By K Raveendran

The ‘freeze’ ordered by Prime Minister Narendra Modi as a response to the outbreak of Covid pandemic had gone terribly wrong in terms of its timing. Millions of lives and livelihoods were lost as everything ground to a halt, a mistake for which the nation continues to pay a heavy price. Now it seems to be the turn of the Chinese to share the ‘honour’. Despite their best technology, innovation and spirit of inquiry, the Chinese apparently failed to learn from whatever happened on the other side of their border.

According to media reports emerging from the Middle Kingdom, a complete lockdown of Shanghai, the icon of China’s industrial and technology muscle, is producing exactly similar results as 25 million residents of this sprawling metropolis have been forced into their homes or workplaces as part of the fight against a wave of the Omicron variant of Covid. Reports say whole communities have been hauled out to give the authorities the opportunity to sanitise the city, with a terrible food shortage consistently claiming mounting death tolls. Apparently, modern white soldiers, enforcing Covid protocol with an iron hand, are evoking memories of the Red Soldiers of the Cultural Revolution era.

Lockdowns, whether on this side of the border or the other, are horrible. But ironically, the Chinese lockdowns have brought some respite to India in arresting the relentless rise in the price of petroleum products. The Shanghai lockdown has even affected the outlook for oil as demand has dropped sharply.  World crude oil prices have already slipped up to 6 percent on fears of lower demand and the current price forecast is in the vicinity of $90 per barrel, as against $120 and upwards only weeks ago.

The Chinese deterrent has come at a time when the world was struggling to hold the price of oil to reasonable levels so as not to jeopardise the slow recovery in the global economy after the serious fallout of the pandemic.  Releases from the strategic reserve by the US and other countries with a major say in determining petroleum prices were of no avail as the crude prices refused to be tamed.

The opportunistic approach by the Saudi Arabia-led oil cartel saw to it that there would be no extra easing of the taps, putting further pressure on the upward momentum. In fact, US President Joe Biden’s widely reported request to Saudi Arabia for help in controlling prices met with an embarrassing no from the Saudi authorities, which has even further strained the relations between the two countries.

In fact, the response of the Gulf oil producers to Russia’s Ukraine invasion has been moderated by the oil cartel’s common cause with Moscow, which is one of the biggest players in the oil economy. Ukraine developments, including the western sanctions as well as retaliatory strikes by Putin, have been responsible for the recent price crisis in petroleum products. In this respect, the Chinese lockdowns have come as a counter-balance, bringing relief to oil importing countries as well as to the major stakeholders such as the US in their bid to keep prices under check. The downward pull in crude is also having a bearish influence in the rest of the energy mix.

The mobility restrictions in China are already putting severe bottlenecks on the supply chains of multiple industries. Since the lockdown was enforced, the efficiency of Shanghai port has been greatly impacted, leading to disruptions of shipments along various supply chains. Global battery supply disruptions arising from lockdowns in China have jeopardised ambitious EV goals, and are chipping away China’s dominance in the battery market, according to analysts with Rystad Energy. The impact of current lockdown and restrictions in nearby manufacturing hubs has been deemed even more severe than the initial lockdown in early 2020.

The tight supply situation has prompted the Canadian and US governments to provide financial support for domestic battery processing to meet ambitious EV sales goals. Indonesia with globally significant mineral reserves is also getting in on the action with plans to set up a battery supply chain worth $6 billion.

China also faces the threat of increased competition as many battery materials are used in industrial processes not related to energy. Although China’s dominance in the processing sector remains dominant, demand looks sluggish post lockdown with macro financial concerns weighing on demand. According to current estimates, the lockdown and related issues could end up negatively affecting China’s economic activities, and increase the likelihood of further reductions in GDP growth forecasts in the coming months.(IPA Service)

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