Costlier imports, heavy taxes
By Sultan Ahmed
THE world oil prices are soaring again. After the US sweet crude crossed 80 dollars a barrel last week, it finally reached a record 84.10 dollars which revived fears of the hundred dollars a barrel approaching soon as projected earlier.
The Brent light crude in Britain was not far behind and the Saudi heavy crude too responded to these price movements. In Asia, however, it stays at 81 dollars. At home Dr Salman Shah, advisor to the prime minister on finance, sounded a note of warning saying if the oil prices went on rising, the government may have to raise POL prices after a brief pause.
In the US, the output from Alaskan oil wells is down by 200,000 thousand barrels a day. With the cold weather starting there, its stocks are down by 7.1 million barrels. More disturbing news came from the Middle East where French President Sarkozy issued a strong warning to oil-rich Iran over the nuclear issue. The UAE is cutting down its oil output but for reasons of repairing its oil production system.
The rise in the price of oil is partly due to the fall in the value of the dollar against other currencies like Euro. Along with that prices of base metals and gold in dollars have gone up. The Opec oil producers want their oil worth real money by getting more dollars for their fluid and not let the depleting dollar make them lose their real earnings.
The lasting credit crunch in the West should normally repress the demand for oil and hold down its prices but it has not happened now.
While President George Bush is talking of troop reduction in Iraq, Alan Greenspan, the financial sage who was for long chairman of the Federal Reserve, says in his just published memoirs The Age of Turbulence that the Iraq war is about oil. If oil was the great gold for which any sacrifice is worth, then the West’s game plan should have been far different from the one played out in Iraq by the US.
Meanwhile, in the wake of turbulence prevailing in the oil world, Goldman Sachs talks of hundred dollars a barrel by the middle of next year. Another prediction puts it rise at 95 dollars a barrel by the end of this year. To met the growing demand from major consumers, including China and India, the Opec has agreed to increase its oil output by only half a million barrels more and that extra oil will not be available in the market before November.
Though oil is a wasting asset, the Opec will have to produce more rather than let the price skyrocket to 100 dollars. Such a rise in the prices will make the countries of the world look for more oil desperately or pay attention towards alternate technologies. The consumer countries will have to adopt more energy conservation measures and try to reduce their demand for oil.
Politically such giddy oil prices may force the West to promote political and military tensions between the Arab countries and sell more high-priced arms to them. Higher oil prices may also tempt the West to instigate wars between the oil states as had happened in the past.
If the dollar continues to suffer declines, the Opec states may prefer to move out of the dollar belt and price their oil in a stronger currency like Euro or on the basis of a basket of currencies. China and Russia are emerging as financial centres after Tokyo and Singapore.
China is already reducing its holding of dollars as its reserve currency. Pakistan lost heavily earlier by putting all its reserves in dollars but later corrected it by investing in a basket of strong currencies, primarily the Euro.
So far, Pakistan’s policy has been that the higher the oil price, the higher the taxes and larger the revenues from oil and gas. As a result of this policy, it collected a record Rs157 billion as revenue from oil and gas. That includes Rs64 billion as general sales tax on petrol which is a heavy levy.
The policy pursued by enlightened governments is that the higher the rise in consumer prices of essential goods, the lower the tax levy. That is not so in Pakistan where when import prices rise, duties also rise. Instead of lowering the duties and letting the consumer breath freely, the government prefers to earn more revenue.
In India, when import prices fall, the duties are raised. That is a healthy approach. That is what China is also doing to beat high food inflation. Malaysia is doing the same as there are no other means to reduce prices and lower inflation.
When the government thinks only of revenues and grabs windfall gains from the hardships of the consumers, the latter suffer. Large additional revenues are too tempting for governments in Pakistan and they care little about its impact on the low income groups and the poor.
Pakistanis do not get the benefit of higher oil production at home. When new oil finds are reported, there is no relief for the people as they continue to pay the same price for the imported oil as well as the indigenous oil.
Now the vegetable oil importers have called for a reduction in the duty on the imported oil. Malaysia had also supported the demand following a rise in the price of palm oil. It is time the government accepts their demands and make the palm oil less expensive. What is needed now is a clear statement of policy by the government that if the import prices of essential goods go up , the import duties will be reduced and later when the import prices come down, the duties can be raised. If that policy had been followed, the government last year would not have been able to raise Rs157 billion as revenues from oil and gas.
The time has come for the government to step up the efforts to look for more offshore oil and give the oil companies the necessary incentives for a greater effort.
Governor of the State Bank, Dr Shamshad Akhtar, has described the market and financial crisis in the West as a wake-up call for Pakistan for a better legal and regulatory framework.

