Last month Mr Alexei Miller, CEO of Russia’s and world’s largest gas company OAO Gazpron predicted that the oil price would shoot up to $250 per barrel in the near future and the gas prices will follow similar upward trend. The new Russian President Dmitry Medvedev also commented, in a manner gentler than his predecessor’s but quite clearly, that the world has to get adjusted to the new reality of stronger Russian and weaker US economic power in view of high oil and gas prices.


Let us contemplate the scenario in which oil price does rise to $250 per barrel and stays there for an extended period. It would lead to a major global economic recession and possibly a depression. In the US, gasoline prices would rise to $10 per gallon and in India, the price of petrol could rise to Rs 75 to Rs 150 per litre, depending on the subsidy levels, with serious negative economic consequences. The high oil price will also further fuel the inflationary fires all over the world.

Central banks will be forced to raise interest rates to fight inflation and thereby slowing the economies even further. The increased diversion of agricultural outputs to produce biofuels and high cost of fertilisers could lead to very high food prices and shortage of food. The worst affected will be the poorer countries which will be faced with recession, high inflation and shortage of food perhaps even famines.