Impact of Oil at 115

Oil prices have zoomed to $115 per barrel as per the latest reading. Asian economies are still protected from high oil prices by the respective governments through subsidies. Now a $200 per barrel becoming a possible reality, asian economies need to have a rethink on their continued stance of subsidising the common man at large by shielding him through low prices of consumable oil derivatives. As we all know, petrol and diesel are subsidised at large to prevent the pass through of high crude oil prices to the common man. We also have distribution of other derivatives of oil through the PDS (Public distribution system) at minimum support prices. All the effects of these subsidies take a hit on the balance sheets of governments. The fiscal deficits which are understated in most countries excluding off balance sheet items like subsidies will only rise further with oil at $200 per barrel and a policy such as this will only result in interest rates and bond yields rising further in the long run. The need of the hour is to conserve energy, reduce demand for oil and its derivatives, announce huge fiscal incentives for harnessing non renewable sources of energy and fuelling the consumption of the same. For eg : How about setting up a solar grid network similar to a telecom tower to supply power to each area of major cities? how about adopting ethanol and biofuels for transportation instead of relying on petrol, diesel or natural gas. Hydel power is an area yet to see major investments from corporates. These are opportunities for the modern world to reduce its long term dependance on oil as a source of energy. No doubt, it requires proactive measures with long gestation periods to adopt non conventional and renewable sources of energy but considering the perennial benefits that we would leave for our next gen., its worth the effort. The world would no longer have to put up with the black commodity in triple digits.