Two reports from the Wall Street Journal caught my eye today – the first one being that the U.S. Energy Information Administration is now saying that it expects $100 a barrel oil to be the norm for 2008 – changing expectations from just three months ago that prices would average $87 a barrel. The EIA says that the enduring high prices can’t simply be attributed to trading speculation or supply, but rather respond to increasing consumption in developing countries which is offsetting the decreases caused by the U.S. recession. Neil King writes that “Oil demand continues to grow briskly in China, India and Russia, where fuel prices are heavily subsidized. In the Middle East, soaring energy needs and shortfalls in natural-gas supplies mean major exporters such as Saudi Arabia and the United Arab Emirates must use more oil at home. The EIA predicts that even with falling consumption in the U.S., oil demand world-wide will jump by 1.2 million barrels a day this year.”

The second report, to which I see a relation to the first story (and the new reality of $100 oil), deals with a new report by the OECD examining sovereign wealth funds, highlighting the ongoing political and market tensions caused by one of the world’s fastest vast transfer of wealth to oil and gas exporting governments.

The OECD report (which can be read in full here) urges states to remain calm with regard to Sovereign Wealth, and to resist the temptation to use national security concerns as the basis to block investments by these funds. Protectionism is still bad policy, they argue, even if the government controlling one of these multi-billion dollar funds has a bad track record of messing around with strategic assets.

But they do pay some lip service to the panic caused by the emergence of this new breed of funds. The report states that “Investments controlled by foreign governments, such as those by SWFs, can raise concerns based on uncer-tainty regarding the objectives of the investor and whether they are commercially based or driven by political or foreign policy considerations. They can raise concerns with respect to foreign government control or access to defence related technologies — for example, that such investments could provide a chan-nel for the acquisition of dual-use technologies for military purposes by the acquiring country or for de-nying technology or other assets critical for national defence to the recipient government itself, or for aid-ing the intelligence capabilities of a foreign country that is hostile to the host country.”

Along with the IMF, the OECD is working hard to establish a series of rules and best practices for SWFs, including measures requiring the funds to be more transparent about their investment motivations and strategies. This new paper proposes three mechanisms to deepen “understanding” between SWF and their host countries where they are seeking investment,designed to 1) express a common understanding of fair treatment of foreign investors, including SWFs; 2) commit adhering governments to build this fair treatment into their investment policies; and 3) provide for “peer review” of adhering governments? observance of these commitments.

Sovereign wealth is a major issue for corporate foreign policy for obvious reasons, as the lines between the public and private sectors becomes indistinguishable. How can we ever be certain that one investment choice or another is related or unrelated to the government’s policy objective? What kinds of problems and market distortions does this propose to other shareholders, employees, and consumers when these massive investment vehicles seek not profit and efficiency, but rather political leverage? Can these “strategic industry” fears be manipulated by competitors in order to unfairly block an independently operated SWF from certain investments?

These early, initial efforts by the IMF and the OECD are headed in the right direction, and I generally agree that there is no reason to overreact with protectionism to the rise of sovereign wealth. However many of these voluntary “rules” and “best practices” seem at best rhetorical, and exceedingly easy to fulfill (or appear to fulfill) even if the fund is pursuing political objectives.