There may be politics behind the assurances from both the oil minister, Ram Naik, and petroleum secretary R.K. Chaturvedi, that India’s oil firms could absorb the impact of the current international crude price flare-up which touched $40 per barrel a few days ago. But they will not be able to stall the price hike given the oil scenario. It is true that Indian oil firms have amassed a huge profit flow: Rs 30,000 crore in 2003-2004. But the same firms have written repeatedly to the oil ministry to raise petrol and diesel by Rs 3 and Rs 5 per litre, respectively. The 14-year high in global prices have been already rocking the world’s energy scenario. How can India absorb it?Note the latest Al-Qaeda inspired suicide attacks in the oil rich Saudi port of Yanbu. As many experts have pointed out, they could mean the beginning of the end for one of the main Anglo-American control mechanisms over global oil: The OPEC. With the US military occupation of Iraq smoldering into a deadly catastrophe for the Bush-led neo-cons, it now looks like OPEC is in trouble. Another cause for OPEC’s possible demise is China, which is desperately looking for oil and Liquefied Natural Gas (LNG) to keep even its pared-down boom going. Without fossil fuels, a large part of China’s industry will shut down. China has the clout and the money to roil the oil and LNG markets. In fact, it has already started to do this. It has sent at least 700,000 workers to Sudan to explore for more gas and oil, thus entering into cut throat competition with Anglo-American firms. Italian oil news analyst Mauricio D’Orlando reported last January that Shell Oil and Chevron Texaco reneged on a liquefied natural gas (LNG) deal destined for the booming South China markets. Why they did this is not clear. The news laid bare China’s energy vulnerability. But the Chinese leaders found another way of getting more natural gas. They empowered a state-run energy company, Zhuhai Zhenrong, to sign a $20 billion dollar deal to purchase from Iran 110 million tons of LNG over a 25-year period, starting in 2008. On the surface, it seems that China only trumped Shell Oil and Chevron Texaco. But the deal also gave a boost to the dollar.Western civilisation has many facets, but its current foundation is oil and LNG pipelines that securely pump fossil fuels over long distances. And the Anglo-Americans have control over most of the globe’s pipelines. We do not know what role India will play after June 30 in Iraq but there is a possibility that China will play a bigger role. Chinese leaders know that the US needs China more than China needs the US. If, on June 30, the US turns Iraqi sovereignty over to a UN-legitimated government, then China might be at the head of the line for Iraqi fossil fuels.But if Saudi Arabia undergoes a revolution like Iran’s, the century-old Anglo-American monopoly on oil will crumble. The dollar will then become just another currency and Americans will have to work harder to defend its value. Objectively the West can’t get by without Arab-Iraqi oil and Middle Eastern oil in general. Imagine that the West, under extreme circumstances or, more precisely, in case of an embargo on oil deliveries from Arab oil exporters, attempts to redirect oil exports from Indonesia, Latin America, Nigeria, Russia, Kazakhstan and North Africa, as well as from North Europe and Canada. It would still need another 9-12 m bpd, or 25 per cent of its needs.In other words, in case of a direct confrontation between the Arab world and the West, the West cannot satisfy its energy needs by purely political means or economic redistribution measures. Arab-European and Arab-American ties will be threatened by this danger for most of the first decade of the 21st century.Crude prices at almost $40 a barrel are dangerously close to the all-time high of $41.15 reached in October 1990 following the invasion of Kuwait by Iraq. A host of factors like a US stock depletion, threats of terrorist attacks and high Chinese demand are fuelling the present price hike. All indicators say that prices will stay high for the better part of this year. One reason for this is that the expectation of increased production from Iraq failed to take off and remains limited to 2.5 million barrels a day. Second, Russia has also taken the decision to maintain oil production at a rate that almost ensures no increased production.In India, the elections have fortuitously stalled the price jump. Oil prices are now a variable dependent on decisions of the oil companies and not the government. Even then, electoral considerations seem to have stalled any move by government-owned companies to raise prices. But the axe will fall sooner than later and one can assume that a price hike will come in the next few weeks, once a new government is in place.
