The Hindu Business Line : `Pressure cooker' situation for oil

A COCKTAIL of concerns has pushed crude oil prices to over $63 a barrel — the highest in history — and the key commodity is being monitored by anxious governments for whom it can mean millions of dollars.

The `concerns' were set off by last week's warning by the world's "big five" oil companies of a "supply crunch". Then arose the issue of Iran facing United Nations sanctions over resumption of its nuclear programme, amid Teheran's failure to reach consensus with European Union negotiators. Iran is now banking on China and Russia to veto the Western powers' proposals for UN sanctions against it; according to analysts, Beijing may well oblige because China is desperate to have access to Iranian oil, while Moscow has developed "intimate and structured" economic and investment relations with Iran.

Third, the grim warnings of terror strikes in Saudi Arabia by Al Qaeda. Finally, the looming capacity problems at US refineries. Little wonder that oil prices took off.

The International Atomic Energy Agency on Tuesday held an emergency meeting in Vienna to discuss Iran's decision to go ahead with its nuclear programme, ostensibly for developing domestic energy needs; Teheran steadfastly denies launching any initiatives to develop nuclear weapons of mass destruction. Obviously, Western establishments are both confounded and perplexed as they try to probe "Iran's real nuclear strategy". However, the IAEA is yet to reach a consensus.

In the US, the President, Mr George Bush, has just sanctioned a $14.5-billion energy bill to boost oil production and develop alternative technologies. It is argued that control of the production and transport of West Asian, Caspian and North African oil and gas will determine the political and economic future of the region. Oil and gas have been the world's primary source of energy in recent decades and may account for 70 per cent of global energy supplies through 2020. According to the US Energy Administration, oil consumption will rise from 82 million barrels a day to 100 million in 2015 and peak at 125 million barrels a day in 2025. Oil experts are concerned that global production will not be able to meet this scale of demand. Hence, major oil consumers will have to follow a more aggressive policy to safeguard their supplies; even military conflicts cannot be ruled out.

Russia and China are seen as key strategic players in the unfolding oil scenario. Russia has the resources to be a leading oil producer and China, after the US, is rated the world's largest oil consumer. The popular perception is that "Russia and China are unable to compete with the US militarily and will avoid a confrontation with the US. But they will ally with local powers to defend regional interests."

India import over 60 per cent of its oil requirement and already ranks among the world's ten biggest consumers of oil using up 2.5 million barrels a day. Only the US (21 million barrels a day), China (7 million barrels a day) Japan (4.75 million barrels), Germany (2.6 million barrels), and Russia (2.5 million barrels) consume more. South Korea, Canada France, Mexico and Brazil use around 2 million barrels a day each. Oil prices, around $58 in 2000, have now climbed to $63.

The world scientific community is desperately looking to develop alternative energy resources amid the increasing realisation that oil facilities are extremely vulnerable to terrorist attacks and that output and prices are predicated on the political and economic stability of key oil-producing countries. In 2003, the Arab states that make up the Gulf Cooperation Council sold $145,000 million worth of oil and gas at varying prices. The value of Saudi Arabian oil exports since 2002 has equalled the oil revenue for the entire decade of the 1990s.

Ironically, the gap between the rich and the poor of the Arab world is widening at an alarming rate. Hence, the whole region is becoming a fertile ground for recruiting "have-not" fundamentalists natured on Osama bin Laden brand of fundamentalism. Arab intellectuals and reformers are quite worried by this development. The spectre of terrorism looms over the region. Arab journalists and intellectuals worry about the consequences for the Arab and Muslim world at large.

The record high crude oil prices are also fuelling wide social and economic disparities in the Arab world. This can be resolved only with basic economic reforms, and upgrading the education system that encourages the youth to be more independent and prosperous. Arab reformers and intellectuals are desperately in this quest fearing the alternative of more terrorism.

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