Nov 02 - 08, 2009

The seesaw movement of oil prices puts destabilizing pressure on non-oil developing economies. From $50 a barrel in 2004 to $70 a barrel in September 2007 and then to $150 a barrel in 2008 - the weaker economies like Pakistan were swept off their feet. Our current account negative balance soared to new heights. The abrupt rise in oil prices defied analyses. Tight supply position owing to lack of investment in production facilities and refineries was quoted as one of the reasons. Demand pressure from large oil consuming economies like China and India was yet another reason. But perhaps the most telling reason was the involvement of world hedge funds in the oil and food markets that culminated in the worst food crisis on one hand and historically highest ever oil prices on the other. Then came the global financial meltdown that shook the world financial giants. Hedge funds were no exception; they got the beating of lifetime. Pressure eased on oil and food markets. The sum effect of the world financial crises brought the oil prices down to less than $40 a barrel.

In Pakistan, we produce less than 20 per cent of our crude oil needs. During the first nine months of FY-09 our per-day crude oil production was 66,532 barrels as against 70,166 barrels per day in the corresponding period of the previous year. Our estimated reserves of crude oil stood at 313 million barrels as on January 2009. During the first nine months of FY-09, our total final oil supply (imported plus domestic) was 62.4 million barrels. This means that our crude oil reserves can meet our need for just 3 to 4 years. That is the reason why we carry the tag of a non-oil-producing economy. It is said that our embattled zones have sufficient metal and oil reserves. Perhaps the engagement of global forces in our territory is more guided by economic reasons than military.

The abrupt fall in oil prices has given us a sigh of relief. Our current account deficit for the quarter July-Sept 2009 stood at $462 million only as against $ 4,258 million for the same quarter of year 2008. We have seen this seesaw rise and drop in oil prices in a passive manner. We suffered when the prices were touching the peak but couldn't benefit when the prices dipped incredibly. The government and the State Bank failed to make use of forward / option contracts when the crude prices were as low as $35 a barrel. The prices took little time to readjust and gradually but surely resumed their upward journey. Presently the crude prices are flirting with the $80 a barrel level. Almost 100 per cent rise in crude prices during the last nine months or so is the product of demand pressure and a weakening dollar. US's unnecessary military engagements on various fronts have put a sort of question mark on its ability to lead the world both militarily and economically. Not that the dollar is going to stage a meek surrender against emerging currencies, yet its yesteryears' invincibility is certainly under enormous pressure. Although the Middle eastern powers seem disinclined to change the currency of oil transaction in the near future, pressure from China, Iran, Indonesia Venezuela and other economies poses a long term threat to the dollar. The world boss's failure to punish Iran and Venezuela for unilaterally deciding on the currency of oil transaction exposes a small chink in dollar's armor.


27-02-2009 43.51 45.49 April
19-03-2009 51.14 50.44 April
07-04-2009 49.69 51.46 May
24-04-2009 51.22 51.54 June
15-05-2009 58.35 58.07 June
27-05-2009 63.45 63.25 July
03-06-2009 66.67 66.42 July
13-07-2009 58.81 59.80 August
27-08-2009 69.98 70.75 October
10-09-2009 72.03 70.23 October
26-10-2009 80.23 78.75 December
28-10-09 77.60 76.62 December


The cost-push inflation caused by the oil price hikes ensues from our reliance on oil as major source of energy. We produce about 60 per cent of our energy from oil and gas based operations. Besides increasing domestic oil output, we will have to gradually do away with the use of oil for power generation. Use of oil by the transport sector should also be minimized by adopting to CNG based transport system. Modern mass transit projects also need to be designed and completed on an emergency basis. This will not only minimize the use of private transport but will also improve the fast deteriorating traffic situation through out the country. Unfortunately our depleting gas resources also pose a long term threat. New investment in the field of oil and gas exploration will have to be attracted by offering incentives to the local and foreign investors. These incentives should be well thought out and based on a win-win theory.

Another option is to switch from oil-based to coal-based energy. Coal is globally considered as one of the most important source of energy. Pakistan is said to have about 185 billion tons of coal deposits located in Sindh, mainly at Thar. It is unfortunate that the exploitation of this important natural resource has been delayed.

Hydro power is a cheap and clean alternate source of energy. Pakistan produces 34% of its energy from water. The country's available water resources can generate approximately 50,000 MW - more than double the country's current requirement. Following the example of China, we need to develop a network of smaller dams and utilize our abundant coal resources in earnest. Constructing a network of smaller dams will not only solve our water and power problems but will also minimize the security concerns inherent in the construction and management of a single large dam.

The antidote to the unstable oil prices is a concerted effort to achieve major breakthrough in the areas of gas exploration, enhanced hydro power generation and coal-based energy production. This will help us reduce our dependence on oil to the level of our domestic oil production.