THE CRUDE OIL CONUNDRUMS
by v.s.gopalakrishnan
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THE CRUDE OIL CONUNDRUMS
by v.s.gopalakrishnan
I have been enthused to write this thanks to the well reasoned article by Mr. Naval Langa titled " Rising Oil Prices: There is a remedy" that has appeared yesterday. This concerns crude oil only.
The crude oil prices have shot up like a rocket to nearly 100 dollars a barrel. This is history but it is also going to be a calamity; a calamity for the developing countries and the under-developed countries most of which depend on oil importation for their industries. The OPEC countries, particularly the Arab world, have been fleecing such poor nations amongst others. The Arab world's extravaganza with their petro-dollars and their filthy rich life style have reached ridiculous levels.
The trouble is that crude oil has been deliberately left out of the purview of the GATT and then the WTO (World Trade Organization) while all other goods have come under the WTO rules of fair trade. The WTO is largely West-driven, and the USA plays a leading role. Despite the pleas of even US Senators, the US Government has deliberately failed to bring 'crude oil' commodity under the purview of the WTO. Why? So many top guns running that country have been having selfish interest in oil and have been making tons of money. They have been ridiculed even by the US Media. But they are shameless. They are in cohoots with Saudi Arabia. I should think that Iraq was attacked mainly for oil.
So, what the heck is happening in this dirty world? What do we do? I wrote an impassioned article titled "Crude Oil Should Come Within WTO's Ambit" which was published in 'The Industrial Economist', 30 Dec. 2002-14 Jan 2003. I have reproduced it below. This article finds place in my book titled "WTO and India: Some Insights" (2005) which carried a foreword by Mr.Rubens Recupero, ex-Head of UNCTAD, Geneva and ex-Finance Minister of Brazil.
However, things have not changed as 'crude oil' has still not come under the purview of the WTO and therefore the non-cartelisation rules of WTO still do not apply to crude oil trade. So, the cartelised oil-rich States have been merrily hitting the belly of the poor countries.
So, what would I recommend now to stop our suffering? Yes, I recommed cartelisation of the big oil consuming States such as India, China, Japan etc. This will not be illegal under the WTO as of now since cartelisation by sellers has been permissible. This is precisely what Mr.Naval Langa has recommended. THIS REMEDY WILL BENEFIT A NUMBER OF NATIONS, PARTICULARLY THE POOR ONES.
Another possible remedy is the abandoning of ad-valorem import duty on oil by the Government of India. The ad-valorem system means that if the import prices abnormally shoot up, the import duties will also correspondingly shoot up, since the duty is levied as a percentage of import value, resulting in double-misery for the Indian consumer. The Government of India has been avaricious in tax matters and has turned a Nelson's eye to this important proposal. If the import duty is NOT to be ad-valorem based but based on specified fixed Rupees per barrel of imported crude, the consumers will be less affected by steep rises in international oil prices. IF THIS IS IMPLEMENTED , THE CONSUMERS IN OUR COUNTRY WILL BENEFIT, WHATEVER HAPPENS TO OTHER POOR COUNTRIES.
The best solution will be the COMBINATION of both the remedies outlined above. That is, India should take the initiative in cartelising the big buying countries, and the Government should also fully replace the ad-valorem import duty by a flat import duty.
(by v.s.gopalakishnan ph.d., IAS retd.)
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The above article by me appeared in 'Industrial Economist' , 30 Dec 02 - 14 Jan 03, published in Chennai, and in the book by me titled " WTO and India: Some Insights" (2005) Close
Hi Aditi Ray,
It looks like you are a Joint Secretary in one of those Bhavans in Delhi. Am I right?
I think you have agreed on the need for flat rate duties. Of course every Ministry has a battle with the Finance Ministry and the latter wins since it has arm twisting and even gullet-choking powers!
You have quoted consumption percentages by nations. The import slice in total world importation could perhaps be a better indicator. But as you said, it is quite likely that India, China and Japan put together may still fall short of the critical mass of importations required to dictate to the sellers through cartelisation. Anyway, I shall try to work on the statistics.
Thanks for your valuable inputs.
vs gopal
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Dear Mr Gopal,
Enjoyed your blog and the article. There is always a tussle between the Ministry of Finance and the Petroleum Ministry on nature of taxes and duties that should be levied, and in the end Ministry of Finance invariably wins. Economic theory suggests that only specific duties should be levied on any item of mass consumption (increase in price of which adds to inflation), but very conveniently, revenue interests rule supreme in case of petroleum products.
But I am very sceptic about workability of any buyers cartel. China and India together constitute 12% of world's consumption of crude oil, while USA alone constitutes 24%, and it is just not interested to bring crude oil in the ambit of WTO negotiations. Why should it? Despite shorter distance from source of oil, we pay a higher price ( Asian Premium) while USA enjoys price preference. The reason behind ambivalent attitude of the bid daddy towards the oil producing countries in middle-east with worst of human rights records is just easy oil availability for itself. Why should USA even want any buyers' cartel?
If the small animals of a forest (say India and China) decide that henceforth lion (OPEC) should be a vegetarian, what chances will you give for the success of the proposal?
Aditi
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Hi Teedee,
Yes, it looks like the ''aam aadmi'' will be taken care of! The Communists (CPI-M)are against oil price hike. The Manmohan Singh Govt also will be careful now, not to create any agitation, in view of the elections next year.
vs gopal
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V-S-Gopal
Whatever the solution , I do hope the Govt makes sure that the 'aam aadmi' does not suffer.
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Thanks Goldie for the trouble taken by you, and I find you have got a good hang of the contents of the blog.
vs gopal
Sorry the US gasoline prices have gone up faster than your salary. Generally the people in the USA want to have only big cars. Cars in 800 to 1300 cc engine range, widely used in Europe, can improve your oil economy.
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Gopalji,
I don't know much abt tax or other things that go around but ur suggestions seem good and i agree abt ppl making big money on oil. In US, oil companies are making record high profits.
I had seen on tv abt wind energy but don't know anything abt sea coastal waves energy. Sounds interesting...
Yes it's in 10 years but my salary didn't increase 3 folded in 10 years. he...he
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Hi Goldie,
Do you agree with the analysis in my blog? What are your views?
Thanks.
You mentioned solar energy. There are other areas too, as you know, like wind energy, sea coastal waves energy etc. Perhaps in a decade, we should see a sea-change in the energy scenario!
The present gasoline crisis is pure politicians-made. My blog explains how.
You've well pointed out the threefold increase in gasoline price in the USA (in ten years?).
Cheers
vs gopal
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Hi Scribbly,
I understand your dilemma!
Pl omit the appended article which could be a bit too technical. The main article, which is short and easily understandable, will be found to be instructive.
Do you agree with my views?
There are 'proper posts' by me at least once or twice a week. Pl see my blog list and omit the cartoons and paintings (which youhave seen), and the rest are 'proper blogs'!
I shall get back to you soon.
vs gopal
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Gopalji,
You have written a book too? wow...
when i first came to US, gas price was < dollar per gallon and now it's >3.... i hope we find some alternative soon like using solar energy.
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At last a proper post, but this got too long and a blog within a blog is noticed.Now, how to comment?
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