US$100 a barrel:
Time to rejoice? No!

As the orange-stripped white cab steered into the filling bay at the Al Maha petrol pump on the Qurum-Ruwi thoroughfare, I lifted my eyes from the magazine I was glancing through to see the uniformed attendant zeroing the meter, allowing the now-refined ‘black gold’ to flow into the petrol tank. Minutes later, a few Rials were exchanged and the cab merged into the thick afternoon traffic.

‘What’s the price of oil nowadays?’ I asked the elderly cab driver. “You need 4 Rials to fill the tank.” Well, that makes it 120 Baisa (or 0.120 Rials) or, US$0.31 a litre in Muscat. A week ago, I had paid around Indian Rs 47–little above one US dollar–a litre for fuelling my car in the Indian capital of New Delhi. Luxurious lifestyle, no doubt. Back in office, I heard the news break that the global oil price had for the first time closed above the threshold of US$100 a barrel. Well, they were talking about futures contracts–more specifically, the April/May delivery price for some 100 odd traders who booked on February 20, 2008. Was it time for us in Oman to rejoice? No, I am not in a mood to celebrate, notwithstanding the fact that I live in a moderately oil-rich Gulf country.

Scary Scenario
Sounds stupid. Why should I be scared? The higher the oil price, the greater is the inflow of hard currency into the oil-rich countries. But, that is only one side, the suppliers’ side of the story. What about the end-users? You don’t have to be John Maynard Keynes or Alan Greenspan to claim that energy is the most vital ingredient for economic growth. Shut energy supply and the economy will grind to an unpalatable halt. Production stoppage. Fast depletion of inventories. Supply snags. Scarcity in the marketplace. Demand-supply mismatch. Rising prices. Inflation. Unemployment. Crime and violence. Depression. Call it whatever you want: stagflation, or deflation. Labels don’t matter. Ground reality does, because it hurts. Even world’s richest nations will baulk at the idea of buying oil at US$100 a barrel.

Infinite source? No
Oil is not an infinite resource. Thankfully, the oil-rich Gulf states are strategising to reduce oil-dependency. You need something more than oil to live life. Kingsize or otherwise. What’s that something? A global manufacturing base? Yes. A global financial services centre? Yes. Saudi Arabia, the region’s richest state and the world’s leading oil producer, has embarked on a multi-billion dollar King Abdullah Economic City. The name says it all. The Kingdom of Bahrain is pushing hard to emerge as one of the world’s largest financial centres. Commendable, no doubt. Qatar is on a similar track, fuelled by its natural gas bounty. Nobody remembers Dubai as the fishing port it once was. It is slick and European or Western, in every sense of the term.

Abu Dhabi is fast emerging as the country that is pumping money to find an alternate to oil! The less said about Kuwait money and their enterprise outside their own country through their sovereign wealth funds, the better. In a nutshell, the region is booming and its coffers are overflowing, forcing Kings and Sultans of this region to look for investible avenues to safeguard their future. Just for a second, hold back. Ask a few sensible questions. One: where will you invest? Definitely, outside your own country. Two: where or to whom will you sell what you produce through the diversification strategy? Definitely, outside your own country.

Economic Pitfalls
Now revisit their responses. If the economy in the potential investible countries is grinding to a halt, it is not for want of money. But it is the forced energy crisis – read $100 a barrel – that may cripple their economies. Fiscal remedial measures will be less effective because there again is a limit up to which these mandarins can tinker their financial systems. Also, where will one stand if their purchasing power is eroded? I mean, who will buy the oil-rich nations’ goods. There will be no markets. So, it is a vicious cycle. A higher oil price hurts all in the final analysis.

Just one final denouement–what James Howard Kunstler wrote in The Long Emergency (the title refers to the decline in oil supplies); he visualises an America you and I can’t imagine: “As energy supplies decline, the complexity of human enterprise will also decline in all fields, and the most technologically complex systems will be the ones most subject to dysfunctions and collapse – including national and state governments. Complex systems based on far-flung resource supply chains and long-range transport will especially be vulnerable. Producing food will become a problem of supreme urgency. The US economy of the decades to come will centre on farming, not high-tech, or information or services, or tourism or finance. All other activities will be secondary to food production which will require much more human labour.” The BRIC (Brazil, Russia, India and China) countries may well be the future economic stars or czars. But, today the US still matters the most. Imagine the US as an agrarian economy as Kunstler predicts it will become. Another Nostradamus! But the truth is I am getting nervous. What about you? 

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