FOR a country with very weak fundamentals, we are playing in a league beyond our capacity.
I’ve heard many people over the past few months talk about Pakistan’s deteriorating relationship with the US and felt a little dumbfounded at the ignorance that lies behind such talk.
I’ve heard people glorify Iran and the enormous isolation it is drifting towards as some sort of example to be emulated by our leaders. Many of the same people return from Dubai shopping trips laden with bags of consumer junk purchased from super malls.
The contradictions between the lives they are leading, and the actions they are demanding from their leadership never strikes them.
So if isolation is something that we want for our country, because we don’t like the way the world talks to us sometimes, then it’s a good idea to first lay out what exactly such isolation will look like.
First the good news. Our economy is largely agrarian in nature, and we are food self-sufficient. So unlike countries like Japan and Saudi Arabia, for instance, that are almost entirely dependent on imports for food, apart from edible oil, we hardly import any of our food items. So in the event of sanctions, or restricted imports, our country will not starve.
Now the bad news. We are almost totally dependent on imported oil. What’s more, we have only one point of entry for all of this oil cargo: Karachi.
Stopping Pakistan’s oil imports will not be a difficult task, all it could take would be one message from a hostile navy with a presence in the area that ships ought to avoid Karachi for the time being due to security concerns. That’s it. After this insurance charges for vessels will skyrocket and most shipping companies will prefer to avoid the port altogether.
Oil imports will be severely curtailed, and whatever oil cargoes manage to arrive will be frightfully expensive. Shortages would ensue. Our stock of natural gas, dwindling as it is, would provide some cushion against the full force of this curtailment, but choices will then become even more stark in allocating this gas.
The month of June last year saw shortages at pumps across Punjab. These were blamed on late arrivals of some oil cargoes, delays caused by liquidity problems at PSO due to the circular debt. It took about three days for the delays in cargo arrivals at the port to travel down the oil supply chain straight to the pumps because we have no reserves as such in the country.
So with a couple of oil tankers delayed, pumps across Punjab ran dry within days and transport began to grind to a halt. Under these circumstances, it will be hard to shut down CNG as a vehicular fuel without shutting down entire cities, making the job of gas allocations even more difficult.
In rural areas it is normal practice for households to stock a year’s supply of grain. But in urban areas food is brought in by truck, and in some cities like Karachi, hundreds of trucks arrive every morning at the new sabzi mandi at the entrance of the city bringing in the food supplies that keep the city going.
And that is the Achilles heel of our ‘food self-sufficiency’: movement of food supplies depends on oil in our country, and oil is an imported item, and its curtailment means that bringing food to urban areas will slow to a trickle, causing urban food prices to start skyrocketing as speculation and manipulative pricing kicks in with the shortages.
For perspective, consider that Karachi carries about one month of supply of vegetables at best. But if fresh arrivals of vegetables into the city are interrupted even for two days, it sparks hoarding and speculative behaviour almost immediately and prices begin to rise. One reason for this fragility in the food supply chain is lack of cold storage where longer term supplies can be maintained. Wheat is a slightly different story. The Sindh government maintains huge stocks of wheat in the city, in vast warehouses in Landhi. From here they sell to the millers, who also maintain large storages for their use. The millers then sell on to the retailers where you and I make our purchases.
This supply chain is a little more robust because wheat doesn’t require cold storage. But movement of wheat, even within the city, requires a lot of heavy transport because of its bulk.
According to some estimates provided by big market players and association leaders, most cities have large holdings of wheat but the weakness in the supply chain lies in the ‘last mile’, so to speak, between the millers and retailers, where ample room exists to create artificial shortages, starve the market and sell in black at exorbitant prices.
Another key area of vulnerability is foreign exchange. We depend on inflows from two critical sources: exports and remittances. If the kind of isolation that our macho urban warriors crave means going all the way down the Iran road, then our banking system will be unplugged from global funds transfer mechanisms.
Please understand what this means: no banks will be able to open an LC, no foreign exchange can be remitted or received. All foreign trade will grind to a halt, imports and exports.
And as foreign exchange inflows completely dry up, the speculators will swoop in, causing the value of the rupee to plummet so fast you’ll literally feel the currency flying out of your hands. I wonder what squeaks of machismo we’ll be able to muster then.
With prices of food and oil touching levels we cannot even imagine, with the currency on an endlessly downward spiral, with our electricity vanishing almost completely, with vehicular transport becoming a rarity, what muscle will we flex?
For those of us who have seen what our supply lines for food and energy look like, isolation is a nightmare that is difficult to imagine. [END]
The writer is a Karachi-based journalist covering business and economic policy.