Sixty dollars a barrel? Great

It is the fate of over-burdened TV-watchers of the 21st century that we are deluged with low grade analysis by ill-informed experts on the s...

It is the fate of over-burdened TV-watchers of the 21st century that we are deluged with low grade analysis by ill-informed experts on the small screen. They keep warning us with a dark sense of foreboding of the enormous problems that are caused by oil prices continuing to remain high and dare I say actually climbing higher. This is supposed to be an unmitigated disaster for humankind. From this blase generalisation, the good-looking anchor proceeds to the obvious next questions: 8220;What is the government doing about it? What should the government do about it?8221; The discussion or talk-show, depending on what you call it, now proceeds to climb the pinnacles of the inane and the banal. Governments should subsidise solar/wind power and somehow magically bring peace to the Middle East. That8217;s it. There will be no more problems with oil prices.

Frankly, just as no Government with a capital 8216;G8217; in the world needs to help human beings deal with the fear of death or grand passions or their respective senses of humour or lack thereof, it is my humble suggestion that governments with a small 8216;g8217; need make no attempt to do anything whatsoever with oil prices. The Rangarajan committee recommendations on increasing oil prices and reducing subsidies is not really a recognition of that. We don8217;t need a committee to fix oil prices.

If petroleum prices stay north of 60 per barrel in real terms continuously for the next ten years, trust me the world will have a substitute for it. Inventors are ordinary human beings who respond to price signals. If it isn8217;t Jatropa oil it will be Hunge oil; and if it isn8217;t either, then there will be some brand new bio-tech formulation that we have not heard of yet. Inventors will make sure we get there. Lawyers will fight over the intellectual property rights, marketers will burn the midnight oil ! coming up with marketing plans, and automotive engineers will redesign their engines to accommodate the substitute that emerges. Those who have read Moby Dick probably know that whale oil was considered indispensable. People used to wonder what the world would be like without whale oil. It seems to be managing quite well. In 2026, ill-informed experts will appear on the small screen analogues of that time and appear puzzled as to why their historic counterparts from 2006 wasted so much time with this question. The good-looking anchors of 2026 will doubtless again ask what the governments of their times should do about various matters which they should by right do nothing about.

It is not accidental that the petroleum minister of Saudi Arabia, doubtless an honourable man, is worried that the price of petroleum may be too high. All the other itsy-bitsy oil-producing countries are short term profit maximizers focused on their income statements. Saudi Arabia worries about preserving its wealth and the Saudis are concerned with their balance sheet. If a petroleum substitute enters the market, at one stroke the value of the enormous reserves of oil in the ground will drop. A high current price acts as a signal to the inventors of substitutes and hence from a Saudi perspective is problematic. They are genuinely torn between this quarter8217;s earnings and the long term 8212; a bit like corporate boards are or at least should be.

One of the reasons financial and intellectual capital have been slow in pursuing the holy grail of a petroleum substitute is that after the shock of the 8217;70s, we have had two decades of real price stability, even declines in the petroleum world. Hopefully, this time, prices will stay high long enough to ensure that an economically viable technological substitute emerges.

As far as India is concerned, we need have no worries. All our governments, the NDA and the UPA variants, are determined to subsidise petroleum products and artificially price them lower than they should be. This culture of protecting the consumer encourages increased consumption and causes ecological damage through excessive pumping of groundwater using diesel pump-sets. This will also ensure that no Indian inventor is likely to come up with a petroleum substitute. After all, the price signal to him/her is quite clear. Don8217;t bother. Consume more diesel, kerosene, LPG; adulterate more gasoline with these subsidised products. Why bother to invent anything at great cost and risk when our blessed government is going to make the substitute unviable by in effect not allowing the price signal of high petroleum prices to operate naturally. It may be an Indian who invents the petroleum substitute. But he or she is likely to be living in an environment where invention is encouraged. And that today is not India.

A foreigner friend of mine is genuinely puzzled as to why a government that is run by an eminent economist is pursuing such counter- productive policies. A low price for petroleum products is not even pro-poor; it is pro-rich, pro-middle class, at best. In any event, it is bad for the fisc and regressive at the same time. I had to let him know that this puzzlement is not unique to foreigners. We too are puzzled and quite disappointed that despite having talented leaders, we have gotten ourselves trapped in an ill-conceived populist gridlock. Incidentally, those who believe that the principal reason for violence and instability in the Middle East is that it is blessed or cursed with petroleum should welcome high prices. Once the substitute is in place, the Middle East will no longer be viewed by powers near and distant through the prism of oil. Great powers may well leave the whole area alone and the inhabitants of that ancient region may be able to live out their lives in peace without meddlesome foreigners dictating to them the benefits of high-sounding phrases like democracy and its synonyms. An oil substitute may also restore primacy in the Middle East to Egypt where it has traditionally rested rather than with the countries endowed with oil.

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It might even result in an organic evolution of the Islamic polity without the distortions caused by unearned oil wealth. Peaceniks and left-wing do-gooders, please do think again:60 plus prices may be a good thing after all!

The writer is chairman 038; CEO, 8216;Mphasis8217;. Write to him at jerryraoexpressindia.com