Considering the risks of the latest Gulf War, Indians can take a few steps whichc would drastically help reduce impact of a sharp rise in the price of the fuel oil outlined below
The trigger happy Israelis are just waiting to break ranks and are like blood hounds on American leash waiting to launch. While the Israelis have clearly stated their intent that sanctions will only give more time to the Iranians, they would like to act with immediate effect and use force to neuralize the nuclear ambitions of their natural foe. While the Israelis fret and fume over Iran they are busy planning another raid into the Gaza strip and Hezbollah is ready to strike Israel with tens of thousands of very deadly short-range “Katyushka” rockets.
Mathew Kroenig, an influential CFR member has in an article said that “a surgical strike on Iran’s nuclear facilities is the least bad option. [article link]. And through this article one may get a clear idea that the aggression on Iran is a high probability. Unconfirmed sources from Washington indicate that May would be the best time to launch the aggression.
Will Iran wilt? With sanctions which would virtually crumble it economically (70% of its earnings are through oil) it is unlikely that Iran would be tethered and would surely strike back in through terror action on oil installations of GCC countries.
How to protect oneself from this global insanity?
With the world already on boil with respect to energy resources which are getting increasingly scarce, an event like this can only derail economic revival of a fragile economy besides hurting us through price inflation. So being forewarned is being forearmed and folks back home can do well to take proactive steps.
Stock up on food supplies and household products
Make sure you have at least 6 months of supplies. Cereals, grains, dairy products processed foods / canned can be stored for months if not for years. It will help protect you from inflation and non availability. Your elected leaders are so caught up in their own fancies that in case of a prolonged military conflict, fuel could be rationed besides becoming more costly. India has barely one month of strategic oil reserves and despite being wary of the situation has not done much to build strategic reserves. Vote banks and money accumulation for for self prosperity does not allow them to think beyond their over grown tummies.
Buy oil futures on MCX
One barrel of oil has ~158 and hence 1 contract of oil valued at Rs 5 lacs (+/- 30,000) for 100 bbl, considering that you travel 50 km a day on average and with a mileage of 8 km per litre will typically last you for 2528 days or 6.25 years.Now this is cool insulation against any price hikes. There is a possibility that oil may rise by $ 50 /bbl or could go as high as $300 if the war gets prolonged. The value of the contract would also appreciate and help insulate much of the risk associated with the price hike. Now middle class individuals would wonder where to get the RS 5 lacs from. fear not the margin for buying this contract is only 4%. But you may put up Rs 1 lac as up front margin and be blissful.
Disclaimer: One thing that investors need to consider is that there is the possibility of downside risk too and should factor in this before placing the trade.
Buying shares of Cairn energy is also a good idea
I believe that Cairn India is a good long term investment. You may read a few reports that I have uploaded on Cairn India update and initiating coverage on Cairn India.
Ask government to take actions to reduce fuel profligacy
Did you know that telecom companies are the second largest guzzlers of heavily subsidized diesel and they can easily shift to renewable sources of energy to power their their cell grid. Pressure companies which have got license to produce oil & gas, coal bed methane to increase production and seize blocks if work is not upto speed. (More about this in another article).
Self help can go a long way
Further self discipline like walking for short distances, car pooling and use of modern tools like email on line meetings etc would help curtail travel and help in lowering overall consumption.
Encourage and promote wind and solar energy and encourage scientific discoveries of new and portable wind mills which can be mounted on building tops and sky scrapers.
Remember we have peaked in terms of global oil production
Remember global oil production is declining at 4-5%, world oil production is growing at 1.5-2% leading to a demand supply mismatch of 6-7%. Virtually all the large oil fields of the world are in perennial decline stage. Further no new large oil field has been discoveries have been made for years. Saudi Arabia has only said it can ramp up production. They have to prove that they can produce 10 mbd and for sustained period in case Iran is destroyed by war.
Higher price of oil is a reality, the Iran war will only hasten it.
||Vinit Bolinjkar Head of Research, Ventura Securities Ltd
| Mobile: 0 9730836363