April 06 , 2012

Unabated Pain at the Petrol Pump

 

The pain of having to shell out almost three times the amount you used to pay a few years back for refilling your car tank is likely to remain with you unmitigated in the foreseeable future. Those familiar with the intricacies of the US oil industry predict that before the end of the current tenure of Obama administration the pain might near a $5.00 per gallon level.

Numerous economists are already exercising their minds over the extent to which high energy costs would crimp economic activity in this country already beleaguered by yawning budget deficits, falling value of dollar on the international market, an ever-climbing inflation, the mortgage crisis and southward travel of property prices, an unsettling trade deficit, and the mounting defense expenses. The voracious American appetite for imported oil is reflected in the country’s annual imports of foreign oil of nearly half a trillion dollars.

The ongoing high cost of crude oil is attributed by the oil industry to the spurt in demands for energy by the fast developing economies, particularly of China and India. It is also acknowledged that the increased productivity in those countries is benefiting the US corporations and consumers too.

The immediate cause of the recent spurt may be attributed to the sanctions against Iran imposed by the US in a bid to dissuade the country from going nuclear. Iran contends that its nuclear program is for peaceful purposes only. The sanctions have caused a reduction in the availability of Iranian oil on international markets.

Israel, the only nuclear power of the Middle East, views the emergence of a nuclear Iran as a grave threat to its very existence, inasmuch as the current leadership of Iran makes no bones about its opposition to the very existence of Israel, for it has usurped Palestinian lands and has been ruthlessly suppressing the indigenous Palestinians. Former US President, Jimmy Carter, had called it an “apartheid”.

International Energy Agency points out that the Americans consume over 21 million barrels of oil a day, a quarter of the world daily consumption of 84 million barrels. China ranks second now to America with 6.4 million barrels a day. America, the largest producer of crude till 1974, still meets 60% of its needs domestically, importing some10 million barrels a day to meet the shortfall. China produces 3.5 10 million barrels a day locally and imports 3 million barrels a day. But its dependence on imports is fast increasing as its economy is constantly expanding and that too at an exceptionally fast clip.

China is now the manufacturing floor of the world and has thus become a voracious consumer of energy. Its traditional coal-fired generators are unable to keep pace with the increasing demands for power. Several industries have therefore decided to have their own oil-fired generators.

Then there is the fast expanding demand for motor vehicles. The bicycle era is over in China. It has now over 25 million cars and trucks and, going by the demand graph, the country may have over 120 million vehicles by around 2020. It is making its own cars. Yet, it is unable to meet the total demand. Hence, a number of foreign manufacturers - GM, Ford, Toyota, Honda, for instance - have set up their manufacturing plants in that country.

China, with a population of 1.2 billion and a per capita income of around $1,200 per annum is still a poor country compared with the per capita incomes in Europe and America. But, its fast pace of growth is predicted to overtake the US in respect of GDP in another 20 years.

China is given to holding long-term views on issues concerning its national interests. It has been investing heavily therefore in several oil-bearing regions abroad. China’s interest in building the Gwader port, 60 miles west of Karachi, is the port’s proximity to the oil-rich Middle East as well as its potential as the commercial hub serving Sinkiang and the Central Asian republics.

Turning to the US, we find that it had in 2001, 230 million cars and consumed more than four times as much fuel as the rest of the world. And, it ranked next only to Saudi Arabia in its output of crude oil. Saudi Arabia produces 11.9% of world crude, the US 11.3 % followed by Russia 8.8 % and Iran 5.1%.

While the producers have a cartel of their own, called OPEC, the refiners and distributors, once called the Seven Sisters, have also a similar arrangement. Their number has expanded but their common interests tie them together. Exxon, one of the oil giants, for instance, is worth more than $400 billion and its annual income exceeds those of some 90 countries of the world. Then there are the speculators, the operators of the hedge funds, who artificially bloat the per barrel price of crude. They too pull on the same side whenever their group interest is challenged.

The consumers on the other hand have no organizational and effective support system. That is why the average Joe finds himself faced with Hobson’s choice. He has to shell out the amount demanded at the pumps no matter how painful it might be. Why doesn’t he take down his bike hanging from his garage ceiling and use it for nearby commutes? Fact of the matter is that he has to be on the road at least two hours a day merely to reach his place of work and return to his house. His wife has to take their kids to school in the other car. The bike is of no use in these compulsory commutes. Joe has no choice but to put up with the hike in gas prices.

News has just come that authorities in Pakistan have raised the prices of petroleum products to bring them closer to the cost. Any increase in petrol and diesel prices immediately raises the prices of almost all other consumer items. High cost of consumer items is now the number one problem of the people of Pakistan. The pain at the petrol pump for the fixed-income car owner is much severer in Pakistan than for the average Joe here in the US. The remedy lies in the scientific discovery of a cheap man-made fuel to supplement and gradually replace the crude oil. Till then, one has to put up with the increasing pain at the pump.

arifsyedhussaini@hotmail.com