Inflation is the single biggest concern for the global economy, driven by a mix of factors including the energy security crisis – the first of its kind in living memory. This crisis is said to be different from the oil shock of the 1970s, which was also triggered by a war - the armed conflict of Yom-Kippur 1973. Later, the crisis was exacerbated by the revolution in Iran in 1979.
Today’s crisis, while also triggered by Russia’s invasion of Ukraine, is playing out in different ways. The fallout, the International Energy Agency (IEA) recently warned, will likely be a substantial and prolonged reduction in Russian energy supplies, most notably to Europe.
Noting that Russia was the world’s largest oil and natural gas exporter in 2021, the IEA warns that the disruption has thrown energy markets into turmoil and created major ‘energy security’ and ‘energy poverty’ risks worldwide today.
And this is a hot topic of discussion at the World Economic Forum (WEF) here at Davos.
The developed world fears the energy crisis could mean that the painstaking efforts to reduce global greenhouse emissions would get derailed, as economies across the world fall back on fossil fuels to secure their energy needs. The fears are underlined by the IEA with its remarks that “we cannot allow tackling climate change to become yet another victim of Russia’s aggression”.
The energy security crisis is not the only one building up in the world.
Food security has also become an issue as prices soar worldwide post the Ukraine conflict. And like climate change that is said to be behind the unseasonal, torrential rainfall and the extreme, early summer in India this year, the fears over food insecurity are also visible in the recent export restrictions by the Indian government to secure domestic supplies.
But it is not India alone that has been responding with policy and administrative measures to contain inflation.
It may come as a surprise that Saudi Arabia, the world’s top producer of crude oil, says that its economy and people cannot bear the consequences of crude oil being above $70 a barrel.
This from no one but Saudi Arabia’s finance minister Mohammed Al-Jadaan, who told a WEF panel, that a cap on the domestic price of gasoline, when crude oil passed $ 70 a barrel, had helped to insulate the Kingdom from rising prices. “We froze price escalation of gasoline for the internal economy and households at $70. So, anything above that, the economy will not feel the heat”, he said.
Indian consumers have had some respite over the past two months as the central government has ensured that oil marketing companies do not raise prices, and also cut the excise duty on petrol and diesel.
Saudi Arabia’s policy approach underlines that if the world’s top producer of crude oil can act to protect its people, it is only reasonable for Indians to expect that their governments – at the states and the centre – also act to insulate them from rising prices, of fuels and prevent any spirals in food as well.
Expect the next few months to be one where the centre and states, as well as the Reserve Bank of India, remain under sustained pressure to rein in the monster of inflation.
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