Oil price rise worries EU

By Batuk Gathani

BRUSSELS, AUG. 25. There is growing concern in European Union countries about the rise in oil prices by about 50 per cent over last year to the current price of $ 32 a barrel.

This week the European Union's Energy Commissioner (Minister), Ms. Palacio de Loyala, asked the OPEC President - Venezuela's Oil Minister, Mr. Rodriguez - to boost production to ``cool red hot oil markets'' and bring the price down to $ 25 per barrel. Early this year, at the end of the OPEC meeting in Vienna, the Saudi Oil Minister, Mr. Ali Naimi, said he would like the crude prices to stay between $ 20 and $ 25 per barrel. Saudi Arabia is the world's largest oil exporter and with the largest reserves.

The United States President, Mr. Bill Clinton's weekend visit to Nigeria has special significance and his latest decision to voice Western concern about rising oil prices is seen as an attempt to indirectly influence the OPEC to curb prices.

Observers note that oil inventories in major Western economies are currently at lowest levels amid concern that high prices could affect economic growth prospects in Western and Asian countries. Mr. Clinton said this week he believed the OPEC nations should increase production with the goal of reducing prices to ``the low of mid-20s''. The U.S. administration also proposes to pursue this strategy with other key OPEC members. The current prices of $ 32 has evoked the nightmarish scenario of the 1970s when the oil prices were quadrupled by the OPEC members.

The prices were then boosted to $ 40 per barrel and industrial countries faced a soaring inflation and a rise in unemployment, from which the European countries particularly have yet to recover.

In the last 18 months, crude prices have tripled from their record lows. European analysts are worried that current price of $ 30 plus may become a permanent fixture and could have a depressing effect on European and Asian economic growth prospects.

Impact on India

Apart from the effect high crude prices may have on developed economies, the current scenario has ominous overtones for India. Oil is currently trading at $ 32 a barrel from lows of $ 20 a barrel and hence prospects of a slight increase or decrease, could have significant impact on India's import costs.

India's current option is more oil imports, since its level of self-sufficiency has declined from some 70 per cent a decade ago to little more than 40 per cent now. This is attributed to static domestic production and growing demand.

According to current projections, domestic Indian crude production will only meet 32 per cent of its requirements by 2001. This would suggest that about 70 per cent of country's oil needs will have to be met by imports. India will be seen importing 74 million tonnes of oil if the consumption rises to estimated 112 million tonnes in the near future.

The Indian imports of crude oil will continue to grow with increasing demand as the domestic production - minus a miracle - is unable to keep pace with the country's growing consumption of oil. In monetary terms all this can make a significant dent in India's foreign exchange resources as a world bank study revealed that 80 per cent of India's foreign exchange earnings will be used to finance imports of crude and petroleum products, by the end of the current decade.

It is in this background, even a slight variation in the price on the global market could have far reaching repercussions on India's balance of payment situation. The ideal strategy for India, is to boost domestic oil production but this calls for enormous investments to tap new supplies either in deep sea or on land. India's natural oil resources are limited. On present reckoning, the oil production from Indian indigenous fields could level off at 50 million tonnes mark, but this is also far lower than the estimated consumption in next 10 years.

The oil price movement is a dominant theme in the world energy sector. The 12 OPEC members have tried to underpin their prices by either restricting or boosting their production. Saudi Arabia, Kuwait and United Arab Emirates have impressive surplus capacities and others are producing within their wide margins.

Major non-OPEC production areas are north sea in Europe and Russia. China, now rated among the world's fast growing economies, is now a net oil importer for the first time since the early 1970s. The world's scientists are looking at alternative energy resources but no major breakthroughs has yet emerged.

In a recent interview, the former Saudi Oil Minister Sheikh Yamani, a prominent analyst, stated that within a few decades there will be no market for crude oil with current technological advances geared to contain environmental challenges and use of alternative energy sources for automobile engines. This is still a Utopia but within the realm of probability. The OPEC's influence has also slightly faded with surge in oil production from non-OPEC countries but currently the OPEC continues to rule the waves in oil pricing and production.

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