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Are higher oil prices here to stay?

*Financial Times, by Alexander Kliment and Edward Alden, June 7, 2006

Greenspan warns on oil prices

“International oil markets had become so tight that even the slightest disruptions to supply could result in further large price rises, Alan Greenspan, the former chairman of the US Federal Reserve, said on Wednesday.

But he said the flexibility of the US economy had so far allowed it to absorb higher energy costs with little effect.

Mr Greenspan, who stepped down from the Fed in January after 18 years at the helm, told the Senate foreign relations committee: “The buffer between supply and demand is much too small to absorb shutdowns of even a small part of the world’s production. The balance of world oil supply and demand has become so precarious that even small acts of sabotage or local insurrection have a significant impact on prices.”

The administration of President George W. Bush has been seeking to promote a variety of alternative fuels to wean the country off what Mr Bush called its addiction to oil in his January State of the Union address.

But Mr Greenspan said there were few good short-term policy options for bringing down energy prices, saying it was “not a choice between good and bad” but “between not so good and worse”.”

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