Osama’s Oil
Open Letter to Murli Deora
- Prabhakar Deshpande
Dear Mr Deora,
I seem to be in habit of writing open letters that are ignored or at best politely replied too. I had written an open letter, published in the editorial pages of Economic Times, to Mani Shankar Aiyar, then Minister of Petroleum, arguing that he should take steps to form Organisation of Petroleum Importing Countries, to regulate oil demand so that price of oil comes down. Mr Mani Shankar Aiyar, replied to me, stating that it was not government policy. Alas !!!
When Oil Prices crossed $ 144 a barrel, one could not but feel, if only Mr Aiyar had taken one’s advice. And the $ 144 a barrel is symbolic, because Osama Bin Laden, the head of Al Qaeda, said in 1998, that oil should trade at $ 144 a barrel.
And oil at $ 144 a barrel can do damage that is beyond merely economic – the damage can be political. At such an oil price, Oil Exporting Nations can buy significant assets in most nations by investing in them. And this can lead to manifestation of clash of civilization that can excite only the likes of Osama Bin Laden.
Just imagine at $ 144 a barrel, oil exporting nations together get to make around 2 trillion dollars more than at reasonable prices. If oil were to last 40 years as it is presumed to, that means net transfer of wealth of $ 80 trillion dollars, which would get invested back in oil importing nations and that would lead to loss of financial sovereignty - just what Osama Bin Laden wants. In effect Oil Exporting nations would use your money to buy you out.
Hence one proposes creation of Organisation of Petroleum Importing Countries (henceforth OPIC) to control demand for oil. Just as OPEC increases oil prices by reducing supply, OPIC would endeavour to reduce prices by controlling and regulating demand.
It is imperative that oil importing nations substantially reduce demand for oil so that not only oil prices come down, but also so that oil can be made to last longer. And price of oil is very sensitive to demand and supply. A slight cut in production can escalate prices. Again even mere rumour of reducing demand can depress prices substantially.
Economists have a term elasticity referring to how much a quantity demanded or supplied is sensitive to change in price. What is interesting is that oil demand is not elastic - sensitive to change in price. But this is counter intuitive. Things that are not necessities – like food - usually have elastic demand. Again any good that has many substitutes has elastic demand. Oil has many substitutes in the forms of transportation usage that can vary demand, yet demand is not elastic.
And the whole effort of proposed Organisation of Petroleum Importing Countries is to make demand for oil sensitive to price, so that price stays at acceptable level. And if oil prices can escalate due to fall in supply, Oil prices can be made to fall with reduction in demand.
Organisation of Petroleum Importing Countries will make efforts to get nations to ensure through taxation, rationing, or availability of cheaper public transport to reduce oil demand by 30-50% so that oil lasts longer and oil prices are stable.
Consider public transportation. A bus is 10 times or more fuel efficient than a car. Now if all car owners switched on to buses, demand for fuel for transportation of car owners would theoretically be one tenth. Now one would have presumed that at high oil prices car owners would switch to buses, but that is not happening due to habit or even availability of buses.
Hence it is important that nations forming Organisation of Petroleum Importing Countries make available adequate buses and heavily subsidize public transportation. It is equally important to tax cars, or ration fuel usage in private cars so that people are compelled to overcome their inertia in continuing to use system of transport that is not consistent with fuel prices.
Other way is to encourage use of two wheelers instead of cars. Two wheelers can be 3-4 times more efficient in use of fuel. Pooling cars can have the same effect. Thus by rationing fuel usage and taxing oil and vehicles appropriately, Organisation of Petroleum Importing Countries will ensure that price of oil reduces to acceptable level.
Organisation of Petroleum Importing Countries would also attempt to find alternatives to oil. Hydrogen and Biofuel seem promising. But biofuels can succeed only if land devoted to food production is diverted to fuel. That can happen, only if the world switches to vegetarian life style. Hydrogen has not been adequately explored. It must be. Solar Energy for Electricity and Hydrogen for transportation should be the motto.
My email address is
advocacyindia@gmail.comPlease feel free to get in touch with me. Sincerely,
