There is a stir in the global energy market at the moment because Saudi Arabia, the world’s largest oil exporter, has made a historic cut in its crude oil production. Saudi Arabia’s crude oil production has fallen to its lowest level in the last 36 years, which has given sleepless nights to economists and energy experts around the world. This shocking decision of Saudi Arabia is expected to have a direct impact on the prices of crude oil in the international market, the global supply chain and the economy of emerging developing countries like India. India imports most of its crude oil needs, so this step of Saudi Arabia can become a big challenge for the Indian market.
Why was there panic in the global oil market and what is the strategy of OPEC Plus?
This huge decline in crude oil production by Saudi Arabia is said to be a part of the well-thought-out strategy of OPEC+ countries, whose main objective is to control and stabilize oil prices in the international market. For the past few months, there was continuous fluctuation in crude oil prices due to fears of global recession, sluggish demand and record production by other non-OPEC countries including the US. To prevent prices from falling, Saudi Arabia has taken the risky step of voluntarily drastically reducing its production. However, experts believe that due to reduced production, supply in the global market may become tight in the coming days, due to which the prices of petrol and diesel may skyrocket.
Why are alarm bells ringing for India and the impact on imports?
India is the world’s third largest energy consumer and crude oil importer, purchasing about 85 percent of its total oil consumption from abroad. Saudi Arabia has been one of the most prominent and reliable countries supplying oil to India, hence the decline in production there will become a big challenge for India to ensure uninterrupted supply of crude oil. If this decision of Saudi Arabia and other OPEC countries makes crude expensive in the global market, then India’s import bill will increase drastically. Increase in the import bill will directly mean that the pressure on the foreign exchange reserves in the country will increase and the value of the rupee may also weaken.
Direct impact of inflation on common man’s pocket and economic challenges
Even a slight change in the prices of crude oil is enough to ignite the fire of inflation in the Indian domestic market. When oil refineries will get expensive crude oil, the retail prices of petrol, diesel and LPG will increase, due to which transportation will become expensive and the prices of every daily consumer item from fruits and vegetables will start increasing. Apart from this, it may also have an adverse impact on the fiscal deficit of the Government of India, as the government may be forced to give subsidy or relief on fuel by withdrawing money from development works. The pressure on the Reserve Bank of India (RBI) to take tough decisions regarding interest rates to keep inflation under control will increase.
What are India’s options and future path for energy security?
Amidst this global crisis, the Government of India and public sector oil companies are continuously taking strategic steps to deal with the situation. India is now expanding its options to import oil at concessional rates from other countries like Russia to strengthen its energy security. Apart from this, Strategic Petroleum Reserves in the country have also been kept ready for emergency situations so that short-term supply crisis can be avoided. From a long-term perspective, the Indian government is increasingly emphasizing green energy initiatives such as electric vehicles (EVs), green hydrogen and ethanol blending to reduce foreign dependence on fossil fuels in the future.