The Eyjafjallajokull volcano eruption and the future of the global economy ....

The dust may have not settled literally from the Eyjafjallajokull volcano eruption in April but the media seems to have moved on to other "important" issues like cricket and politics. However, volcanic eruptions have a significant impact on several aspects of life on this planet, like global warming but not so obvious things like economics. I can hear you say, "Hey! What's the big deal? We know that the first estimates of direct losses for the airlines were set at over 1 Billion Euros (1.3 Bn $)." But this is not all... This is just the beginning compared to the collateral damages the world will suffer in the days to come. Read on..... Volcanic eruptions are highly pressurized ejection of solids and various gases. Much of these gases find their way to the stratosphere due to forceful nature of the Nature's fury. A good amount of these gaseous mix is made up of sulphur dioxide (SO2). An ejection of the kind of Eyjafjallajokull can put several thousands of tons of SO2 into the stratosphere, the layer believed to be most important for global warming/greenhouse effects. A word on sulphur dioxide, SO2. It is now a common belief that injection of SO2 into this stratospheric layer can cause global cooling, something opposite of what methane and carbon dioxide (CO2) can do. There is now widespread acknowledgment among environmental scientists including some Nobel Laureates, of the benefits of SO2 in reversing effects of global warming caused by green-house gases. Some have even advocated a systematic global initiative to inject SO2 directly into the stratosphere. Of course, such somewhat dubious proposals need a wider Global consensus and are hard to come by. Now back to our theme about the Icelandic eruption. The natural injection of such massive amounts of SO2 is likely to cause significant changes in temperatures the World is likely to see in the near future. Expect a mild summer in Europe this time followed by a very harsh bitterly cold winter lasting until late June next year. What this can do to European countries emerging slowly out of recession is frightening. Add to it the recent bail-out of Greece and potentially Spain and Portugal. The harsh winter could trigger crude oil prices, already quietly up at $80 a barrel, to spike to over $120 by end of the year. Now some of you may ask why only 120 when the World has seen $150 in 2008!! There are two mitigating factors this time around. First, OPEC countries are hurting from the recession they possibly triggered last time around by their greed and may keep the rigs pumping. Second, we have a less-combative US President with Hussain for a middle name no less. He could simply "place a phone call" to the potentates in the Gulf and ask them to keep the prices in check. Further, countries such as Russia, Dubai and Venezuela have tasted the bitterness of a Global recession and would be in no mood to force the oil go down to below $80. At least for some time till their economies are back on track and their past financial excesses neutralised. Nevertheless, their tails would be up - expect to see a more assertive Iran, a more combative Hugo Chavez, a more profligate Dubai, a more mischievous Putin-Medvedev combine as Russia plays truant and mind games with European leaders of the likes of Angela Merkel, as oil wealth once again swells their coffers. All this is bad news for Europe and the US, countries that are limping back to normalcy. Expect the Euro to go down further as a result (sub 1$ from 1.3 at present?). While the US economy is showing signs of recovery, this could slow things down quite a bit. For India, it is a double whammy as exports would see a big drop and a higher oil import bill will extend its trade deficit. Expect to see a spike in prices of not just petroleum products but also of essential commodities. Food inflation in India, already in double digits, would see further acceleration. So buckle up and learn to conserve and control. Now for the good news. Countries and businesses that take forward cover for oil and gas at current or lower rates would benefit enormously. Same for countries that work on alternate, renewable and sustainable fuels. Some may also benefit from investing in exploration of oil and new finds - read US of A, China and Brazil!! A final word and this one is for Mr. Anil Ambani. Don't be cussed about losing the fight with your brother on gas prices. Tying up gas at 4-dollar something for one mmBTU now ain't such a bad deal after all. Thanks to Eyjafjallajokull, sometime around this time in 2011, you will be laughing all the way to the bank....