Sometimes, human beings get so much engrossed and enmeshed in 'petty' internal issues and squabbles, to the point that they lose sight of the larger external threats surrounding them. By the time we become aware, we are consumed beyond redemption by what was an obvious threat to all of us. In some cases, preventing that threat is such a challenge, we may not be in a position to stop those threats from manifesting themselves in real life situations, but recognizing the threats and preparing or conditioning ourselves for the worst, is part of dealing with the situation. The outcomes of such threats, no matter how fatal they might be, could be better managed than if they came to us as a surprise.
I have said it time and again, that apart from corruption and the shortsighted politically motivated policies we have had in our development patterns in the 62 years of our nationhood, one single commodity that we cannot afford to dispense with – crude oil – has been the bane of our economic backwardness. When did it all begin? The crude oil price hikes from 1973, forcefully championed by the Organization of Petroleum Exporting Countries (OPEC) was a major economic destabilizing factor for the global economy and developing nations particularly in the 1970s up to this time.
When the infamous National Redemption Council (NRC) of Col. I.K. Acheampong took over the reins of government in this country in 1972, a barrel of crude oil was sold on the international market for US$3.00. By the end of 1978, the price had ballooned to US$24.00 per barrel. Certainly, government's import bill for crude oil had gone up, thus affecting other sectors of the economy. With the fear of courting the displeasure of the Ghanaian populace led by the then powerful socialist academicians in our public universities, the regime did not find it economically prudent for it to pass on the rising costs of petroleum products unto the final consumers.
While all around us as a nation, our neigbouring countries were increasing the prices of their petroleum products, ours were heavily subsidized. In the event, it became attractive for unscrupulous Ghanaians and nation wreckers (this phrase became very popular during that era) connived with our neighbours to smuggle petroleum products from this country to all the countries sharing borders with us. They made money. In the process, the economy suffered in many ways, funds needed to embark on development projects were used to subsidize the consumption of petroleum products. The economy stagnated, everything went from bad to worse and nothing was, but what was not. It created a deep hole in our finances which we never recovered.
The post Acheampong era did not see any policy changes in the management of this very critical commodity which had taken the nation hostage. Until the Kufuor administration deregulated the petroleum sector, pricing of the product had always been in our national budget, prices fixed for a financial year even as the volatility on the crude oil market saw upward increases most of the time, coupled with unstable local currency.
We might have forgotten about the supposedly huge debt left behind by GNPC then led by Mr. Tsatsu Tsikata. The GNPC committed no crime in as far as the petroleum sector was concerned, they only imported crude oil at prices which were rising on the world market while it did not have the power to fix the ex-pump prices to recover the cost of importing the crude and other administrative and allied costs.
It was President Kufuor's deregulation policy which privatized the oil sector and reduced government's total control over the sector. Even this noble policy had its own challenges as regards the extent to which Government would allow the importers to fix their prices in line with import costs when it becomes hugely unbearable to the populace. One such example was the instance of the latter part of 2007 when oil prices rose steadily until it peaked at 2008 in an election year. The ex-pump prices had to be halted at a point, the outcome was a destabilizing effect on our economy subsequently. It also costs the NPP the election in that particular year.
The events on the globe today points to a situation where oil prices are likely to rise astronomically should events we seem to be grossing over become a reality. In just about a week or more back, the conflict between Yemen on the one side and Saudi Arabia and its allies on the other, have seen increases in the ex-pump prices which have also seen increases in road transport fairs across board. The Houthis in Yemen sent some drones which disabled about half of Saudi Arabia's oil refineries. This has created a shortfall in supplies globally, hence the increase in petroleum prices. The Saudis blame the Iranians for launching the drones, an allegation the Iranians have vehemently denied. A so-called investigation by France, U.K., Germany and of course the U.S.A., have all pointed to Iran for the launch of the drones that made shocking damage to the Saudi economy.
Meanwhile the Saudis have promised that should investigations lead to the Iranians, they would embark upon reprisal attacks on the Iranians. So far, the U.S. and its allies have started amassing their arsenals all directed towards Iran. Iran stands resolute and that should it be attacked, it will defend itself in all ways possible as a sovereign nation.
The battle ground seems to be so far away from us in the Western part of Africa but the effects of it, should there be a full scale war between Iran on one hand and the Saudis ably supported by the U.S.A and its allies, that would destabilize the global oil economy since Iran and Saudi Arabia are major producers of oil. Just as the Houthis in Yemen attacked oil facilities in Saudi Arabia, any war would target oil facilities and installations in both countries, and just as the Iraqi invasion of Kuwait in 1991 saw global rise in oil prices, in the not too distant future, the world would go through a similar situation should there be a full scale war as enumerated above.
This is a major threat to all developing economies particularly those that do not produce oil in such huge quantities as to 'benefit' from the resultant oil price increases. Sadly, as a nation, we are not discussing this situation which, willy-nilly, would have unbearable negative effects on us. The government communication machinery is not looking into the future. It is not bringing this 'danger' ahead of us, to the table for discussion to prepare the minds of Ghanaians to appreciate that should the unfortunate happen, we are likely to see huge increase in the ex-pump prices of the product.
The state of our economy today, and the fiscal situation we find ourselves would not allow the government to attempt to absorb any increases in oil prices. Being so close to an election year, early information to the populace as regards the threat to the global economy would likely make Ghanaians appreciate and understand the situation, should our worst fears happen. Previous efforts at clearing the financial mess created by this single commodity, through deregulation and the establishment of the Energy Sector Levy Act (ESLA) to resolve energy sector debts due banks and trade creditors have still not taken us out of the woods. Any future massive increases in oil prices will spell further economic doom as well as creating electoral challenges for the NPP. Is anybody listening?
Daavi, just three tots.
By Kwesi Biney
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