World oil crisis: impact on developing countries

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The economic analysts argue that there are many reasons; direct and indirect, behind the current oil price hike. They mainly attribute to the developments in China and India which had increased the consumption levels of the fuel per day. This situation had led the Organisation of Petroleum Exporting Countries (OPEC) to a problem since its output cannot match the increased demand from these two nations.

Among other factors, the civil war situations in Nigeria especially the militant attacks, funding problems, strikes by Nigerian oil workers and the attacks to the pipelines have seen in Nigeria cuts its productions and have helped push oil prices to record highs and also led to a demand nearly two billion dollars in arrears per day.

The other main factor is that the decrease of the oil production from Iraq to the world market. In general Iraq is believed to hold 115 billion barrels of proven oil reserves, and possibly much more undiscovered oil in unexplored areas of the country which produced over 2 billion oil barrels per day off that 1.59 billion barrels were released to the export market earlier but this number has decreased to 1.46 billion today.

The next factor is that Hugo Chavez the President of Venezuela, a member country of OPEC had imposed a tax of 60 per cent for the foreign oil producing companies in the country. Therefore the production cost had risen to 115 US Dollars per barrel. President Chavez’s main object is to control the oil production in the country.

Tatsuo Kageyama, ananalyst at Kanetsu Asset Management in Tokyo said :”you really cannot forecast how much further the market will rally now”.

The economic analysts say that the member countries and the OPEC organisation have ignored the factor of supplying according to the prevailing demand. Their main object is to save oil for OPEC countries for their future benefit.

However, the price of an oil litre in London had been increased to 120 pence (approximately Rs. 253) these days. Prime Minister of United Kingdom Gordon Brown is holding discussions with the international market and with OPEC to increase the production level to overcome this situation while working out with United States of America, Saudi Arabia and Kuwait to boost the oil production .

Meanwhile, in Quito, Ecuador, OPEC’s Secretary-General Adballa Salem El-Badri blamed market speculators for soaring oil prices and the weak dollar are responsible for record crude prices. However in addition to the OPEC countries the non OPEC countries such as USA, Russia, Mexico, Norway, Egypt and Colombia etc exceed the total oil production of the OPEC countries they produce 62 per cent for the export market.

In Mexico one third (1/3) national income was generated by producing oil but they exported only 24.2 billion in 2004 and 24.6 billion in 2005 while Norway produced 46 billion per day and had contributed only 24.6 billion in the year 2004 and a another 24.6 billion in the year 2005. Egypt too had contributed 1.2 billion and 1.4 billion oil barrels to the export market in 2004 and 2006 respectively.

Central Bank reports say that Sri Lanka had spent nearly 2.5 billion US Dollars for oil imports in 2007. Of this 30-40 per cent is being used for power and energy plants. The estimated cost for this year is approximately four billion US Dollars.

Sri Lanka spends 174 US Dollars per diesel oil barrel. After raising the fuel prices the Government sells a diesel litre for 110 Rupees which has been increased from 80 Rupees. But this fuel price increase would allow the Government merely to cut down its losses from Rs. 175 million to Rs. 60 million per day.

The Government had already rehabilitated and upgrading an oil refinery, which boost oil production from 50,000 barrels per day to 100,000 barrels per day to adhere to modern standards and achieve maximum productivity, to overcome this crisis.

Lankapuvath