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S. K. Modi

THE war in Iraq has been described as a war for oil by a large majority of those opposed to it. Nothing could be farther from the truth, though it is a mystery why the Bush administration has not explained the situation convincingly.

In 2001, the US' energy consumption aggregated 2,787 million tonnes oil equivalent, including consumption in the form of oil, natural gas, nuclear and hydro power and coal but excluding smaller heads such as solar and geo-thermal energy, produced in relatively small quantities.

Of this, oil accounted for 895 million tonnes, or about a third, and imports were around 450 million tonnes, or a little over half the crude oil consumed by the US. Thus, oil imports accounted for only about a sixth of the total energy consumption.

Of the total oil imports, the Persian Gulf accounts for less than a fourth, which means the US dependence on the Gulf for its oil requirements is less than 5 per cent of its total energy consumption. Dependence on Iraqi oil is, at best, nominal.

The US produces almost all of its natural gas consumption of about 600 billion cubic metres — about 550 million tonnes of oil equivalent. In addition, nuclear power production (and consumption) is about 183 million tonnes oil equivalent, and coal production is running at around 550 million tonnes oil equivalent.

It is true that the US imports huge amounts of energy in the form of finished goods, including major products such as textiles and clothing. Thus, while the US apparently consumes about a fourth of the global energy consumption, its real consumption is perhaps around 30-35 per cent of global energy consumption, after accounting for indirect consumption of energy in the form of exports.

Obviously, if global oil prices rise, the US will have to pay more for its growing imports of consumer goods.

The relevance of oil in the world economy has declined significantly in recent years. The value of the global oil output, at the current average price of around $25 a barrel, is approximately $650 billion — less than 2 per cent of world GDP of over $35 trillion.

World energy consumption is growing at a much slower pace than world GDP because of technological advancements. US energy consumption has grown only nominally in the last ten years and there was a huge decline of over 2 per cent in 2001. Incidentally, world trade in textiles and clothing is about as large as the world trade in oil.

The low oil prices of the mid-1990s resulted in the sidelining of alternative energy sources and less importance being given to research and development efforts in that direction but all that is changing. And coal, and efforts to substitute it, have started receiving greater attention from energy producers around the world.

The simple truth of the matter is that the world needs a lot more than oil to live and grow. Energy is undoubtedly common to all manufactures and has some impact on costs and prices of services too. But it is not the only factor.

Technology has created huge variations in cost structures and energy consumption per unit production of a large number of products and services. The cost of building and maintaining call centres in India and the US are so different that the cost of energy loses its relevance almost entirely. The same goes for the manufacture of readymade garments. The variations and the volatilities are too huge.

Life would be different if the availability of oil declines dramatically. But it would also be different if the availability of cotton, wheat, rice, fertilisers, cement and steel declines. Oil is only one of the essentials.

(The author is a freelance writer specialising in business and economic writing.)

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