To Our Readers
	The Moscow Times welcomes letters to the editor. Letters for publication should be signed and bear the signatory's address and telephone number. Letters to the editor should be sent by fax to (7-495) 232-6529, by e-mail to oped@imedia.ru, or by post. The Moscow Times reserves the right to edit letters. Email the Opinion Page Editor

The Russian government sees some sectors of the economy improving in the second half of 2009. Whether the recovery can be sustained — and, more important, whether the recent good times can return — will largely depend on the price of oil.

After bottoming close to $37 per barrel in mid-February, oil rose some 50 percent and now trades at $52 per barrel. Officials in Venezuela, Russia's new ally and another major oil producer, believe that oil prices can bounce to $90 per barrel by the end of the year.

True, the International Energy Agency has just cut its forecast for oil demand, and China reported a 5.5 percent drop in crude imports. But this makes long-term prospects even brighter. Cambridge Energy Research Associates warned that low oil prices and a global credit crunch could reduce investment and create an oil shortage by the middle of the next decade. Merrill Lynch envisions this happening even sooner, by 2010 or 2011.

Although at first glance it would seem that demand for oil is generally stable, oil prices are notoriously hard to forecast. Nevertheless, no one had anticipated a precipitous plunge in oil prices in the fourth quarter of last year. Instead, in mid-2008, with the global recession already under way, most analysts warned that oil was headed for $200 per barrel.

In order to glean the future of oil prices, it is important to understand what happened in recent years — namely, why oil prices went from less than $10 per barrel to $147 over the past decade without creating a major recession.

There were many reasons for this, but the key one was that the world economy was enjoying extremely robust growth. It is a well-known fact that labor productivity increases in recoveries and declines in recessions. When orders increase, employers first get more work out of existing workers before hiring new ones.

The same is true of all other inputs, including oil. It is easy to see why using simple examples. Trains and buses, for instance, carry more commuters, each of whom produces more output. Or, when a trucking company has a full order book, its trucks are loaded to capacity, each earning more money per run. When orders decline, trucks travel half full, producing less gross domestic product per gallon of fuel. From 2003 to 2008, oil output grew on average by 1.8 percent a year, while real gross world product expanded almost twice as fast, by 3.4 percent. In other words, it took progressively less oil to produce a dollar of output.

Even if the current global slump comes to an end by early 2010, growth will remain sluggish and fragile. Demand will remain weak everywhere, and the global economy will not be able to absorb renewed oil price increases.

A similar situation occurred in 1979. When the Iranian revolution pushed up oil prices, the global economy was already stagnating. Oil became the last straw that plunged the world into a deep recession, accompanied by defaults from international debtors.

The same is likely to happen this time. Even if oil supplies do not expand in the coming years, OPEC and other oil producers will find it difficult to raise prices. Of course, oil prices may still spike suddenly because of a sudden political jolt or military conflict. But higher oil prices will then trigger a contraction in global economic activity and a renewed decline in oil prices. It should be recalled that in the early 1980s, the recession ushered in a long period of declining oil prices, culminating in $10-per-barrel oil by the end of the 1990s.

Alexei Bayer, a native Muscovite, is a New York-based economist.