Petropolitik, Sapian and China

The recent upsurge in world petroleum prices brought uncertainty to the global economy and brought stark reminders of the oil crisis of the 70s. In 1981, Ms. Ligaya Ofalla-Oro gave me an oratorical piece at a Sapian National High School contest. The topic was on oil crisis. It was surreal for me; all I had was a bicycle. Sapian then, while closely entwined with global petropolitik, did not have strong demand for gasoline.

In any event, it is worth to revisit. The oil crisis three decades ago was a showdown between the cartelized Western transnational oil companies and oil producing autocracies united under the then newly formed Organization of Oil Producing Countries (OPEC). OPEC, including the former USSR, brandished its newfound power at the height of Cold War, primarily against the United States, the largest petroleum trader and consumer. The induced shortage due to lowered supply was to assert OPEC power - a purely political theme.

At that time, impact on Sapian was muted. The highway system was in sad state so very few invested on vehicles even in Poblacion. Traffic of public transport plying Bilao-Damayan-Roxas City was probably less than one every hour. As such, per capital petroleum consumption, diesel at that, had been negligible. So no one really cared much about oil prices more than whines from commuters. Capiz Electric Cooperative (CAPELCO) had only installed power transmission lines so consumers did not really have any historical sense of increasing prices. The first flicker of incandescent was enough consolation. Probably, the worst impact may have been upon fisherfolks using motorzied boats, but gas burden may have quickly dissipated in upstream pricing of their abundant catch. In fact, it was the early start of the future boom on fishery export to Iloilo and Manila. At the whole, Sapian was isolated from the petroleum crisis, so I mumbled my oil crisis piece with pure detachment from the issue.

Thirty years hence, oil crisis came back with a vengeance. This time, it is the same assertion by OPEC autocracies, but it comes with genuine economic supply-demand dimension - the enormous demand by China. In this sense, crisis has metamorphosed from a basically artificial political pressure in the ’70s to one that’s a real economic pressure to supply and demand. China is a cash economy, in fact, a debt-free, highly liquid economy, with the state having infinite power over economic fundamentals. For all practical purposes, China is able and willing to pay any cost to sustain its industrial transformation. Naturally, oil producers and traders, even with the best of their intentions, would have to give in. In short, all pipelines now lead to China.

Sapian, 30 years later, has a gas demand of its own. The improved road system has encouraged ownership of vehicles. Although impact on mobility could be cushioned off by readily available public transport network, transportation costs would have to take its toll. Power connections to the farthest households in the Municipality integrate most Sapianons to bunker fuel demand. Cost of production would markedly increase in agriculture and fisheries, including aqua culture, because practically all input are imported. Increases to our prices to offset the cost of production make our products less competitive than, say, Thailand or Vietnam. The Philippines does not have any control over oil supply and production and the government has very little macroeconomic control mechanisms (e.g., interest rates, taxes, etc.) - so much underground economy. Since buying power in Sapian can only stretch so far, the immediate observable result would be cuts in non-essentials, diminished general local demand, and reduced production, and net a economic slowdown.

Thirty years hence, Mrs. Ligaya Oro’s piece is more relevant than ever. In fact, it is a stark reminder at the onset of what could be a greater economic challenge for Sapian and the world for years to come. So, next, we will discuss more about the challenges and opportunities for Sapian in the midst of the brewing oil shortage and the industrializing China.