The news is out of the bag! Markets tanked 651 points in one day, downing by 3.45% compared to previous day close. Sensex tanked today, as nervous investors were worried about how things will now unfold in Syria.
Are you among the ones wondering what Sensex and its relative performance has to do with what is happening in Syria?
Well, first of all it has to do with the dreaded three-letter word. Oil. Second, a false missile strike news. Third, the Indian Rupee.
And if all of the above were not enough, the scare of downgraded Investment ratings of our great country by Standard & Poor’s added oil to the fire… see, did I not tell you that it all has to do with Oil?
The story that unfolded today at the market was to do with Oil. Not the cooking oil, bummer!
Why Oil?
The US is preparing to launch a surgical strike into Syria with rebel and military forces battling out in what is a War Zone situation. If US does strike Syria, (I am in for a debate why they should at first place) it will adversely affect the situation in Iraq, which is still reeling from US’s attack and local rebels, including Al-Qaeda. Their main bone of contention is use of bio-chemical weapons against Civilians.
And Syria’s neighbor Iran, a self-proclaimed enemy of US because of its Nuclear program, could be angered with US’ intervention and could cause another clash. This could anger the Arab nations, further causing issues. These are the nations that make (unearth) most of Crude Oil, the raw material from which the fuel required for my TVS Wego (and your alien vehicles too) is extracted.
India has good ties with Iran and Iran could still supply us fuel, but it since it has a huge appetite for Fossil Fuels, supplies from Iran alone would not help. So this scarcity of Fuel will force the fuel prices to increase.
What’s with the False news?
Oh yeah! Russian Military released a very carefully worded statement, stating that its radars have detected launch two ballistic “objects” in the Central Mediterranean. They never mentioned Missiles. Never.
The media, however, announced the news that Russia has detected two ballistic missiles over the Central Mediterranean, where US has posted its War ships. A second statement however said there were missiles, which fell in water.
Now can you imagine US trying to fire missiles into water instead of land? If they did that, was that a waste? I think with the rate at which markets in EU and Asia tanked, they were not. They were designed to tank the markets.
Later, reports surfaced that US has clearly declined making a comment. “I have nothing to confirm those reports whatsoever” Pentagon spokesman Navy Commander William Speaks told Bloomberg.
So, the thing that we all ended up assuming that War is on! When the people involved in the Media business are getting confused with politics at the cost of Investor money? There you go, the classic case of today’s economy. Global Village thingy has certainly started working.
Indian Rupee
While the third and obvious reason has to be the Indian Rupee devaluation. Of late, all the media and news channels have been yelling at top of their voice about how Rupee has seen sudden devaluation. The economy is in bad shape because every one deals in $, including the Arabs. So when US currency got strong, ours weakened?
Problem with many is, they compare it with US$ (US Dollar) only. Very few comparisons are made with € (Euro) or £ (Pound Sterling). Comparisons with these two also shows the same trend and the reason for weakening of Rupee is not Dollar. These are market forces.
So with the predictions that Rupee is further to see devaluation and may close at Rs. 72 / $, the cost of importing the Oil is going to go higher. I am sure IT cos are smiling because they getting hefty profits from their exports, so are the food grains and spice traders. But investors. They care about petrol prices else they will not be able to afford to drive the Luxury cars (pun intended) which are less frugal.
Frankly, any change in oil prices affect the prices of all essential commodities directly, including manufacturing which is one of the strongest pillars of growth. Common man (yes you and me included) faces the tough challenge ahead.
So now that you have read this, connect the dots.
- An attack on Syria will seriously reduce the Oil Supply, which will push the Oil prices even higher.
- Arabs and most of the OPEC nations, only deal in US$. India has to buy US$ at higher prices due to devaluation.
- Higher the price of Crude Oil, higher the price of Petrol, Diesel and Kerosene. This increased costs of essentials commodities substantially.
- Any increase in Subsidy by the government to keep prices of these fossil fuels lower will weaken the economy further.
- This will cost us with instability, higher interest rates, huge inflation bills, job losses, companies shutting down! And what not!
- This is the way world economy works. You accept it or not, does not matter at large.
One thing that Government can and should do immediately is stop the Food Security Bill. Wrong time to go ahead with this one. You need your much-needed cash reserves to get these issues sorted before going all guns at spending money.
Reduce taxation, reduce the burden. People at large will be happier, since this will bring down cost of the food and other essential commodities down. Increase tax on imports for time-being.
Do some thing, at least. It’s a plea.
Bad times are coming. Be aware. Don’t tell me that I did not tell you about it coming.
Picture courtesy: SXC.hu