We Indians are completely out of touch with global reality. Anaemic and faltering economic growth in the US (Q1 GDP growth rate 0.1%) almost certain deflation in the 18 euro zone countries (Mario Draghi is desperately trying to save the deflation in the euro zone), the failure of abenomics in Japan to push its economy out of recession (currently the recession is in the 15th year) and China with its looming real estate bubble which could be similar to the sub-prime of 2008 and struggling hard to keep the growth rate around the 7 percent level. We want PM Modi to deliver a miracle. Believe in the facts. India has been made a highly indebted country by the UPA thanks to the expanded deficit budget to beef up the subsidy and the social security program. The new government hardly has any financial support to implement all its social inclusiveness program. On the other hand, we as citizens should be ready to accept financial hardships to pay for the previous sins. Let us see how the magic wand of the finance minister Jaitley works. In the meanwhile, let us continue to dream as it costs nothing except dismay and disappointment when the budget is presented. There are currently political events which have the potential of the breakdown of global trade with oil prices to sky rocket. Let us come to the situation.
The state of Iraq along with Syria have entered into a period of civil war which could reignite the long Iran Iraq war. The possibilities are extremely high. Let us start with Iraq. Mr. Nauri-al-Maliki, the prime minister of Iraq has asked his parliament to declare a state of emergency. The Sunni militants (Mr. Nauri is a Shia) organization ISIS operates in Iraq and neighbouring Syria have taken up arms to topple the Iraqi government. They have since taken over many Iraqi cities, over ran military bases, police stations forcing the Iraqi security to flee. The minority Sunnis have become insurgents since they were marginalized. There is a real possibility of the Iraqi city Mosul could be taken over by the Sunnis and this province is adjacent to Iran and Turkey. Mosul is situated in one of the worlds richest oil provinces – an area that includes the supergiant Kirkuk oil field and the oil fields of Iraqi Kurdistan which is estimated to contain 24 billion barrels of proven reserves. The fall of Mosul clearly demonstrates the failure of Iraqi security forces. The heavy weaponry available to the security forces is not adequate to deal with the insurgents. The Syrian forces those that fought their civil war have joined hands with Sunni fighters.
In simple terms Iraq is in a civil war. Syria is already involved in the war and it is likely to spread to Iran in the next few weeks. These are huge oil producing countries. All form of interruptions in the global oil flow is imminent. If the war were to spread to Iran the strait of hormuz through which oil flows to the west and the east will be affected. One should brazen oneself for the oil price shooting up. It touched a high of 146 $ a barrel only a few years ago (currently WTI is around $ 105 a barrel).
This is good news for the oil traders who will push the price of oil to the skies. It is also good news for the US. Their big inventory of defense weapons would at last be sold. It is real bad news for India as nearly 30 percent of our imports are oil. Let us hope for the best.