Crude oil has had a long history, and an interesting one. It is probably one single natural resource that has been instrumental in ensuring maximum conflicts and wars across the world. The US and other developed parts of Europe, in their quest of oil, have fought bloody wars in unison, ravaged nations and killed millions of innocents. Not just with oil, but whenever situations have gone against them, they have left no stone unturned to turn things in their favour. With such a track record, it is surprising that in the given environment, wherein oil prices are breaking all records, and has become the biggest cause of concern across the globe, why is it that there is silence from the developed world? It is surprising, more so, when one realises that the number of oil producing nations is only a handful as compared to the number of oil consuming nations. While a proactive action from the mighty and powerful can bring in a huge respite for the world, why is it that they choose to be silent? It is intriguing that most parts of Western Europe have been paying a much higher price on fuel, as compared to their poorer Asian counterparts; then again there has been an unusual silence from their end.
And in all this, the biggest surprise package is the silence of the US, a nation which has otherwise created havoc in the world on account of oil. For it is a foregone conclusion that one assertive stance from the US is perhaps good enough for the OPEC to take corrective actions, which would eventually bring about more parity in the global economic environment. It looks even more surprising, as with increase in oil prices the oil producing cartels have grown unevenly wealthy, much to the displeasure of the US and its allies – and still it chooses to remain silent. This, despite the manner in which the same money being earned by these OPEC countries is flowing back to buy equity in the ailing financial institutions of the developed world. Also, keeping in mind the fact that US has some of the largest unused oil reserves, their silence and lack of any serious action look all the more conspicuous! Looking at the manner things are shaping up, it just cannot be ruled out that possibly the US and other parts of the developed world have a definite interest in the increasing prices of oil. The question then is, what could their underlying interest be?
In all probability, what we are seeing right now is just a precursor to the larger picture, well laid out by the developed West – maybe for the good. With rising prices, the OPEC might be delighted right now, but perhaps they are unable to see what is going to hit them. For this unprecedented rise in oil is creating a most demanding environment for alternative fuels. And as and when this demand really grows, more than anyone else, it is OPEC that would be badly hit, much to the glee of the Americans, who, along with some of its West European brethren – and even Russia – have the most to gain. No prizes for guessing that the blackmailing tactics of the oil producing countries would have limits; and eventually, the countries at the receiving end would be forced to create an enabling environment for alternative energy. This trend is already visible, with India showing the way with its nuclear deal with USA, and countries like Russia dangling the carrot of complete conversion to natural gas. Incidentally, it is for the very same reason that the US might have been delaying the Kyoto Protocol. By doing so, it is creating a tactical pressure on countries that by merely signing the Protocol do not guarantee reduction of greenhouse emissions, unless efforts are made to move towards clean energy. As it knows that the further the oil prices get pushed, the more the globe would become attracted and ready for alternative and non-conventional fuel. Moreover, for many of the countries who have signed the Kyoto Protocol, it might become more expensive to invest in newer technologies to conform to the emission norms than to shift to alternative sources, making the market even more attractive. And it is then that the American, French and Russian companies – who have already invested billions of dollars in alternate fuels – would mop up the global energy market completely. (This, incidentally, is one reason why I have been looking at all acquisitions being made by Indian companies of conventional/brick and mortar industries. I believe while the West is now looking at the future – alternative energy, nano technology etc. – it is happily selling off its polluting industries to the developing world in preparation for the new world with highly tightened energy rules; which might leave the developing world stranded with useless jaguars and land rovers!)
The second possible reason why US is not too enthusiastic to mitigate the price of oil is because the rising oil price is perhaps one of the major deterrent to Chinese growth. Interestingly, while Americans for years now have been asking the Chinese government not to devaluate the yuan as it makes Chinese exports more competitive in a market where others are already reeling under the Chinese pressure, in the last six to eight months, the Americans didn’t bother about it all. Perhaps they were hand in glove in the mechanism to raise the oil price and knowing well that a devalued yuan would make the Chinese feel the pinch. And now, the rising oil prices have put the Chinese in a fix. While it cannot afford to overvalue the currency now – as it would make Chinese products already under pressure of inflationary tendencies, less competitive – it cannot afford either to sit back and remain entrapped in the larger conspiracy. No wonder then that China is frantically looking around the globe – especially Africa – for newer reserves!
Well, as I said, oil has a long history and the legacy continues...
- 27 July 2008 |
- Arindam on Indian Economy