WHY CRUDE COULD BE SO RUDE..DUDE?

The crude is hovering at an all time high.Toyota has reduced the discount on its hybrid vehicle Prius as the waiting time increases.This very piece of news reflects the sea change American consumerism is undergoing.With crude @ US $ 126 , the average American is getting ready to take on the challenge.Very soon we may see the sales of Hummer and other gas guzzling vehicles coming down.Its time for the yankees to contain their wasteful consumerism and behave in a more responsible manner.Already they are the world's biggest consumers and have a strange fetish for everything big-from Big Mac to the giant Limousine.I might sound like a grand old Green Nanny but its the bitter truth. Already unrelented spending has left US with a huge fiscal deficit which has played a crucial role in tumbling of the dollar.Sub-prime mortgage crisis and the subsequent FED rate cut by 3.25% has made the problems worse for the dollar.
Weakness in dollar has seen the prices of crude oil and other essential commodities skyrocketing.This spike in metal and food prices has caused food riots in several countries ;something the world had not heard for last few years since promethean growth of the developing world in the last few decades.
However the source of worry continues to be crude oil.Its one major factor which can bring the world economic growth to a grinding halt in coming decade.If Goldman Sachs is to be belived we are already on the path to see crude trading at US$200.One wants but cannot ignore them.They were the ones who predicted crude at US$100 per barrel while we just ignored them as doomsayers.
India imports about three-quarters of its crude oil, and our oil bill accounts for a third of the total value of all imports.India's crude basket stands at US$120 which is extremely high.Rupee has begun to weaken against dollar adding to our inflation woes.In such an environment how will the big companies & SMEs(small and medium enterprises) survive.Their margins could suffer so would their expansion plans as interest rates are already too high and may not soften in near term.This slowdown was reflected in recent IIP nos. which put down growth at 3% as against 8.6% in Feb'08.Even FY'08 industrial growth was lower at 8.1% v/s 11.6%in FY'07.These poor stats are enough for the entire country to sit up and take notice.
Crude prices may not decline to desired levels in near term and will denitely hit the margins of the businees in the country.Wage hikes we have seen in past few years could stop and this undoubtedly bring down the consumption of goods mainly consumer goods,automobiles and real estate.Real estate companies are already feeling the heat as is reflected in their share prices which have taken the worst beating.Government too is in a strange dilemma.They don't to be seen a doing nothing specially when there are assembly election in key states.General elections too aren't far away either.Oil PSUs will continue to bleed as they will be sacrificed at the altar of aam-admi politics.But this move will backfire as their capability to secure oil blocks abroad will take a beating endangering our oil security.Already our desperate politicians are taking steps ,which they should avoid,like banning futures trade in few commodities and curbing steel price hikes.
At the personal level its time for us to use oil much more responsibly.Inflation could come down if we get a good monsoon and a bumper crop thereafter.These are tough times for economists,government and common man alike.Till then don't mind taking a bus to the office and avoid those long drives at the weekend with our girlfriend.Instead buy her a popcorn at a theatre near you.