Greenspan's balancing act

ALAN Greenspan, chairman of the Federal Reserve central bank, did not spring any surprises. US interest rates rose a quarter of a percentage point to 1.5% after a unanimous vote.

Wall Street - which has been jumpy over the sharp rise in oil prices and last week's worse than expected data on jobs - took the news calmly.

The Fed noted that the sharp rise in oil had hurt the economy, a fairly inescapable conclusion with crude futures crashing through the $45-a-barrel barrier for the first time ever yesterday afternoon on the New York Mercantile Exchange.

That pain looks likely to continue, with concerns over Iraq and Yukos being compounded by worries over potential political instability ahead of the presidential elections in Venezuala, the world's fifth-largest oil exporter.

As the US elections approach, President George W Bush will be acutely aware that oil shocks helped prevent the re-election of his father in 1992 and of Jimmy Carter in 1980.

The Fed applied some balm, saying that though growth had softened, the economy looks set to resume a stronger pace of expansion.

In its statement, the US central bank indicated that the risks to achieving sustainable growth and price stability were roughly equal, and that it expects to be able to continue with its policy of 'measured' rate increases.

Ominously, though, it pointed out it would 'respond to changes in economic prospects' if need be.

The Bank of England, which delivers its key inflation report today, shares many preoccupations with the Fed on top of the over-arching worries over oil.

The US consumer, like his British cousins, has embraced debt with a vengeance, with personal bankruptcy filings soaring on both sides of the Atlantic.

There is also concern about house price booms in certain US hotspots.

Greenspan, like his British counterpart Mervyn King at the Bank of England, must perform a complex balancing act if he is to avoid derailing growth without leaving an open window for oil-powered inflation to take off.

Gammell scores again

BILL Gammell, the former Scotland rugby international who now runs Cairn Energy, must want to pinch himself. But he really is living the prospector's dream, striking oil no fewer than four times this year in Rajasthan, India.

The finds have sent shares in Cairn gushing from a 12-month low of 327p to 1400p.

No wonder the well-connected Gammell, a friend of George W Bush and a former schoolmate of Tony Blair, is being nicknamed Edinburgh's answer to JR Ewing.

His company is now valued at more than £2bn - valuing Gammell'sholding at £15m - and is hovering on the brink of the FTSE 100 elite.

A high oil price is bad news for many businesses in areas such as transport, chemicals and manufacturing. But the rise in crude has left the oil giants awash with cash. It has also helped independent explorers to fund their drilling programmes.

Clever money went into Cairn in January, but it is interesting that the directors have been buying heavily this summer.

Deputy chairman Hamish Grossart spent £600,000 on shares at 1248p. Mike Watts, the exploration director, shelled out £200,000 at £12 a share. That indicates the bosses believe there is more to come.

Oil-watchers are also casting a beady eye over the sector in the hope of picking out the next Cairn. Shares in smaller rival Burren Energy, which operates in the Caspian Sea, were also sharply up last night.

Oil exploration is, however, notoriously risky. Excitement over oil discoveries is often overdone, while estimates of the expense of getting the oil to market frequently undershoot. There are also the perils of operating in politically tricky parts of the world.

Cairn found out about the dangers the hard way in the Nineties when its shares soared and fell to earth again when hopes for discoveries in Bangladesh fell flat. This is a business where boom can turn to bust with alarming speed.

Myners' dig

SOME big shareholders were dubious about the way Marks & Spencer chairman Paul Myners helped conduct the retailer's defence against marauder Philip Green, moaning that he did not take enough account of their views.

But he is back on the corporate governance soapbox, taking a pop at the £500,000-plus packages paid to the part-timers who chair some other big British companies. His own £200,000 a year seems modest by comparison - though it would still buy him 10,000 M&S silk ties.