Lifting Times: Low Oil Prices

Reprinted from Mutiny.in

The dance of oil prices is well worth observing from May-December 2008. It went on a historically high price of $147 in July and now falling down back to $41, the price of oil that was 5 years back. Spike in oil prices was one single reason enough to stir recession and cause inflation. Our government ensured to take the oil prices domestically further up when the international oil prices went up.

At the peak of oil prices, the push for research into alternative fuels and energy technology increases. Suddenly, the elite start speaking of this option of alternative fuels and also clean technology and green technology. As the prices dip, the push for viable alternative fuels and fuel-efficient vehicles goes down. For successful transition into the area of clean fuels, high oil prices are necessary. If not something like $100, at least the domestic price of oil must be high. High oil price is a boon for the proponents of clean fuels. After all, how can long can we live on dirty fuels?

Ahmed Zaki Yamani, the former Saudi oil minister used to tell others to never raise the oil prices too much to an extent that will cause innovation into wind, solar and other options in the West. The 1970s oil embargo had seen this happen when the oil prices quadrupled. The famous quote used by him when he was OPEC oil minister was

‘Stone age didn’t end because we ran out of stones’

Our job is to turn Yamani’s nightmare turn true. Fossil fuels age shouldn’t end because we ran out of fossil fuels. Now is the right time to innovate.

Oil Derrick There has been one price cut in December. India trimmed diesel prices by 6 percent and gasoline rates by 10 percent in early December, the first reduction in two years, after crude oil plunged from its July peak above $147.

My point is, why another now? Moreover, if at all, government’s motive was to reduce inflation, there was no better way than to reduce diesel prices and keep high petrol prices. Petrol at around $1 or Rs. 50 or Rs.60 was the best bet, if not a little higher. A constant price set for petrol is the need of the hour if we really want clean fuels. Obama administration came into power by playing the gasoline-tax card, where he insisted on a gasoline tax. The gasoline tax is supposedly to be spent on research and investment into clean fuels. Similarly, charging Rs. 5 behind every liter was reasonable for the govt. for a similar push into clean fuels. Tell me, doesn’t India have some potential in this regards, in the field of research into clean fuels, considering the second largest pool of engineers that we have?

India is the sixth largest consumer of oil and the consumption is only growing fast. In the consumption, it is noteworthy that petrol is generally used by private vehicle owners of 2-wheelers/4-wheelers for personal purposes, where as diesel is used in buses, trucks and railways for transportation of goods. For curbing down inflation, the best way forward is to reduce diesel prices. When diesel price goes down, transportation becomes cheaper, all the commodities and FMCG sector products all become cheaper. Products in FMCG would mean almost anything that we buy from a general store. If the aim is to bring down inflation, then reduce diesel prices.

As far as something like gasoline-tax in India is concerned, it’s likely to be opposed because India also houses the largest population of people living below $2 per-day. Still, I am sure most 2- and 4-wheeler owners do not fall in this bracket of income. A higher petrol price will only cause the manufacturers to make more fuel-efficient vehicles. Owing to the economic considerations, most Indians have while buying a car/bike, the manufacturers came up with good fuel-efficient motors. Higher petrol prices would ensure the same. Fuel-efficient vehicles and clean energy research is not something that NGOs have to protest for, but it is something that the companies in the market have to strive for.

Another aspect is that of corruption. If we let Rs. 5 or Rs. 10 so per-liter reserved like the gasoline-tax, there is almost no guarantee that its use by the Honorable and Respected Govt. of India will be for the very purposes it is supposed to. However, it will at least ensure lesser consumption, thereby not causing any high demand and the price hike that comes along. It will at least ensure that employees in the oil companies do not go on a strike again thereby causing further inconveniences to us. It will at least ensure that the treasury of Indian Govt. gets richer, and not the treasuries of some authoritarian regime like Saudi Arabia, Iran, Russia, etc.

The money the govt. would earn can be invested in setting up a few companies in the area of energy technology and research. Remember, it was IT that took countries ahead dramatically after the recession of 1991. It will be ET (Energy Technology) that is going to decide the next rising countries after this recession. If India really is aspiring to be a superpower, it should not underestimate the politics of energy and the future challenges.

The factor of petro-dictaterorships is yet another one to consider. In the Amarnath issue faced in Kashmir, the riots in Kashmir received funding from Saudi Arabia, according to a statement made by Ghulam Nabi Azad. India has been the second-worst victim of terrorism, only next to Iraq. The petro-dictators are fueled up by more oil consumption. The best response to such authoritarian regimes is to hike oil price. A smart option for George Bush on the morning of 9/12 was to raise oil prices domestically, and enrich his own treasury than that of the authoritarian regimes like Iran, Russia, Venezuela and Saudi.

I am thankful that India does not have oil, as the trend in oil countries shows a lot instability in their politics and country’s life overall. This would require a different article all together.

Image Courtesy: Bank REO Real Estate

Reprinted from Mutiny.in which is one of the most thoughprovoking blogs that is ever made. Please subscribe to get daily insights.

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Raghunandan Jagdish, CEO

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