The Cause and Impacts of volatility in Global Fuel prices

Energy in its various forms has been the prime ally of all our daily activities and processes. The human dependence on energy has risen over decades and this trend has made us slaves to our own innovations which fail to perform the moment the source of energy or in other words the ‘fuel’ is taken away. For years, humans have explored the feasibility and usefulness of natural sources of energy that is solar, wind and water energy which are abundant in quantity and low on price, but still the leading, though vanishing sources of energy remain petrol, diesel, kerosene, LPG, etc. Be it heavy-scale industries or automobiles or household processes, all function on their availability.

In this fast progressing world, the depleting fuel resources have set the alarm bells ringing and have forced the administration to raise the prices in order to facilitate its judicious use. While the Gulf countries still enjoy lower rates of oil prices, countries like North America and Australia cruise along with many of the Asian markets spending huge wealth in its import. However, the expensive European markets reel heavily under the effects of soaring prices with the figure touching sky heights at $2.35 per litre (that is almost double the price in India). Another factor is that the middle-east countries have ready access to fuels because they are the prime producers/suppliers of the same. At the same time – they, along with the Asian markets constitute a group of developing countries guzzling in tonnes of oil for industrial expansion and growth. This further reduces the supply available for export and hence results in a tremendous hike in the world oil prices.

At this stage only the highly developed countries possessing strong markets can dominate the imports. While America’s daily oil production is some 9 million barrels, the world’s most powerful economy consumes well over 20 million barrels each day. Dramatic increases in the cost of petroleum products and the volume of oil imports were responsible for some two-thirds of the increase in the US trade deficit in 2005.

At the same time there are heavy subsidies in oil prices in many parts of the world. Though the prime aim of the subsidies is to cut down the burden of soaring prices on the middle and lower-middle income groups but the study shows that 42% of the subsidy goes to the top 20% households while the bottom 20% receives less than 10%. But if we view it from a broader perspective the government has its own management system. The government subsidizes oil to flatten out the price of transportation of public goods and services while at the same time encourage industrialists to indulge in diverse business operations and hence contribute in making a stronger and dynamic economy. This also helps in making available to citizens stronger public services and healthcare operations by equally distributing the wealth available from the high income group in the form of taxes, thus improving the overall human development index (HDI).

The monstrous, ever-increasing demand for such resources along with the ongoing race of industrialization has caused the rapid evaporation of its reserves. While the research for exploring alternate fuels is on full swing, the world is still on the lookout for a landmark discovery that can lay off the pressure from these resources which are on their way to exhaustion.

Ishant Arora

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