OGDCL’s discovery of “significant reserves” of hydrocarbons in KP comes at a good time for Pakistan’s stressed reserve-position. Not only has oil’s erratic rise in the international market played havoc with predominantly commodity-import economies, it has also fed into healthy remittances coming Pakistan’s way. More importantly, the landmark discovery will position Islamabad to bolster savings and become more self-reliant.
It is important to note that oil industry dynamics and pricing patterns have departed from traditional norms in the current, strained situation among swing producers. Usually, Saudi Arabia, the market-dubbed central bank of black gold, pushes for lower prices than its more hawkish counterparts in opec (read Venezuela and Iran). The reasoning is simple. Higher prices push down demand in strong western economies, undermining oil earning in the long run. But with the Saudi’s having to float $138b to grease appropriate palms in the eastern provinces, Riyadh’s breakeven price has jumped to the $90-95 mark, opening a brand new chapter in international oil pricing politics. Absent a game changer, oil is unlikely to mimic the dramatic ’08-’09 hundred-dollar drop.
These developments make indigenous extraction, refining and production that much more important. Any hike in oil prices translates into inflation across the board, since the commodity makes for the chief input cost in all industries. Pakistan’s abnormally large oil import bill has kept it hostage to cross currents in international political economy for far too long. It is heartening that testing of four more potential reserves is being undertaken, with expectation of similar results.
Now, Islamabad must quickly position to translate these gains to the wider economy, where high input costs, along with acute power shortage, are retarding production and growth. This discovery should play a significant role in easing the centre’s fiscal crunch.
