Pakistan external account is almost always in stress when the international oil prices hover over $70-80 mark. Current account slips due to higher import bill. Fiscal revenues are compromised due to low taxes on petroleum products. Energy circular debt grows due to higher fuel cost which is not fully passed on to the consumers. Inflation remains high due to higher petroleum prices and its second-round effect. The ongoing slippages are more attributed to higher commodity prices than the case of demand growth.

There are some early signs of oil prices easing. But the wind can blow in the other direction too. There is sigh of relief; but uncertainty persists whether these shall sustain. The higher energy and other commodity prices in the aftermath of Covid is bringing inflation across the globe. This has compelled many economies to think on using their strategic reserves to reduce their reliance on the imported petroleum products in anticipation of fall in demand to lower the prices. Yet, the oil producing countries can lower the supply to nullify the impact.

Yesterday, President Biden announced release from US strategic petroleum reserves to lower oil prices and to address the lack of supply around the world. US is not the only country trying to calm the market. Many other oil consuming countries (net importers) – such as China, India, Japan, Korea, and UK are doing the same to bring sanity to the energy pricing market.

Such efforts are reflecting in the pricing. Oil and petroleum prices are already down by 5-8 percent in the past couple of weeks in anticipation of lowering demand from the consuming countries. The oil producing countries are looking at it and the question is whether they would lower the supply in response to falling demand. If that happens, oil prices may go up or remain at current levels. However, if oil producing countries decide to not reduce the supply, oil prices may come down further, easing the pressure for many oil importing countries.

The game is going to be of economic and politics at the same time. The movers and shakers of oil producing countries are Russia, Saudi Arabia, Kuwait, and UAE. It seems like Saudis may not go against the will of the US to lower the production. They may fall in line with the US. Other GCC countries may also follow suit.

It would be interesting to see what Russians do. In another development in the energy market, the US has imposed sanctions aimed at Russia’s Nord Stream 2 gas pipeline. The European gas prices rose after this news. Putin has called this move as “illegal”.

It seems Russian is not happy with the US. Now when the US wants oil prices lower in its favour, Russia may be inclined to bully the giant. This could well trigger the oil supply war between Russians and Saudis. In early days of Covid, there was a tussle between Russians and Saudis, on boosting the supply of oil. The prices went down and touched the low of $19/barrel in April 20. Now a reverse of this could happen and prices could head north to a new high of many years. Interesting times ahead. Let’s see which direction the camel sits. Pakistan is an eager spectator hoping US wins this round, and Saudis join the bandwagon.