Multiple sources are reporting that previously untapped oil reserves off the cost of Karachi may be far larger than previously expected. It is thought that at minimum, the oil could carter to all of Pakistan’s domestic needs and that in all likelihood, it will eventually transform Pakistan into a major energy exporter.
Many countries that experience a “black gold rush” due to high demand for oil make similar mistakes that end up being incredibly costly in the long term. Assuming that oil prices will be high at the time that Pakistan is able to extract and sell its off-shore crude, here are some essential do’s and don’ts to keep in mind.
Do use oil profits to diversify the economy as much as possible and as soon as possible. Many countries from Venezuela to Russia have failed to use profits made from previously high global energy prices to diversify their economies in order to avoid a so-called “Dutch disease” during years when global energy prices fall. Even Saudi Arabia is rapidly working to diversify its economy in the form of Crown Prince Mohammad bin Salman’s flagship Vision 2030 development initiative.
Therefore, in addition to using oil profits to build better housing and infrastructure for the people, it is crucial to invest the profits in sustainable development strategies that can help to expand the economy at a consistent rate, in spite of the fluctuation in the global price of oil.
Pakistan’s all-weather Chinese friend can help to work jointly on new projects which range from artificial intelligence development, medical research, the manufacturing of industrial goods to joint initiatives in respect of building modern weapons systems. These are just some areas in which oil profits can be invested into the future development of a diverse and therefore sustainable economy for Naya Pakistan.
Don’t become slaves to the petrodollar. Not only will the petrodollar become largely obsolete sometime in the second half of the 20th century when the Chinese economy overtakes that of the US, but in the short term, nations taking payment for oil in the petrodollar are at the mercy of maintaining the good will of Washington so as to not be cut off from major US financial institutions in the event of a sanctions related crisis.
By selling oil in either a currency basket including SDRs or by becoming an early adopter of the petroyuan, Pakistan can not only avoid the pitfalls of the overly politicised petrodollar but can ready itself for a new era in which the petrodollar’s monopoly will gradually be broken.
Lastly, Pakistan should use its oil wealth to build up large gold reserves. The fact of the matter is that in an age when fiat currencies become ever more volatile, gold will become the major safety net. As a developing nation looking to gain long term monetary stability, Pakistan must turn black gold into the real thing at every possible opportunity.
Do give a portion of the profits directly to the people. Some of the profit from oil sales should be set aside to give Pakistani citizens a universal basic income. The quarterly figure of these monthly payments to the people should be directly proportional to the profits from oil. In this way, all of Pakistan’s citizens will be guaranteed at minimum, a monthly subsistence income that is related to how much revenue was taken in from oil sales.
Such a plan would help to gradually lift millions out of poverty and is consistent with the values of the Islamic welfare state that Imran Khan’s PTI seeks to build.
Don’t show any mercy to public officials engaged in corruption over oil. The only thing worse than corrupt politicians in a poor country are corrupt politicians in a wealthy country. Pakistan’s treason laws should be expanded to cover corruption and the swift implementation of the death penalty should be the punishment dealt to anyone who engages in corruption.
Do use the opportunity of being a major oil producer to strengthen already deeply close relations with China. China has always been there for Pakistan even in the darkest of hours. This partnership can withstand the test of time and in an age where China is evermore energy hungry, new bonds can be solidified on top of those which already exist and function at a high level.
Don’t join OPEC. The current OPEC+ model which operates between Saudi Arabia and Russia demonstrates that in reality, bilateral agreements with the leading producers of OPEC are possible without formal membership of a cartel that has proved to be rather inept at helping its own cause. Outside of OPEC, Pakistan will be allowed to strike bespoke agreements with countries as diverse as non-OPEC members China, Russia and the USA, whilst also being treated as an equal by Islamabad’s longtime Saudi partner.