The politics of global food and energy crisis

By John Stanly

New Delhi, June 18 (IANS) The soaring food prices and the global energy crisis that are glaring at us today have proved many optimists of the past wrong. Some of these optimists had said three decades ago that the world will never have to face the current scenario as had been predicted by some Malthusian thinkers then.

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In 1972, the Club of Rome, a global think-tank that deals with various policy issues, published a report entitled “The Limits to Growth” on the predicament of mankind. The report that predicted a major resource crunch by the end of the 20th century drew flak from many capitalist economists at that time.

The Club of Rome wrote 30 years ago that only “550 billion barrels of oil remained and that would run out by 1990”. Today, as oil prices cross $139 a barrel, many economists fear that the production has now reached its geological limits, or the peak oil.

When the food prices went high, US President George W. Bush had said it was a result of the “growing prosperity” of India and some other economies like China. Whom will the US now blame for the energy crisis? The rest of the world is actually eager to listen to what the world’s highest energy consumer – which unleashed a disastrous war in the oil-rich Middle East five years ago – has to say.

High prices have sent alarm signals across the world. Indonesia announced that it would quit the Organization of the Petroleum Exporting Countries (OPEC) to protest the oil cartel’s policies.

Prime Minister Manmohan Singh has called for austerity and efficient energy use as one of the ways to address the crisis. French President Nicolas Sarkozy suggested more subsidies, as his country’s fishermen staged protests at ports. British Prime Minster Gordon Brown asked oil exporters to raise production as lorry drivers blocked roads in London and Cardiff. Even the US, the apostle of free market policies, is also planning some gas-tax holidays to ease the consumer’s burden.

What made the oil market so vulnerable?

“The price of oil was $51 in January 2007, it is now touching $138 a barrel. In the last six months it has risen by 42 percent and this situation is unlikely to change,” R.S. Kalha, India’s former ambassador to Iraq, told IANS.

Many experts say the Bush presidency started the dangerous global fuel-game. Oil economist Mamdouh Salameh, an advisor to the World Bank, recently told Britain’s The Independent newspaper that the oil price would now be no more than $40 a barrel had there not been the Iraq war.

Before the 2003 war, Iraq pumped some 3.5 million barrels of oil a day, but this has now fallen to just two million barrels.

“Perhaps one of the few countries that has sufficient oil reserves and can easily meet the growing demand is Iraq. With reserves of 115 billion barrels, its present output is not even anywhere near the pre-invasion (2003) levels and is still less than pre-war (first Gulf war of 1990) times,” Kalha, the author of the recently published book “The Ultimate Prize – Oil and Saddam’s Iraq”, said.

“If political stability can be ensured and Iraqi oil begins to flow to the markets of the world, much of the present economic distress can easily be avoided and political convulsion contained,” he added.

But will that happen in the near future?

The war tightened supplies, setting the stage for a steep rise in the prices. At just under 86 million barrels a day, global oil production has actually stagnated.

Another reason, many economists say, for the high energy prices is speculation in the commodities markets. With the global slump in economies, speculators keep moving their funds from sector to sector in search of higher returns.

Now, around $260 billion is invested in commodity funds, a 20-fold rise from 2003. The data released by the New York Mercantile Exchange (NYMEX), the world’s biggest market for oil, show that the number of transactions involving oil futures on the NYMEX has almost tripled since 2004.

Whatever reasons the economists have, one thing is clear – the world is leading to a major resource-crunch that will have disastrous political implications – and even food riots as seen in some countries. Food prices have already triggered civil unrest in many parts of the Caribbean and Africa. If energy prices continue to rise, the unrest will spill over to the developing economies like India and China, the experts warn.

The future is bleak. Global consultancy Goldman Sachs says that oil prices will cross $200 in 2009. Though the industry discovered some new oil reserves in Latin America recently, energy economists say it will take years to pump it out from these reserves because of technological reasons. If the situation remains, the oil producers will cut down exports to meet their domestic demand, throwing the international prices into orbit. How will the world survive such a situation?

Iraq invasion, according to many, was the first “oil war” in human history. The post-war situation shows that it was just the beginning.