Fear in a barrel of oil

We all know what's happening because of inflation. Everyday items are getting more expensive or scarce. The poor and the middle class are struggling to pay their household bills, while the affluent are cutting down on lifestyle spending. There's hardly anyone who isn't talking about the price squeeze.

The larger picture is gloomier. The Sensex is sliding down and interest rates are shooting up, prompting finance minister P Chidambaram to make brave efforts to calm the nation's nerves. Yesterday, he appealed to oil-producing nations to stick to a price band and help the world pull back galloping prices. (Not that anyone's going to listen.)

The damage is there for all to see. Inventories in manufacturing are building up, and jobs are being cut in almost all sectors. Airlines are pruning their schedules, and even companies with deep pockets are scrimping and scrounging.

In India, inflation has crossed 11.3 per cent and put the Manmohan Singh government on the defensive. Things are not so bad in Europe, where inflation is at 3 per cent and the US, where it is at 5 per cent. Yet, the West is more worried than India and China, and is contemplating the terrible prospect of oil soaring to 200 dollars a barrel in the near future. What does it all portend?

You might think we still have some things left to smile about. Costlier petrol means we stop burning it so merrily. More citizens start using public transport (a majority in India always do, in any case, because they can't afford cars!). We build smaller and more fuel efficient vehicles, try to find alternatives to fossil fuel, invest in research. And in the process, environmental concern pays off not just for the planet but for our household economies as well.

But what the West sees is a chilling vision: a change in the world's power equations.

As oil prices rise, some countries make windfall profits, while others descend into wretchedness. Countries that suddenly make a lot of money behave like the noveau riche, and can boorishly start fighting at the smallest provocation.

That's why America expects wars among oil producing countries. What scares the West the most is the prospect of oil prices making life miserable beyond endurance, and forcing governments the world over to reverse the trade liberalisation of the last 30 years. That's real bad news for the West.

A Newsweek report says the Americans, known for their wasteful ways, are cutting down on driving this year for the first time since 1991. The magazine also estimates that the more the Europeans spend on fuel, the less they will spend on furniture, clothing and white goods.

Banking giants expect an "increase in corporate failures". Citibank's equities economist in Europe is quoted as saying, "We expect … a lot of M&A. You might well see flush emerging-markets firms swooping in to buy up ailing Western firms on the cheap."

Newsweek interprets "emerging-markets firms" to mean companies such as the Tatas. As India slowly establishes control over the world automobile industry, it will also gently participate in tilting the balance of power away from the West.

High oil prices may mean a richer Iran, and that isn't something America likes either. America fears that a stronger Hizbullah would mean an end to culture and civilisation as now understood in the English-speaking world. As Newsweek puts it, "Western ideas about civil society, the environment and women's rights could be displaced with new sets of values."

The oil price hike may already have changed what you eat and how you spend your weekend, but just you wait! As the Americans say, "You ain't seen nothin' yet!"