18 October 2004	Monday	03 Ramazan 1425

The persistent rise in oil prices is triggering shockwaves across the entire globe. Oil prices soared to historical record levels of 50 a barrel after ranging at about $ 10 five years ago and they breached $ 50 barrier on October 22.

There is no doubt that the current surge in oil prices was unexpected, as most, if not all, forecasts by experts, consultancy firms, energy organizations and companies at the beginning of this year were not expecting that prices would reach even at $ 35 per barrel.

The increase of world demand was more than expected, particularly in the United States, China and India and some developing countries. With demand for fuel growing rapidly in China, India and other developing nations, the world is entering a period of runaway growth in demand for fossil fuels. At the same time, growth in the supply of the most desired fossil fuel-oil is slowing. No major oil fields have been discovered in nearly three decades.

Optimists believe this year's price hikes have been tied to specific short-term events like continued fighting in Iraq, an attempt to recall the president of Venezuela, the threat of terrorist attacks in Saudi Arabia, and the dispute between the Russian government and its largest oil exporter, Yukos Oil Co. Other world events may also cause short-term prices to spike again. At the beginning of the year, analyses indicated that new quantities of oil would enter the international market, particularly from Russia, Caspian Sea, West Africa, Iraq and others, but this did not happen in the expected quantities.

Moreover, the decline of interest rates on many of the main currencies, fluctuations in the stock market together with a decline in dollar value and increase in the demand for raw materials pushed some investors in the future market to sign contracts for the purchase of raw materials, particularly oil contracts, which has also remarkably contributed to the rise in oil prices.

According to some oil experts, like Dr. Ali Samsam Bakhtiari of Iran, the current oil crisis is deeper and graver than what the optimists like to admit. Dr. Ali Samsam Bakhtiari, with 30 years experience with the National Iranian Oil Company, is a widely respected observer of the global oil and gas industry. Recently he was speaking in a seminar in Melbourne, Australia, on 'International Perspective on Oil Vulnerability'.

According to Dr. Bakhtiari, Saudi Arabia is probably close to its maximum production of oil at the present time and that the requests by world leaders for Saudi Arabia to open taps and add 2 million barrels per day to the world's supply, thus reducing the Šprice, might not be a long lasting solution. Dr. Bakhtiari's global oil peak projection seems to be an overwhelmingly important event, one which may yet takes some time to fully comprehend but which has already began to vibrate shockwave across the global economies.

It means less available energy to human society as a whole. At the very least this may spell the end of economic growth something, which may imply the collapse of our financial system all of which depends on growth for its limited stability. Many current trends suggest that some form of catastrophic disruption is very much a possibility. A recent utterance by the OPEC President, Purnomo Yusgiantoro that there. is no more supply (meaning OPEC spare capacity) sent shockwaves ? through the markets and sent crude oil prices to yet another all time high. Many expert geologists and petroleum engineers around the world have also been painting similar gloomy picture warning about the impending global oil crisis.

If the present trend in oil prices continues for a couple Of months this may pose serious threat to Pakistan's BOP, general prices level, and export competitiveness. POL imports as percent of total imports, after peaking at 31.33 per cent in 2000-01, gradually started coming down. POL constituted 20.31 per cent ($3167 million) in 2003-04 as compared to 25-09 percent in the previous year.

The visible reduction of POL imports during 2003- 04 resulted due to continuing surge in POL output by local refineries, an increased use of gas in industries and electricity generation and lesser reliance on fuel-based thermal electricity, owing to higher electricity generation through hydel sources, which helped Pakistan rely on lesser imports of POL products. However, in the current fiscal year hydel power generation may decelerate due to half-filling of dams and reservoirs.

Despite a massive rise in her oil import bill government of Pakistan has decided not to shift the burden on to the consumers in order to protect them and to maintain macroeconomic stability and keep prices under control. However, the government may have to ultimately shift some burden to consumers if higher international oil prices persist for a longer period, or if oil prices further go up. Latest reports suggest that all the major oil consuming and importing countries are stockpiling their strategic reserves. Even the biggest oil producer, Saudi Arabia, is reported to increasing its POL reserve.

All these news are not good for the poor oil importing countries like Pakistan. Such un- warranted development will only hasten the dooms day occurrence adding more hardship to the poor consumers. Now is the opportune time that our economic managers and energy experts make serious effort to develop viable substitutes of the imported oil. Pakistan is very rich to provide such substitutes.