AYLMER, QUEBEC | With sky-rocketing gasoline prices here in Canada, everyone is predicting the worst: $2 a litre this summer, and so on. We all want to know why, and the explanations include the war in Iraq, disturbances in Nigeria, a strike here, a storm there, and, the big reason, the oil-hungry economies of China, India, and Brazil.

That should exhaust the reasons for high prices, but then we hear from the corporate sector that high gas taxes are another reason. We're assured that if Ottawa cut fuel taxes, the price of fuel will drop. This seems to imply that taxes are a cause of higher prices. However, the tax rates haven't increased while the price of fuel has increased, so taxes are not a cause of higher prices.

One big reason that is carefully not mentioned by the corporate sector is profit-taking by Big Oil.

In the financial statements just released, Petro Canada has more than doubled its profits for its first quarter this year. Doubled its profits -- and that's not a cause of higher prices?

BP has announced over 50 percent increase in profits. A cut in profit taking wouldn't reduce the cost more than a cut in taxes?

There's a larger point hidden here. If we are told that war, strikes, and widespread demand are driving up the price of oil for us all, why isn't it hurting, not helping, the profits of the oil companies? What insulation do the oil companies have that we don't have against the high price per barrel?

The optics here are certainly not good: as governments shudder at the effects of higher oil prices on their economies and their own operating budgets, the oil companies are trundling to the banks with bundles of cash -- not very patriotic. So much for the civic responsibilities of the oil companies. What do we owe these companies if their attitude is to bleed the country dry for their own benefit?

However, the doomsday scenarios cannot be accurate. There is a benefit to having high prices force consumers to conserve fuel and force business to opt for other technologies for energy and transportation. But the predictions that demand will continue in a straight line upward cannot be taking into account the fact that demand from China and India is tied to the price of oil.

Once the price gets too high, the populations of these countries wonÕt afford it and their rush to mimic North America's love affair with the automobile will sputter. China and India will soon hit a plateau of consumer demand. Good news: there won't be a billion new cars in China.

Likewise for the economies of the developing nations. Part of their success is due to low energy prices, as well as minimal labour costs. As oil costs get too high, China will not be able to cut back enough in labour or quality to absorb higher fuel costs. Chinese manufactured goods will rise in cost, making them less competitive. In China and India, economies will slow down.

This could have a destabilizing effect in these nations. More democracy there would be good news.

We certainly haven't reached "the end of history," and the price of oil will not continue skyward forever. But here in Canada we could still deal with the oil companies' obscene profit-taking at our expense, couldn't we? That would also be good news.

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Copyright © 2008 Fred Ryan/Log Cabin Chronicles/05.08