My old bike
Monday’s transport strike floundered early. Frustrated strikers and stranded commuters reminded us of the late Prime Minister Golda Meir’s gripe against Moses: “I’ve long had this grievance against Moses. For 40 years, he led our people through the desert. And in the end, he brought us to the only place in the Middle East that had no oil.”
Gyrating oil prices stoked Monday’s strike. Roll back fuel prices, the organizing group Piston demanded. Government should scrap the oil deregulation law. And oh, yes, the new tax on toll roads too.
“We’ll check if there’s been collusion to rig oil prices,” Transportation Secretary Mar Roxas pledged.
Worldwide, fuel prices have been “unpredictable and gut-wrenching,” notes Foreign Affairs quarterly (July/August 2011 issue). Between January 2007 and July 2008, the price of a barrel of oil bolted from $50 to $147, the article titled “The Era of Volatile Oil Prices” points out. By New Year 2009, prices plummeted to $30, only to almost triple by year’s end.
“It took a brutal 67 percent spike, within six months” in 2008, plus a global economic recession to align even loosely demand with supply, said authors Michael Levy of the Council of Foreign Relations and Robert McNally, a former National Security Council member.
Remember when a barrel of oil fetched $2? You’d have to be over 70 years old to recall that. But today’s Middle East turmoil, strong global demand from China, India and other developing countries (that’s us!) interlock with the lag in tapping new supplies. These wedge oil prices in the upper brackets.
Here we tinker with domestic policy tools—from proposals to junk E-VAT to seeking subsidies.
Almost 98 percent of our transport burns fossil fuel. So, why pummel the commuter? frets columnist Juanito Jabat. He is not to blame for oil price spikes.
Indeed, our reaction is best expressed in the 1961 Broadway musical “Stop the World—I Want To Get Off.” Sorry, folks, no one can bail out from reality.
“In the years ahead the price of oil is going to rise beyond anything we’ve seen,” former US National Security Adviser Robert C. McFarlane and R. James Woolsey of the Defense of Democracies Foundation cautioned in the New York Times. The Foreign Affairs article agreed: “Policymakers can neither banish big oil price swings nor reasonably hope to wean (their countries) off oil in the near future.”
Why is this so? Oil is a “must-have” commodity, to start with. There are no substitutes—yet. Oil’s strategic importance stems from its virtual monopoly as a transportation fuel. When prices bolt, most consumers have a Hobson’s choice in the near term: pay more or buy less.
We paid—through the nose. That is the track record. The consequences are stark. Individual consumers, like Piston drivers or Filipino daily wage workers, are buffeted as fuel costs cut into their incomes. Companies, from airlines to electric plants, are pummeled by roller-coaster power costs.
Petro-states dip into their oil income to tamp down simmering revolts. They dole out subsidized food, gasoline, housing and other goodies.
Subsidies impose unsustainable drains on strapped government treasuries. Like other developing countries, we can’t afford that. Even India and China have edged back from gasoline and diesel subsides.
Oil drillers used to hit new wells faster than purchase orders coming in. But new fields have lagged behind demand. Conflicts in Iraq, Libya, Syria and Bahrain took some oil off the market.
Since the mid-1980s, spare production capacity has been the only method left in the tool box. There are no ready replacements in the wings.
Saudi Arabia and the Organization of Petroleum Exporting Countries are not investing enough to provide a 5-percent threshold cushion, wrote Levy and McNally. Between 2013 and 2016, Opec’s spare capacity will slip below the 5-percent threshold, the International Energy Agency estimates. Saudi Arabia’s spare capacity is “less than 2 percent of global demand.”
Only two countries pump volumes comparable to Saudi Arabia: Russia—10.4 million barrels daily; the United States—7.8 million barrels. But Moscow has scant interest in price stabilization. The swing producer up to 1973, the United States won’t play this role again. It held huge low-cost reserves then. And it is now overdependent on imported oil.
Opec is not 12 Santa Clauses sporting keffiyeh headgear. It is a cartel. Opec wrings every petrodollar the market can bear. (Piston’s pakikisama pleas mean nothing in such a milieu.) Nonetheless, Opec’s capacity to stabilize prices is waning.
Asian countries should join international efforts to share data on oil by joining the International Energy Agency. Once limited to OECD members, this agency could be a useful clearing house for the future. The secretive Chinese government has been particularly reluctant to participate in such arrangements so far.
Growth in “global energy intensity” is a new yardstick for gauging total fuel burned against overall production. It reveals the reversal of decline of energy losses over the last 30 years, says Worldwatch Institute. The two essential prongs are using energy efficiently and renewable energy production. These are key to a sustainable energy transition.
As the world sorts out policies, it would be useful for us to get our own house in order. These can range from conservation to incentives for oil exploration.
Now, where did I stash that old bicycle?
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