Pakistan watches helplessly as geo-political tensions, winter storms and supply constraints push oil above $92 per barrel in the international market; maintaining a seven-week rise and reaching its highest price in more than seven years. The latest push comes from a cold snap in Texas, USA, which has raised concern about production bottlenecks in the Permian Basin, where most of America’s shale reserves are located. The Russia-Nato standoff over Ukraine is not helping either, threatening to send oil past the $100 per barrel very quickly. And there’s no point in counting on OPEC+ – the alliance of OPEC and a few other countries led by Russia – since they’re neither interested in nor have the capacity of increasing supply anytime soon.
There’s also the realisation that the green energy lobby miscalculated the post-lockdown demand scenario. Estimates that the recovery would give time, as the world slowly went back to previous levels of production, to shift to non, or at least less, carbon-based energy sources were clearly wrong. And since a number of countries, including the United States, had already agreed to transition their modes of production towards cleaner sources, there just wasn’t enough supply to meet suddenly roaring demand for most of the last year.
All this has left poor countries that rely heavily on imported oil, like Pakistan, in a very uncomfortable place. Unless commodity prices, especially oil, come down in the next couple of months their budget estimates will be upset very badly. Our particular case is made all the worse by the already very high level of inflation. And even though a very big part of the oil effect on prices, at least, is simply beyond Pakistan’s control, the ruling party will still face a very tough time when it has to put the next, election-year, budget together in the last quarter of the fiscal year. It must, then, make rationalising prices of other essentials, like food, its top priority. Because if oil keeps rising and the economy takes a hit, then jobs and earnings will drop and reduce people’s purchasing power as food inflation continues to spike higher. That’s a very toxic mix and there are no easy options. The ruling party will have to really wriggle to manage the economy even with the additional fiscal space granted by the resumption of the IMF program.
