Oil price hike

It is incumbent on us to realise that this price hike is going to disproportionately affect the middle class and poor.

With the IMF breathing down its neck and the world price of oil galloping to over $100 a barrel, the government took the painful step of increasing the price of petrol by nine per cent, making it just over Rs83.50 per litre. Let us be clear about one thing. This is not a case of a rapacious government trying to fleece its citizens out of every last rupee. Rather, it is a reduction in the subsidy already being granted to consumers of petroleum products. The Oil and Gas Regulatory Authority says that in the last six months, by not passing on the entire increase in oil prices to the consumer, the government has ended up losing Rs35 billion in foreign exchange. Such a situation was clearly not sustainable for a government that has been teetering on the brink of solvency, making this price hike a painful but necessary step.

Undeniably, the turmoil in the Middle East has caused a sudden rise in the international price of oil and some commentators are predicting that it may soon go upwards of $150 a barrel. What the government now needs to ask itself is if it is willing to further subsidise petroleum products even with a likely increase in oil prices. While acknowledging the necessity of this step, it is incumbent on us to realise that this price hike is going to disproportionately affect the middle class and the poor. It is a sad truth that petrol and diesel are vital to Pakistan’s economy and that the increase in its prices will lead to inflation throughout the economy. The price of food, for example, will rise since the cost of transporting food has now increased.

There is no short-term solution to the conundrum the government finds itself in. There is nothing it can do about the vagaries of international oil prices. In the long run, however, we have to reduce our dependence on imported oil. What we need is a significant investment in solar and wind power, which, while not completely getting rid of our need for oil, will provide cleaner and cheaper energy. It is time to find alternatives to oil as fuel for our economy.

Published in The Express Tribune, April 2^nd,  2011.