THE price of crude oil has crossed $146 per barrel. Most of the economies are suffering because of this hike, global economic outlook is looking bad, and people are wondering where it will end up. Some analysts say it could be $150 per barrel before we see a correction, while others say it could even move up to $200. The price of fuel oil, on which the wheels of industrial civilisation run, has been climbing steeply for the last five years.
Before 2003, oil price was around $25, crossing $40 per barrel in 2004. By the third quarter of 2005 it was $60, reaching $75 in mid-2006. There was, however, a fall in price in the early part of 2007, and many analysts thought it would continue. But, after taking a breather for a while, the price again started galloping upwards, crossing $100 by the end of December 2007. The current year has been one of continuous breaking of records in price hike of fuel oil.
The surge has triggered fears of over-inflation and slower economic growth, sparking protests around the world. The whole world, except possibly oil producers, is in a state of shock in the face of this onslaught. Despite the global community being in such a dire state, why is it that they have not taken any action so far to check this madness in the oil price market. The argument of free market does not apply here because, unless the galloping oil price is reined in immediately through direct intervention by the governments of the advanced industrial nations and the oil producers together, oil itself would be the cause of the death of the technological civilisation it has been keeping alive so far.
The oil shock of 1970s should still be remembered. It resulted in long-term fall in crude oil prices and a drop in the Saudi's market share. However, the oil biggies do not seem to have taken cognisance of this, and are yet to increase production to cool the market.
Though the entire world is suffering because of the extraordinary rise, the condition of weaker economies like Bangladesh is especially precarious. Bangladesh had so far been supplying fuel at a subsidised rate. Among all the users of this essential commodity, the farmers are the worst hit. The transport sector needs oil at a cheaper rate, otherwise fares will rise, which will have a knock-on effect on the entire price structure. But there is also limit to subsidies, so the government has been compelled to draw the line on oil subsidies.
In the budget for the current fiscal (2008-09), the government has withdrawn a large chunk of the oil subsidy, effecting an increase of between 33.84 to 50% in the market prices of different categories of fuel oil. This increase has raised the cost of transportation of goods, hence the prices of essential commodities in the wholesale and retail markets. The common people, who have already been suffering because of rising prices of food stuff, are now facing a worse situation.
Looking at the continuing price surge in the global oil market, it appears that the worst for the developing world is yet to be seen. The advanced countries might be able to withstand the topsy-turvy oil price market a bit longer. Emerging economies like Bangladesh cannot hope to live through it without immediate intervention. Bangladesh has so far been able to stand the pressure to a certain extent, but cannot be expected to do so for an indefinite period.
Why is the world community not taking a united stand to tame the wild behaviour of the oil market? If the problem is the classical demand-supply regime, then there should be judicious use of the existing global stock of oil, and a strategy for survival of the present fossil-based technological civilisation until an alternative for fossil fuel is discovered and made available in plenty. At the moment, the only way out is rationing of oil on a global scale. Oil is too strategic a commodity to be left to the speculators of the oil market and the monopolistic cartels who have no sympathy for the general consumers.
There seems to be no scarcity of oil, and the current situation could be a politically manipulated one. It is already late. The leaders of the advanced industrial economies must sit with the oil producing nations and decide on a strategy to not only stop further rise in oil price, but also to bring it down to a tolerable level. Countries, which have to import all their oil, should be provided with a safety net so that they may continue to receive it at a reasonable price.
The Bangladesh government also needs to be more focused, especially about the condition of the vulnerable people who are the worst hit. Though guaranteed employment for 100 days, direct subsidy, increase of rice procurement price by Tk10, increased remittances, and disbursement of loans by the MFI/NGOs should work as organised "hedging" against the onslaught, easy credit facility at an affordable interest rate and on a long-term repayment basis should be available so that farmers may buy fertilisers and irrigation water in time.
This support is particularly essential for the crop seasons. The fuel subsidy should be reached to the real target market by making the distribution channel more effective and accountable. The safety net program should be further widened to accommodate the people marginalised due to fuel price hike, especially in the urban areas.
The government also needs to take measures to monitor and regulate the market so that unscrupulous traders cannot take advantage of the situation. Since creation of jobs serves society better than subsidy in any form, which often fails to reach the intended beneficiaries due to systemic bottlenecks, the thrust of the government should be to ensure public expenditure in employment generation activities. At the same time, more than any other issue, conservation of oil and food, measures to economise use of fuel and food, avoidance of unnecessary luxury and wastage, introduction of food and fuel rationing, bringing in efficiency in public expenditure management including fuel expenses of SOEs, strong monitoring of the market and similar such activities should be topmost on the government's agenda.
Mamun Rashid is a columnist for The Daily Star.