Home / Energy / Oil price collapse – event of the year 2014 have multiplier effects on developing economies including Pakistan

Oil price collapse – event of the year 2014 have multiplier effects on developing economies including Pakistan

Published on 29th Dec, Edition 52, 2014

 

The steel fall of international oil prices have a combined effect both on the oil based economies as well as on the developing economies but in different directions.

The oil price situation has developed an interesting situation similar to what it happens even in the province of Sindh before the arrival of Monsoon season as the date farmers pray for late start of the rainy season as the rain water hurts standing crop of unripe dates while the rice growers look and hope for early rains that really gives life to the rice saplings. This interesting situation is quite resembling to the economies faced a hard hit due to oil pushed inflation while the oil producing countries are sitting together thinking about the way out of bringing back the oil prices on their glorious past when they were minting rather than printing money at the cost of the poor economies.

However, the ground reality is quite different after arrival of American Shale Oil, resumption of oil production of war-hit Libya, Iraq and other countries non member of OPEC (Organization of Petroleum Exporting Countries) creating a glut-like situation in the world oil market. The non oil producing countries, which heavily rely on imported oil have, however, taken a sigh of relief as their trade deficit has come down due to cut in import bill and Pakistan too is not an exception. In fact, the reduced oil situation has provided a breathing space to Pakistan, which can help making a breakthrough in developing a strong base of huge amount of renewable energy and other alternative energy resources like solar, wind, hydel and coal resources. Hope the decision makers at the helm of affairs would not miss this opportunity to bring economic, political and social stability to Pakistan.

It will not be out of place to mention that besides building alternative energy resources with in the shortest possible time, it is expected that the democratically elected government would ensure that the benefits of the improving economic situation will be passed on to give a relief to the common man.

Although the oil producing countries have expressed their confident to keep on going with economic growth despite oil price collapse yet they have also concerns about their economic future, no doubt. On the other hand, developing economies including Pakistan must harvest a rich crop on the back of oil price benefits especially in reducing their oil import bill, strengthening their foreign exchange reserves and the most important impact on containing the inflationary pressures hitting hard to common man as well as the balance of payment in Pakistan.

Pakistan, which confronted with acute energy crisis primarily due to high cost of fuel oil and which even remained one of the major cause for high cost of power generation, high tariff rate of electricity and the most nuisance impact of untamed issue of circular debt the current drop in oil prices if managed with a dexterous hand can help getting out of all these issues provided the current spell of oil price prevails during 2015.

 

There were comments circulating on the international front, especially among the oil producing countries feeling their real pinch of the price drop, that there must a conspiracy or a hidden hand for oil price crash internationally. However there are certain factors, which have contributed in the current oil price scenario including demand drop in China the major consumer of oil due to shift on alternative energies as well as entering of the United States Shale Oil and Sand Oil, which has proved a major lever to move the ball into reserve direction.

However, the Saudi Arabia’s Minister of Petroleum and Mineral Resources, Ali bin Ibrahim Al-Naimi, while speaking at the 10th Arab Energy Conference held in Abu Dhabi last week, blamed the current slide in oil prices on “non-OPEC members and misleading information and speculation”. He said the country is ready to handle any obstacles that could arise due to price instability, and that he expects the oil markets and the oil industry to recover soon.

“Saudi Arabia has numerous projects, strong background and massive oil reserves. We are ready to handle any challenges. Oil prices will not have an impact on the economy.” “There are massive investments in the expansion of the oil refineries. We have strong cooperation with Japan and the USA in various new projects.”

In a panel discussion on current developments in the oil and gas natural markets and their implications for energy sector in the Arab world, Dr Bassam Fattouh, Director of Oxford Institute for Energy Studies spoke on recent oil dynamics and how the price went down from $115 (Dh422) per barrel to $60 per barrel. He said there are short term uncertainties. “The return of Libya barrels, the return of Iranian barrels, oil output growth from Iraq, OPEC situation and whether they would cut production?” Council (GCC) economies have become more resilient and have cash reserves. “One of the challenges facing the Arab world is the domestic consumption, which is rising faster than production affecting the exporting capability especially in the natural gas sector.”

Adil Abdul Mahdi, Oil Minister of Iraq said the country’s oil production has declined due to wars. “Our production has decreased significantly over the years. We are strengthening our cooperation with international oil companies to increase production, like Kuwait energy and Dragon oil from the UAE.”

Iraq’s total oil production would reach four million barrels per day after it reached an agreement on exports with the Kurdish government.

Kuwait’s Oil Minister Ali Saleh Al Omair said it’s not fair for Opec to take the decision to reduce the output while others continue to produce oil. “There should be cooperation between all the parties including OPEC and others. We also as countries need to supply the market to the extent that we can accommodate and cover the necessary income.” He said they have the capability to increase supply, but did not take the decision in order to avoid a glut. “There will be balance due to growth in the market.” The three-day conference was held at a time when the world oil prices are going down due to oversupply and weak demand.

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