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High Prices Will Wean Users Off Oil, Greenspan Predicts

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By GUILLERMO PARRA-BERNAL, Bloomberg News

Published: November 8, 2007

Former Federal Reserve chairman Alan Greenspan said rising oil prices will lead businesses and consumers worldwide to use less fossil fuel and increase their use of alternative energy sources.

"The sooner we get the higher prices, the quicker the world economy will accommodate," Greenspan told a conference of executives in Sao Paulo, Brazil, via satellite Wednesday. "They can be a remedy for high oil consumption, which can result in less and less dependence."

Crude oil Wednesday briefly rose above $98 a barrel in New York for the first time, as the U.S. dollar fell to a record low against the euro. Greenspan said the price increases are driven in part by a recent "explosion" of growth in developing countries and a push by oil-producing nations to keep the cost of oil high to boost revenue. Oil has gained 68 percent this year.

"There is increasing awareness that oil politics are not in the interests of the majority" of the world economy, he said.

He said several state-controlled oil companies worldwide control most proven oil reserves and are not reinvesting a greater part of their surging income into exploration and new projects. He didn't name companies or countries.

Light, sweet crude for December delivery fell 33 cents to settle at $96.37 a barrel on the Nymex. Earlier, prices rose to $98.62, a new record. Trading was volatile, with futures falling by nearly $2 a barrel at times in afternoon trading.

Greenspan praised the efforts of countries such as Brazil to offer different fuels such as ethanol extracted from sugar cane. He said an effort by the U.S. government to encourage production of corn-based fuels is a "mistake," in part because it has contributed to higher food prices. Brazil is expected to generate 15 percent of its electricity from sugar cane by 2015, up from 3 percent now.

Greenspan, 81, reiterated remarks made in late October that he predicts a "less than 50-50" probability of a U.S. recession, saying the country will probably avoid such an outcome amid a plunge in the value of homes. Home prices in the world's largest economy haven't bottomed out, he said.

The rising cost of credit in the U.S. economy has been "very dramatic," he said, noting more defaults in the subprime mortgage industry may loom, as investors demand higher prices for riskier assets.

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