businesses, such as oil companies, over the interests of nations. If Canada used its reserves to lower prices then it would be seen as a violation of trade practices that could lead to economic sanctions.
However, if nothing is done by the federal government, businesses that heavily rely on fuel will suffer. Canadians would soon begin to feel the residual effects as one price increase would cause another.
Canada’s economy is also vulnerable to the oil crisis. The production of most material goods and services, including food, depends on the availability of cheap oil. If oil prices continue to rise, then all aspects of the economy will be affected. Consumers would also see their cost of living increase.
The federal government has the means but not the power to make this happen. If cheaper oil is not made readily available soon, Canadian consumers will see their booming economy hit hard and forced right back down.