Crossing the Rubicon

Deputy Chief Editor
Crossing the RubiconCrossing the Rubicon

As we navigate the post-sanctions landscape the one sticky word that will keep dominating the new narrative, for better or worse, is oil. Long before the international sanctions were lifted on Saturday midnight there was much ado about how and when Tehran would plug the deep holes in the economy by developing the one-century-old oil industry.

One need not be the best oil scientist in the world to realize that oil is dying of old age. If it provided munificence and lubricated the wheels of the economies of producers and exporters in the bygone years, it is no more. And mind you,  if the barrel story was bad in 2014 and worse in 2015, it is anybody’s guess what the market for the black gold will look like in the months to come.

This past week oil prices sank to ultralow levels in 12 years. It was selling below $30 with many pundits predicting that it could fall further only to take “comfort” in the 20 dollar zone if Iran returns to its pre-sanctions quota and adds another half million barrels a day to the international crude oil market. 

In inflation-adjusted terms oil prices are now at a 20-year low and it turns out that the commodity after all was not and is not a very scintillating enterprise. True, it was a sort of king-maker and a precious item over which wars were fought and regimes changed. Oil cartels and their lobbies in the exporting and importing countries were de facto rulers enjoying mind-boggling power and prestige. Few if any could challenge their political territory and those who did learned the hard way not to poke their nose “in other peoples’ business.”

As big oil heads for the one-way exits, to continue on the present trajectory means there is nowhere to go but down. It gives me no pleasure to say that we have misunderstood and misused the concept of development economics by spending a great deal of time on the ways and means to how best extract crude oil from the ground and export it, not to mention the huge amounts of energy we use and abuse to run our loss-making industries. We also failed to understand that digging oil and selling it cannot and should not be called economic maturity.

No one should expect that with the sanctions having been consigned to history, we can start building our future and that of our children by developing the oil and gas fields. It is not for us to tell the policy and decision makers what exactly they should or should not do. What is of essence and high priority is to learn from the past and prepare for the future by making informed choices.

Economic maturity demands understanding the universal principles of economics and applying it. One sure test of this maturity is to compare ourselves with the best in the world in the right way and strive to achieve that status. For all the known reasons we haven’t achieved that mentality yet. Small wonder that we continue to suffer from the “best and biggest in the Middle East” syndrome whenever we put up something new! That may be factual in terms of oil and gas reserves and the oft-mentioned “potential” to help meet a part of the energy needs of Asia and Europe. So what?

Oil is facing a huge challenge and so are its top producers and exporters. To get a true picture of the impending demise of oil you only have to look at the troubling economic data flowing out from the capitals of countries drowning in oil. All are in the red and deficit spending is giving their rulers sleepless nights if not nightmares that are just around the corner as the barrel keeps on tumbling and they run out of ideas and options to control the oil price/production crisis.

With the stage set for a new and mutually beneficial economic relationship with the outside world in the aftermath of the removal of decades of restrictions, we must get our priorities right. Twenty-five dollar oil cannot and should not have the honor of being one of the top priorities. Its place is somewhere at the bottom end of the list and should remain there if we do not want to move from one crisis to another or keep shivering as and when crude goes down, and along with it our hopes and aspirations.

As long as we believe that oil will come to our rescue at the “proper time and place”, we will lag behind more and more in the global economy and it will undoubtedly take us longer to find the right path. Degraded and discredited crude oil price is the new norm not the exception. The same is true for the economic shambles of oil exporting countries now showing signs of chronic fatigue and acute fiscal desperation.

Whether we like it or not, the bottom line is this: crude oil export cannot carry the economy -- it is a product of yesterday not tomorrow.   Our fear of this bitter truth is real and legitimate. We either diversify the economy or we lose in more ways than one. High debt and low wealth does not command respect.