With the ongoing unrest in Western Asian and North American countries such as Libya, international crude oil prices are already shooting through the roof and if the trend continues for the next few weeks it will start burning hole in the common man's pocket.
With the ongoing unrest in Western Asian and North African countries such as Libya, international crude oil prices are already shooting through the roof and if the trend continues for the next few weeks it will start burning hole in the common man's pocket.
At present, one barrel of international crude oil costs $116 (Rs 5,224) and if the prices keep shooting up and reach the $130 (Rs 5,854) mark, the price hike will have cascading effect on the economy of the country, experts say.
The international crude oil prices are going up because of political unrest in Libya, which meets 40 per cent of the world's petroleum demand. If it continues, there will be a cascading effect, which could lead to a generalised inflation
"If crude oil prices touch $130 merely for a week, then it may not affect us. However, if it continues to stay there for a few months, then we will all certainly be hit. There will be a cascading effect, especially if diesel is decontrolled. It could lead to generalised inflation, including food price inflation.
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Naphtha is used as feedstock to make fertilisers, and higher fertilisers prices would translate into higher food costs, especially when they also have to be transported by railways and trucks, which run on diesel. At present, we have kept inflation suppressed, because diesel is still subsidised.
But the moment diesel prices are decontrolled, inflation will begin to affect us. Besides farmers who use diesel to pump water from wells, it will also affect those who drive Mercedes Benz, Tata Innovas and SUVs, which run on diesel," D K Joshi, chief economist of CRISIL said.
All other commodities such as plastics, nylon fibre, synthetic rubber and pesticides are made from petroleum. (See box)
"The oil economy is very volatile and virtually unpredictable. This time internatio- nal crude oil prices are going up because of political unrest in the area, which meets 40 per cent of the world's petroleum demand.
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India imports almost 80 per cent of the crude oil," said New Delhi-based economic policy analyst Paranjoy Guha Thakurta.
He added that the government is in a dilemma whether to continue subsidies and allow the public sector oil marketing companies to make losses, or to pass on the burden of increased cost to the consumers and invite inflation.
However, the signs for international crude oil prices are ominous, especially with protests still going on in Yemen, Libya, Algeria, Iran and Bahrain.
Besides, the Facebook page of Saudi opposition activists has called for a 'Day Of Rage' on March 11, while Syrian opposition activists' Facebook page has called for another 'Day Of Rage' on March 15. In which direction international crude oil prices are likely to go up is anybody's guess.
Petroleum Products
>Aviation turbine fuel used to fly aircraft is made from petroleum and so is bunker fuel, which is used to power ships.
>All plastic is made from petrochemicals. Every product made from or containing plastic is a product that exists only through the distillation of petroleum.
>Synthetic rubber is used for car tyres and rubber soles on shoes. The demand for synthetic rubber is four times greater than that of natural rubber.
>Synthetic fibres such as polyester, nylon, and acrylic are all derived from petrochemicals. They are used for curtains, carpets, rope and even the clothes you wear.
>Fertilisers are made by cracking naphtha ufffd a petroleum product.
>Most commercial pesticides come from oil.
>Paint and paint additives too are made from petrochemicals.
>Detergents used to wash clothes and dishes are derived from the petrochemical glycerine.
>Food additives used to increase the shelf life of canned food are derived from petrochemicals.
>Pain relievers like acetylsalicylic acid (ASA), the active ingredient in many pain reliever medicines, is manufactured from petrochemicals.
>Make-up, containing oils, perfumes, waxes and colour, are derived from petrochemicals.
>The majority of dyes we use, ranging anywhere from pens to hair dye, come from petrochemicals.
>Wax candles too are a raw petroleum product.
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