Necessity is the mother of invention - Old English Saying
The word 'impossible' is in the dictionary of fools - Napoleon Bonaparte
The difficult we do immediately. The impossible takes a little bit longer - US Army Corps of Engineers slogan
Impossible probabilities have to be preferred to improbable possibilities Aristotle
The oil world is dark and murky, just like the product it handles - Madhavan Gopalachary.
As an aftermath of the 'Yom Kippur War' between Israel and Egypt in the Middle East, the world saw a massive increase in price of oil in the early 70s and the economies of many developing countries went for a tail spin. Oil is no longer a commodity which follows the law of supply and demand. It is a political weapon in the hands of some states. Since very few countries produce oil for export, it is easier to form a cartel like OPEC and manipulate the prices artificially. Cartelization in business is illegal as per laws of most countries. But it is different in the case of oil because of political reasons and the fact it is an essential commodity and very few countries produce surplus to export and meet its ever burgeoning global demand. OPEC controls 40% of the world oil output. Though USA produces a large amount, it is an importer of a large quantity. The reason is it is the richest country in the world, its society highly consumption oriented and carries a very large strategic reserve right from the cold war days. USA has one of the largest untapped oil reserves in the Colorado basin. UK produces a large amount from its North Sea oil fields. Russia is a very large producer of oil and gas but there are logistics, distribution and political issues in getting it transported over land. Southern Sudan in Central Africa, bordering Northern Uganda, has one of the largest oil reserves in the world but the region is highly unstable with famine, civil war, terrorism and strife all the time. It is land locked but if properly developed, can meet the requirements of the whole of African Continent. It has been reported that the south east sea coast of Australia has a very large new found oil reserve.
Bulk of the oil refining and distribution is in the hands of giant western companies like Exxon, Shell, BP, Chevron, Philips Conocco, Total, ENI to name a few. The New York Times issues of December 03 & 07, 2006 had reported that many large oil companies short the royalty payments to the government. If they are doing that in a country like USA, God only knows what they are doing in countries like Nigeria, Venezuela and many other such regimes. It is rather reprehensible that some companies adopt such illegal tactics, when they have mind boggling income and profits. Oil companies are more powerful and rich than many countries. If Exxon-Mobil is a country, its income will make it 27th in the list of countries ranked by their GDPs by the purchasing power parity method. Its net profit is slightly lower than the GDP of Kenya whose present population is estimated at 33 million.
According to a UN report, as quoted by the Bloomberg News, every $ 10 increase per barrel reduces the global GDP output by 0.5%. The impact on developing economies is still greater. The Union Finance Minister of the GOI said that India's GDP output has been affected by 1% every year consistently for the past few years because of ever increasing oil prices. India produces 40% of its requirements with the balance being imported. It needs to improve its oil exploration further. One can imagine the plight of countries which produce no oil. Oil was selling at around $ 35 per barrel not very long ago and climbed to a record $ 78.40 per barrel in July 2006. It is now around $ 130 mark. According to an oil industry expert's prediction a few months back, the oil price is expected to stabilize around $ 150 per barrel and may even touch $ 200 per barrel in the event of political instability in the Middle East. Iraq is still in turmoil and trouble is brewing in Iran over its Atomic Energy program. This region is highly volatile. Oil price is purely speculatory and is based on the whims and fancies of the few producers. Because it has become a highly essential commodity like food grains, always in demand, people have no other choice except to accept whatever price that is demanded.
Apart from the above, the biggest user of oil is the transportation sector. If the roads are repaired and well maintained, we will be able to save about 2.5 to 3.5% consumption, not to speak about the maintenance costs. It will generate massive employment for poor people in the construction sector. What is the point in increasing the auto production when there are not sufficient roads and flyovers? The traffic jams and pollution in most cities and towns are beyond acceptable limits. A day will come when cars will need to fly around like helicopters to beat the traffic. The auto industry should be asked not to produce cars beyond 1200 cc. They should be taxed 250%. Any car above this size, if produced or imported to meet a niche market demand, should be taxed 500%. Diesel driven cars should not be allowed to be produced for private use. They should be allowed only for taxis. The trucks should use multiple fuels, efficient diesel engines, using low grade fuel oils or LSHS or any thing called oil. They are essentially industrial engines but can be modified for high speed automotive applications. All vehicles older than 10 years should be mandatorily scrapped. The owners should pay for the crushing and scrapping as done in western countries.
This is an abridged version of the editorial first published on November 27, 2006 and has been revised and updated.
© Copyright, July 2, 2008. Without prejudice. All rights reserved
Oil Price and its impact on Economies - To learn more about this author, visit Madhavan T Gopalachary's Website.
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Madhavan T Gopalachary
(Visit Madhavan's Website)
Madhavan Gopalachary, nick name "madgopes"
(g pronounced as in go) given by IIT
classmates, is a Mechanical Engineer and
an alumnus of Indian Institute of
Technology, Madras having passed out
specializing in IC Engines &
Thermodynamics.
He has nearly 35 years of experience in
the Corporate World. He started off as a
trainee and handled sales, marketing,
manufacturing, product management, profit
center management, strategic planning and
corporate development including R & D in
various organizations and at various
levels before becoming a CEO. His last two
professional assignments were at CEO level
before embarking to start management
consultancy business on January 01, 1998.
He has worked for British, Swedish MNCs as
well as very large Indian business houses.
He has spent a large portion of his time
from June 1998 till date in East African
Countries practicing as an independent
Management Consultant.
More details can be obtained at the
following web sites:
mmg.name
/mtg.html;
mmgconsu
lting.biz/
Madhavan's articles can be accessed at www.madgopes.com
.
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