The Palm Scribe

Corona Virus and Cheap Oil

You may be forgiven to think that there is no connection between the two. But they are more connected than you think, and it would surprise you to see which one is deadlier….

However, let us first talk about their connection before I spring the surprise.

It would not be far wrong for me to say that the Corona Virus or Covid-19 is perhaps the most terrifying thing in everyone’s mind nowadays. More than 120,000 confirmed cases worldwide and 3,500 fatalities. The virus has now transcended boundaries and turned into what the World Health Organization is calling a pandemic. The virus has also forced a number of countries to declare a state of emergency, instituting a lock down at the regional or national levels. A number of countries have also been declared off limit for travel by others.

The rapid spread of the virus has also lead to some extreme. I mean, when was the last time you fought over toilet paper? I still cannot figure that out. Hugging or shaking hands have now gone out of fashion and my hands are starting to wear out from all that washing and alcohol. And despite all the warnings, I still cannot help touching my face.

This virus has also caused the widespread destruction of demands, except, of course, for masks, hand sanitizers, toilet paper and gold…

Everything from luxury goods, tourism, apple iPhones, travel, planes, to parties and gatherings, has just become unimportant to people now. Trade has just hit rock bottom. and that is where the connection is.

As people avoid moving around much and business is slowing down, demand for transport has plummeted and with that demands for fuel. There are just not that much need for fuels for planes, ships, trucks and cars that are not moving. And when you do not need more fuel, you expect prices to drop. Especially when the two largest petroleum producers are already busy having a very serious cat fight between them.

So, you see, this pandemic has set in motion a series of events that has led to cheap oil.

And here comes the shocking part.

I am absolutely petrified at the prospect of cheap oil becoming the norm for a sustained period of time. Its effect on life on this planet will be far worse than the impact of the pandemic. Fossil fuel when it is cheap, is both addictive and deadly. It becomes a disincentive for innovation or productivity. Why bother with renewable or green energy/biofuel with low sulphur when you can burn cheap hydrocarbons.

Which brings me to the second part. Air pollution from fossil fuel emissions kill 10,000 people a day. Yes, that’s right, 10,000 people a DAY die from air pollution from fossil fuels, a much higher mortality rate than Covid-19, SARS, Aids, Swine Flu, all combined. A study published last week in the journal Cardiovascular Research estimated that in 2015, the deaths of more than 3.6 million people worldwide could have been avoided if air pollution from fossil fuels were reduced to zero.

By the way, the study also said that East Asians have the highest mortality rate from air pollution, at 35 percent compared to, for example, Europe which was only at 9 percent.

Some say cheap oil will only be temporary and prices of fossil fuel will go up again. Well, I really am not sure about that.  You see, governments, or should I say politicians in most democratic nations, like to please their electorate. One sure way of being popular and get re-elected super-fast, will be to pass on the cheap fuel prices straight through to their constituents. Everyone likes cheaper fuel, right? Lower fuel prices also lead to cheaper goods and services indirectly and in turn spur demand.

But what then will happen when prices of fossil fuel come back up again? And they certainly will, considering that there is only a finite supply of the commodity and not all nations are blessed with vast oil reserves.

People will start complaining again, voters would not be too happy. So, what is likely happen? Will it not be the path of least resistance to perhaps just give petrol subsidies again to cushion the blow for the constituents? See, that is where cheap oil is addictive…

But I remain an optimist. I believe that we all have within us, the necessary intellect and foresight to know what is not good for us in the long term. We all care about the fate of our children, want them to live longer and spare them the pain of dying prematurely of air pollution.

Governments also have the tools within the laws provided by their constitution to apply the right policies on the use of fossil fuels. Many countries have price fixing mechanisms for important commodities, for staple foods such as rice, sugar, grains.  And they should for sure also cover fuel. Governments must take the responsibility to fix fossil fuel prices at a rate high enough during periods of low crude oil prices so that it will still incentivize industries to innovate to increase productivity. To seek ways to use less fossil fuels and promote or subsidize the use of renewable green energy (wind, solar, Hydro, etc.) or biofuels (vegetable oils, waste, etc.) that would reduce emissions.

It is not unusual for governments to tax the use of fossil fuel to generate vast amounts of revenue. Revenues that would finance education, healthcare, infrastructure, rural electrification, and perhaps even subsidize alternative energy sources, biodiesel, etc. Some say that thanks to the industriousness of the petroleum industry, taxes on fossil fuels is one of the most efficient form of tax collection for governments.

So, let us not fall back to the trap of subsidizing any more fossil fuels. I sincerely hope that governments of the day find the courage to do the right thing and not the easy thing. Someone once said courage is not living without fear but rather, it is being scared to death and doing the right thing anyway.

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