Soaring Gasoline Prices Hit World Economy, Politics as Well
The daily crude oil production of 1.5 million barrel in the Gulf of Mexico has completely stopped. A total of 20 refineries accounting 4.8 million barrels a day were shut down last weekend while seven have no restart timetable. Experts say the prices may go higher touching the figure of $ 70 per barrel by the end of this year.
Two deadly hurricanes in the Gulf of Mexico have hit Orleans, Texas and Louisiana worsely affecting oil refineries and bringing down their yield as lower as 20%. Qatrina and Rita have become yet another factor to raise oil prices in the international market when the world economy has yet to come out of the shocks generated by the US-led war on terror.
Oil prices are shooting up since 2001 when they used to hover around $ 25 per barrel. The US got its innocence hurt through attacks on twin-towers that year allegedly by Al-Qaeda elements sheltered by Afghanistan. After sprinkling this poorest nation of the world with Daisy-cutters, it moved to oil rich region, Middle East, to oust a chronic dictator Saddam. Violence could not be confined to only Iraq, however. Algeria became subjected to civil war while Saudi Arabia witnessed deadly acts of sabotage.
As the war erupted in the areas adjacent to the oil-rich regions of Middle East and Central Asia, the oil prices shot up. War risk charges raised the supply cost. From oil firms to the shipping companies, all benefited this growing business. The coffers of the OPEC countries- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, and Venezuela- simply overflowed.
While the fate of Middle East hangs in balance due to war on terror and Afghanistan is not yet out of the spell of anarchy, the US is not willing to remove its airbases from Central Asia where semi-democratic regimes are presumably crumbling under the threat of violence from the religious extremists.
Though objectives of war are as noble as establishing lasting peace in the world through rooting out militancy and installing democratic regimes in the energy-rich regions but going by the outcomes it seems to be an effort to deprive the world economy of a chance to grow freely in the global age.
Prince Saud Al-Faisal has recently warned that the US pullout from Iraq would only result into anarchy. On soaring gasoline prices he says there is no shortage of oil. Rather, the limited US refining capacity is the real problem. He insists that construction of two refineries in the Saudi kingdom will bring the crude price down by $ 20. However, he does not see any improvement in the relations between the Shia and Sunni communities of Iraq despite formulation of a constitution.
Gasoline prices hit $ 50 per barrel last year followed by appeals to the OPEC countries by the international financial institutions for more supplies. Despite warnings of the IFIs that such a trend could devastate the world economy, the appeal to hold them in check fell merely on deaf ears.
The leading world economies are confronting high inflation that experts insist is due to high crude prices. German inflation figures last month showed unprecedented increase as they jumped to 2.5 percent from 1.9 percent of August 2005. Forecast about eurozone is 2.3 percent following an increase of 2.1 percent last month. United States has witnessed surge in consumer prices by 0.5 percent.
While in the developed countries the political repercussions may not go beyond influencing the electoral results i.e. Germany, it means only disaster for poor nations. High interest rates, another result of soaring energy prices, may slow down investment in different sectors of economy pushing people out of jobs or slashing their wages. Growing frustration among the masses due to soaring prices of essential commodities may be exploited by vested interests. The absence of good governance structure and the opportunism of political parties can make situation the worst.
Developing countries like Pakistan have subsidized oil prices to keep them affordable for middle classes. But it is not definitely an effective measure to resolve the problem as the burden is to be shifted to taxpayers at the end of the day. Moreover the development projects like constructing dams, expanding road/rail infrastructure ,providing gas/electricity, clean water and health facilities will need more funds for their completion due to rise in inflation. Shifting burden of taxes on lower and middle classes without providing any social security umbrella does not make sense at all but the governments in developing countries have little options otherwise.
Protecting consumers through enhancing their purchasing power has to become the ultimate objective of the government policies in the era of open markets. Political parties need to be democratic as well as accountable from within; they have to be pro-people rather than being representative of the few, blessed with wealth and social prestige. When economy is going to be liberalized, these social monopolies have to end as well.
A recent World Bank forecast says Pakistan will witness slump in GDP growth rate by two percent this year as compared to 8.4 percent of 2004. Further, the current trends in FDI inflows can be kept intact only through continuation of economic policies that have made the country one of the fastest growing economies of the Asian region.
The recent call of the united opposition in Pakistan to launch protest campaign against the government is an unfortunate development at this juncture. Though it has got every right to express its concerns on various policies of the government yet the mode of protest is not inspired by reason – shutter downs and wheel-jam strikes will not serve the cause of the lower and middle strata of population already hit hard by soaring oil prices.
Political parties of Pakistan need to be partners of country’s progress through showing trust in the public institutions and engaging in efforts to removing anomalies that impede their capacity to work in a transparent manner; they should desist from any effort to bring political change before time through adopting violent means. Stability of political system is one of the important factors for economic growth, a prerequisite for a dignified survival of Pakistan in the global age.