Those empires of carbon

The second faction dominated by Saudi Arabia, with Kuwait as a junior partner, has a different world-view altogether. They are sitting on an enormous quantity of petroleum reserves beneath their sands. If the current oil price continues to stay high, then bio-tech and other entrepreneurs in different parts of the world will have a high-price umbrella under which they can invent and produce a petroleum substitute. A new molecule, a new process, a new genetically modified organism which can result in a comparable substitute may be viable if the competitive product is priced at $100 a barrel. This may be completely unviable if the substitute is priced at $60 a barrel.

The Saudis as rational economic actors want to ensure that their oil in the ground remains valuable. A short-term revenue spike does not interest them so much as they already have more money than they can spend or sensibly invest. Other OPEC governments which are broke and into mindless spending are doubtless greedy for every additional dollar that they can earn for each barrel that is taken out of their dwindling reserves. Despite arguments to the contrary, the rest of the world should not be clamouring for low oil prices; paradoxically we have a vested interest in a high oil price. This is particularly true of those parts of the world interested in new discoveries, inventions and innovations. The Silicon Valley investors in alternate energy start-ups, Indian engineers grappling with solar lights and yet-to-be discovered potential Thomas Edisons are all quite happy, thank you. The pain of middle-class Indian LPG consumers may be real. But in this pain (and the resultant demand) is the hope for new fuels to emerge.

Oil has been at best a mixed blessing for its possessors. Consider Venezuela, once a shining democracy true to Betancourt’s legacy, an economy on the make, a net exporter of rice till the ‘60s. The oil bonanza has made them a country that imports everything and encourages profligate, even bizarre, governments. Consider Nigeria. Under Tafawa Balewa it was moving to become a shining exemplar for Africa. But then, oil struck. Without oil there would have been no ghastly Biafran war, there would not have been the enormous corruption that is endemic to rentier societies, there would not be the anarchy that now passes for a country. Consider Iran, or Persia, if you will. Without oil there would have been no meddling by the Anglo-American Oil Syndicate, Mossadegh would not have been overthrown by the CIA, a megalomaniacal Reza Shah (he considered himself the metaphorical descendant of Cyrus the Great) would not have started a nuclear programme with the support of President Nixon, a programme that now President Bush would love to shut down, there might not even have been an Islamist dispensation and Iranian women might have made steady progress towards freedom and the pursuit of happiness.

One could also speculate whether, without oil, maximalist positions would have been abandoned by the Arab side and a more stable peace with Israel would have been worked out. Without oil, the world would certainly not have seen the ubiquitous spread of Wahhabism across the globe. Maybe a gentler Sufi persuasion would have prevailed. Without oil Saddam would not have survived so long and there would almost certainly not have been a US intervention there. One could argue that the invention of an oil substitute would benefit the common people of OPEC countries as distinct from their elites. They would be forced to create wealth by becoming productive societies, not just by letting foreign engineers drill out the black gold and pay them a tribute for that privilege.

We have eminent economists in our country in positions of power and responsibility. Yet we choose not to pursue our long-term interests as the Saudi monarch does. I personally know of two entrepreneurs in southern India who are making solar-powered lamps. If the price of kerosene were just a little higher, millions would switch from kerosene lamps to these solar lamps which draw on the plentiful sunlight available in our country. Why do we insist on subsidising kerosene? If we genuinely want to help the poor (as distinct from helping corrupt dealers who adulterate fuels), we would take the price of kerosene up and distribute cash to the poor, cash with which they would be free to continue to use kerosene lamps or buy solar ones. My bet is that if we did something as simple as this, my two entrepreneur friends would be selling solar lamps by the million, not in paltry thousands. But then, whose side are we on?

The writer divides his time between Mumbai and Bangalore. jerry.rao@expressindia.com