Analysis of supply side economics of crude oil and impact on India’s economy and policies

Abstract

The journey of petroleum started when a company was established to separate oil from water near Pennsylvania. The Pennsylvania Rock Oil company which with its humble aim of providing alternate source of lighting revolutionised the how the world, which was still going through the pangs of industrialisation, functioned. The first drilling which reached a depth of sixty nine feet set off a spark which was to entwine societies and governments, it would make businesses boom and many of them went bust. The discovery and acceptance of petroleum as a fuel changed how the governments functioned and it soon went on to become a commodity which would have more influence on the economy than gold and which would change the geo-political and economic scenarios of the entire world. Today when we look at the extreme fluctuations in oil prices and the innovations in the energy sphere with a newfound focus on environment we might fallaciously forget that black gold, as petroleum is often referred to as, was a key commodity in defining the world as it is today. More than discovery, it was the variety of applications that distilled petroleum products could be used for which made it a much sought after prize. The image that comes to our mind when we think of petroleum, is probably automobiles. What is not so evidently known is that there are hundreds of products which are derived from petroleum which have uses that are as diverse as healthcare and construction. It was very soon that the industry found out that value addition to petroleum products was an extremely profitable venture. And henceforth crude oil and its derivatives became as essential as any product ever discovered by humans. The next and immediate breakthrough was transportation of crude oil. From pipelines that criss-crossed the United States to special tankers which sailed across the oceans, petroleum was not just restricted to where it was found, it was now going places. Governments were now ensuring that physical barriers do not become a stumbling block in a petroleum led world. Some of the largest corporations that we know today sprang up from the oil businesses. In fact the business practices that we have in place today which guarantees a transparent and a fair process is directly linked to the events and the aftermath of the intense competition that emanated from the desire to control petroleum. In fact the 1911 antitrust law dictated by the US Supreme Court was one of its first in the world and can be directly attributed to the monopoly perpetrated by the Standard Oil Company of the US which later broke up into 34 smaller companies. The oil producing countries have always had a determining role in the way oil influences the global economy. We are able to directly link prosperity in many of these nations to the discovery of petroleum. The presence of such an essential resource has definitely improved the government’s ability to push for development but we found that it isn’t just the only factor that can lead to a better society. In fact money inflow resulting from petroleum has led to instability in a lot of oil producing countries.