The deceits and illusions behind fossil fuel have been staring glaringly at many countries in recent times.
The Dutch disease hypothesis, as postulated by the Neoclassicists who were first to posit the destructive tendencies of dependency on crude oil, were vigorously countered by the Keynesian Economists, in the lights of the assumptions that the global population is surging and fossil-energy demanding technological artifacts are at the apogee of global invents, that there is bound to be an ever growing demand for crude oil.
Debating on Keynesian economic postulations then, was more or less an academic taboo, owed to the Keynesians invent of macroeconomics, and deployment of varriants of Keynesians’ postulations/theories that bailed the American and the World economy out of stubborn and persistence economic recession of 1930s.
The drama is gradually playing out in defiance of Lord Keynes and his followers. The fossil fuel that killed the ancient Dutch economy in the very early 20th century is playing out on all petroleum dependent economies. Here are the two key “murderers” of the petroleum dependent economies:
- The global Hydrocarbon (petroleum) economy has been drifting towards functional monopsony, (a market structure where there’s ONE buyer, but MANY sellers). Monosopsonistic competition is characteristically engulfing the global petroleum industry, as the big global buyers/consumers, (India, Chinese, Japan, etc), are cynically collaborating and brutalizing the global oil industry. They have been working toward forming singular purchasing power, forming a unitary demand force, to counter the price stabilization models of the OPEC member countries, so as to take the price of crude to their comfort zones.
- Hydrocarbon is gradually fading out as the cheapest and environmental friendly source of energy. Just as the advent of petroleum, in succession, killed global demand for coal, cheaper and more environmental friendly alternatives are creating good substitutes for the the fossil fuel. The world is gradually appreciating these substitutes, and the opportunity cost is taking toll on crude oil.
Petroleum or any primary commodity export has never helped any country in the world. As posited by the President of African Development Bank, Dr. Adesina. We need to get involved in the value chains and work to add values to our primary commodity exports. For instance, Africa produces 75% of the global supply of cocoa, but only involved in 2.5% supply of global chocolates and cocoa based products.
Some decades ago, owed to some strange developments in the global oil industry, Saudi Arabia supplied a whopping one-third of global crude oil demand.
Today, Saudi economy still remains a bloody third world economy. No doubt, fortunes were made, foreign reserves built, incidentally, the volatility, occasioned by the usual “inevitable” gyrations in global petroleum prices, at a point, consumed and depleted the huge reserves, as the reserves were plunged into stabilization security, to shield the Saudi economy from an epochal recession, induced by the drastic decline in the price crude oil, that followed suit.
The vicious cycle of; Boom- Stagnation- Retardation= RECESSION, is bound to continue infinitesimally in petroleum dependent countries. It’s a mystery equation of destruction, and its transmission mechanism has defiled OPEC permutations and all econometric analyses.
It has remained unresolved by renowned petroleum Economists till date. As far as these nomenclatures interact, there is not much to take home in petroleum dependent economies, other than seasonal deceits and illusions.
From this analysis we can agree that, the once almighty Crude Oil, certainly, should be out of question in Contemporary Economic Planning. Global economy is now driven by technology, creation and involvement in commodity value chains.
Any economy that wants to stand the taste of time and build sustainable growth, needs to diversify into endeavors that add value to their exports and concentrate in the production of commodities of popular global demand.