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Wednesday, 22 May 2013 11:53 am
High 14 oC - Low 7 oC
Making oil affordable
Oil remains uncomfortably and unjustifiably bid in the international market. Libyan production is back online earlier than expected and Iraqi, Russian and Mexican crude is flushing markets just as India’s industry and China’s growth powerhouse begin to slow. This is bad news for Pakistan where authorities have just cited erratic international price levels as cause for yet another petrol price hike. And since oil (and related products) are inputs in almost all processes, the public is about to be treated to higher inflation and more belt-tightening, with related spill over effect on overall consumerism and economic expansion. The more things change, the more they remain the same.
The reason for the abnormal spike in brent crude is growing possibility of war in the Persian gulf, and subsequent closure of the strategic Strait of Hormuz, despite clearly bearish fundamentals in the oil market. The situation has become all the more delicate with the return of slight economic stability in the US, and slim chances of weathering the sovereign debt in Europe. Should saber rattling in the Gulf now turn into real war, oil will climb to the $180-200 range in minutes, rubbishing the club med bailout in continental Europe and sending America back into recession. So much for the international consolidated bottoming out finally materialising.
The prospect of rapidly rising prices will surely reignite the ongoing debate between the petroleum and finance ministries in Islamabad. It seems the latter will be forced to revise its position on the CNG-petrol price parity after all, especially since every passing day brings the election that much closer. Instead of incorporating unaffordable increases in gas price, decision-makers might just find it politic, and prudent, to reduce taxes on the final petrol price, increasing eventual demand and earning. Failing to check consistent energy price rise, whatever the reason, will make political survival increasingly difficult at a time when the phenomenon has already triggered mob violence.
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