When he came to power in 2014, many political observers said Narendra Modi was a ‘lucky’ prime minister. His greatest stroke of luck was that in March 2014, just before the elections, crude oil prices peaked at $125, adding considerably to public anger against the Manmohan Singh government. After he was elected, Modi must have watched with considerable glee as crude oil prices moved steadily downwards till January 2015 when they hit a bottom at $46. It hardly needs saying the impact on the government’s finances was extremely beneficial.

Could it be that Modi’s luck is running thin after seven years in power? Oil prices are soaring but it’s coal prices and possible shortages that are pushing us towards a precipice right now. The Government insists it has got the situation under control, but as of Tuesday, 70 plants had less than four days’ stock. In Maharashtra, over a dozen power plants have already been forced to shut. Both Bengaluru and Delhi are warning of blackouts unless they get more coal while States from Jharkhand, Bihar and Uttar Pradesh to Rajasthan and Kerala are facing rolling power cuts.

The government says the coal shortage isn’t as bad as it’s being made out and the situation will be under control in a few days. But it’s going to be a nail-biting few days for power plant and distribution company managers and also for consumers, some of whom have already begun rushing to buy generators.

In India, energy providers and Coal India have been accused of failing to stockpile enough coal to meet a forecast post-pandemic recovery in electricity demand. (India depends on coal to produce 70 per cent of its electricity). Coal India blames heavy rains which flooded mines. But the situation has been exacerbated because internationally, similar factors have sent coal prices shooting upwards to levels we haven’t seen since the late nineties.

International coal prices were at a sedate $56 a tonne a year ago. More recently, prices peaked at an eye-watering $240 a tonne. That means Indian power stations will be very reluctant to make up shortfalls from Coal India by purchasing at international rates.

Playing havoc

The coal crisis is playing havoc both in India and China. Just a few months ago, the Chinese decided to punish Australia for becoming a major partner in alliances like the Quad, by placing an informal ban on Australian coal. Scores of ships, many manned by Indian sailors, found themselves sitting outside Chinese ports, losing money every day, unable to move on because nobody else wanted their consignments.

Unfortunately, many of those ships are still there because the Chinese don’t want to eat humble pie and back down. But Chinese customs are discreetly clearing Australian coal stuck in port warehouses for several months. If better sense prevails, they should also quietly start allowing a few ships into port.

In China, the coal shortages began building up because, as in India, exceptionally heavy rains flooded mines. In typical Chinese fashion, the government has exhorted miners to “work harder” to help end the crisis. It’s not clear whether that will do the trick in the coming weeks.

On the oil front, it’s a similar picture of rising prices that are playing havoc around the globe. On Monday, Brent crude prices shot upwards by $2 in one day to hit a 2021 peak of $84. That’s not a huge amount by itself but it’s extremely bad news for the Modi government which has slapped huge taxes and a cess on petroleum to boost strained government revenues, pushing prices to over ₹100 a litre at the pump in most States.

How do rising crude prices affect our economy? Look back at the financial year 2019-20 when India’s oil bill was $102 billion. That was down by 9 per cent over the earlier year. Once the pandemic brought economic activity to a halt for several months in FY 2020, the crude oil bill fell to a modest $62 billion. Now, prices are racing ahead and the oil bill for the first quarter is already $24 billion and climbing.

Natural gas prices, too, are moving upwards globally. The Norwegians have cut production for environmental reasons and the Russians aren’t making up the shortfall in a hurry, mainly for political reasons to teach European countries who’s boss. Worryingly, all these price rises are happening even before the winter demand surge comes into play in the US and Europe.

In India and around the world, governments loosened purse strings as they struggled to wrestle the pandemic to the ground. Now they’re watching with considerable alarm as the prices of oil, coal and other commodities blast a hole in the financial roof. Could rising commodity prices put paid to their hopes of a quick, or at least a not-too-slow, economic rebound?

Above all, will it trigger inflation and force central banks around the world to hike interest rates? Already, central bank chiefs are putting out subtle hints their hands may be forced in the not-too-distant future. Consumer prices in the US have climbed by over 5 per cent for the last four months running and that’s clearly a situation that can’t be allowed to continue.

But it’s China that sets the trend in today’s world. And that means some commodity prices are heading downwards. China’s property giants like Evergrande are teetering on the edge and that’s casting a pall over commodities like copper that looked like they were about to soar skywards. In May copper prices had zoomed to $10,700 a tonne. That's fallen back to $9,300 a tonne, still high but moving in a downward direction.

In the last few weeks, it’s become brutally clear Evergrande isn’t the only over-extended player in the Chinese property market. Investment in the construction industry in the Middle Kingdom has shrunk by 3.2 per cent. Could this impact India’s booming steel and iron ore exports? Steel manufacturers insist they don’t export directly to the Chinese market but mostly to other Asian countries. Iron ore is, however, a big export.

Interestingly, China’s power crisis is sending another metal, aluminium, shooting upwards. Aluminium has gained nearly 40 per cent this year and prices aren’t likely to fall in the near future because the Chinese have ordered production capacity to be cut. Why? Because aluminium is a power-guzzler and so some plants have been shut.

Where does this leave India and the world? In the short run, we’re hoping the lights don’t go off all over India and China or in the rest of the world. In the longer run, a return to economic normalcy looks to be farther away than we may have hoped.

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