Oil

Several jeepney drivers associations have announced a transport strike next Monday. The purpose of the exercise is to protest the rising price of oil.

That is insane.

It is like organizing a protest against the heat of the summer months. Or marching in the streets to denounce the fact that a drought has set in.

The increases in the price of oil is not in anyone’s control. It is a function of dwindling supplies and rising demand. It is a consequence of a strategic condition where non-renewable energy demand has risen faster that the discovery of new commercially viable fields.

A few weeks ago, the Organization of Petroleum Exporting Countries (OPEC) decided to raise production levels in order to soften crude prices. The increased production happened. The softening of prices did not.

During the depths of the winter months in the northern industrial countries, everybody said prices would relax after the seasonal increases in heating requirements go down with the break of springtime. Well, springtime has broken and oil prices still hold at record levels.

The last we looked, spot prices hovered at about $58 per barrel of crude. That is more than double the level of oil prices a year ago.

Because the price of crude appears to be holding rather than relaxing, the oil companies have announced that domestic pump prices could be increased soon by P1 per liter. That is going to be painful.

Oil prices have now become the biggest source of uncertainty for most of the world’s economies. In our country, oil prices have been the single factor pushing up our inflation rate and pushing down President Gloria’s job approval ratings.

No one can claim to have the oil price situation under control. Not OPEC. Not the oil companies. And certainly not government.

The prevailing oil price level is a function of global supply and demand factors. Those factors are aggravated by anxiety, by speculation and by the resulting propensity for countries to hoard strategic stocks of the vital commodity.

Only absolute ignorance or utter political cynicism could possibly motivate those who want to make the oil price situation a political issue.

And yet that is precisely the intent of the left-wing groups and their allies among the militant jeepney drivers associations plotting disruption of our economic life next week. These partisans want to make government the fall guy for the difficulties we all endure because oil prices could not be mitigated.

In order to achieve the political goal of making government the fall guy – thereby creating opportunities to undermine stability or leverage the administration – the advocates of mass action against oil price increases find it necessary to blame the policy of deregulating the oil industry as the culprit for our woes. Illogical as that might be, the oil deregulation policy is an accessible whipping boy for stoking populist passions.

I have explained in previous column why the deregulation law makes this present oil price situation more reasonable than it could have been if the oil industry continued to be nationalized. Subsidizing the most income elastic commodity – oil – will only result in diversion of scarce public funds to the detriment of the poor as well as numerous opportunities for market distortions and corruption. If the oil industry remained nationalized, that would have been a magnet for politicizing oil prices and forcing government to buckle to populist agitation and subsidize fuel.

What oil deregulation has achieved, quite remarkably, is the de-politicization of oil pricing.

Since de-regulation insulates government from those who want politicized oil pricing, the agitators now want to organize protest to repeal oil deregulation. This is not motivated by clear economic reasons. It is motivated by cynical politicking.

If the oil industry is re-nationalized at this point, international opinion of our ability to manage our fiscal crisis will drop through the floor. That will multiply our people’s miseries rather than mitigate them.

The projected jeepney strike is nothing more than an effort to exploit the potentials of the prevailing oil price situation for populist rabble-rousing in order to advance an ideological agenda. It is animated by the delusions of the political Left which historically benefited from the rabble-rousing potentials of the oil pricing issue. Recall that the Diliman Commune in 1971, and other similar events in the succeeding years, were sparked by agitation designed to exploit public anxiety over rising oil prices.

Technically, oil prices have increased only marginally in real, inflation-adjusted terms. But that is a technical computation. The man-on-the-street who feels he is paying through his nose for a liter of gasoline will not be impressed by technical computations. The cynical agitators know that only too well.

At somewhere between $40 and $50 a barrel of crude, oil prices should just be about right where they are after the oil shock of the early seventies. The oil exporters are merely recovering their real incomes from a commodity that is quickly running out because of insatiable demand.

Will the oil spiral ever end?

Yes, it will. But historically, oil price spirals have been cured only by a deep global economic recession. Recession happens because investments are diverted to paying for fuel and prices of everything else rose beyond the reach of consumers.

In this case, the antidote is probably as painful as the disease. Recession is never good news to anybody. It means evaporating jobs, greater poverty and contracting economies.

But as oil prices appear to be holding on at a high level well into the foreseeable future, there will be market conditions encouraging the development of new, fuel-efficient technologies. This, too, is happening - except that it is not happening fast enough to mitigate the galloping demand, especially from fast-growing economies like China which is looking forward to putting several million more private cars on the road over the next few years.

There is, in a word, no painless and immediate solution in sight to the scourge of high oil prices.

Transport strikes will not mitigate the problem of high oil prices. Such brainless exercises can only aggravate the misery of an already suffering public.