Historically the oil markets have driven politics. Governments have adjusted their politics to access affordable and secure oil supplies. Today it is politics that is driving the oil market. The situation in the Middle East, the civil conditions in Nigeria or Iraq, the ideology of other major resource holders like Russia... these are now the lodestars of the hydrocarbon market. The result is that no one really knows where oil prices are headed. People will of course speculate... some are paid to do so — but the reality is ignorance.

In such circumstances of uncertainty what should the decision-maker do? Clearly he cannot abdicate taking a view on oil prices. That is essential. Otherwise it would be difficult to build the contours of energy policy.

I presume, for instance, that the management of ONGC has a bullish view on prices. They expect it to trend upwards. I make this presumption because otherwise I would wonder about the logic underpinning their investments in overseas assets. If these investments are driven only out of concern for security of supplies then I would ask whether the money is being well spent. After all oil is a fungible commodity and can be bought and sold on the international market at the prevailing price by anyone with money. India has the money and so theoretically at least we should have no difficulty securing our physical requirements except of course when on account of prolonged political and social unrest, production is disrupted and/or the shipping lanes get clogged.

... contd.