Pakistan may feel the bitter fallout of $100 a barrel as world price of oil sooner than feared earlier. The reality of such a giddy price for oil is staring us in the face today. Earlier the $100 a barrel was expected by the middle of next year but now this may become a reality by the end of two months from now.

The oil price took a leap of $9 a barrel from 79 dollars last weekend in the US where a shortage in the US oil reserve was reported. It jumped by $9 to $88 a barrel and then went up by a dollar a barrel. The immediate reason was said to be the fear of an American attack on Iran to stop its nuclear programme. That has been confirmed by President Bush that Iranian nuclear arms would mean World War III.

The US is determined to prevent Iran from acquiring nuclear weapons and even risk a war with Iran. President Bush is determined to prevent Iran from acquiring nuclear weapons and if that means yet another war in the Middle East after Iraq. He couldn’t care less, he is desperate. In addition, the oil producers want more dollars because of the falling exchange rate of the dollar in relation to stronger currencies, particularly the euro. They want to be compensated with more dollars.

Normally, when the world economic situation is not bright and oil consumption is reduced, oil prices don’t go up but not this time when the western world is facing a credit crunch following a crisis in the US property market. The International Monetary Fund’s new forecast says that economic growth in the world will be 4.8 per cent in 2008 while it will be 5.2 percent in 2007. So a combination of a threat of another war in the Middle East, shortage of the US oil reserve and the eagerness of the oil producers to get more bucks for their oil are pushing up the oil price.

Russia and the Caspian countries have together warned the US against attacking Iran but whether that will restrain the US remains to be seen. The Asian Development Bank says that Asia is the fastest developing region. That means Asia will consume far more oil but will be handicapped by the far higher price of oil. However, one part of Asia-the Middle East- will gain by the higher prices of oil – surplus money which is sought to be invested but the oil poor countries like Pakistan and India will suffer.

Pakistan which produces only 20 per cent of the oil it uses will truly suffer. Last year, the OGDC was expected to drill 100 oil and gas wells but succeeded in drilling only 50. It had no success with its offshore ventures either. Although more and offshore wells are being drilled more local companies are joining the foreign explorers. Higher price of oil touching $100 a barrel will hit domestic economy hard. But the government which earned over Rs176 billion from oil and gas may earn more while the country will suffer. Power production will become far more costly as furnace oil prices shoot up. Industrial production will cost far more.

Transportation costs will rise. Railway fares will go up and airlines will raise their fares substantially. As transportation costs rise, bus fares will shoot up and bitter disputes between passengers and the bus conductors will become common. In the farm sector, the power rate for tube wells will go up making farm output far more costly. Higher power rates will affect the service sector including hotels, restaurants and shops. Power for schools , colleges and universities will cost far more.

The government sells the oil it drills within the country at international prices. S the cost of production will go all round . Overall the cost of living will rise substantially, particularly if the POL prices are raised substantially .

Normally when the prices of imported items rise sharply, the government reduces the import duties but seldom in Pakistan. Hence it was able to make over Rs176 billion from oil and gas last year.

Now that inflation is high and food inflation is even higher, the government should do nothing to raise prices abnormally. Instead it should step up its effort for a peaceful settlement between Iran and the US. That will be helpful to Pakistan and the Middle East in many ways. Although it can be an arduous exercise. We are living in a very uncertain world facing political threats and economic challenges. So we have to behave very prudently instead of running a large trade deficit as well as an external payments deficit.

Simultaneously, political convulsions are interfering with production and export schedules. The politicians have to think of the economy which affect the poor people instead of relegating the economy to a lower order of things.

Their public demonstrations should be more orderly and disciplined, particularly when terrorists are out to wreck the political system.