Oil Price: can India weaponize its significant market position?
With the decision by the OPEC+ to increase the crude
oil production for three months – May, June and July – the concerns about the
supply side of the oil equations seem to be subsiding faster than the markets
thought they would; the geo-political fallout, however, is far from over.
Up until the end of the OPEC+ meeting on April 1,
the indications were that the cartel would agree to extending the existing
production cuts for two more months, citing the outbreaks of new Covid-19 infections
and subdued demand; when the news of the polar opposite became known in the
end, lots of analysts refused to believe it, thinking it was a sort of prank
that usually is associated with this particular calendar day - for innocent
amusement.
Although Saudi Arabia did not account for the change
of heart at the eleventh hour during the latest monthly meeting of the OPEC+,
despite maintaining the stance of exercising caution, the unexpected call from
the US Energy Secretary may have been a game-changer; Saudi oil minister,
however, dismissed the development, saying they did not discuss oil during the
phone-call.
India, the world’s third largest consumer, meanwhile,
chose to carry the can of frustration over the fuel hike, on behalf of the developing
nations that reel from the economic disasters due to the pandemic.
The world’s largest democracy has been a vocal
critic of crude oil production cuts by the OPEC+; it criticised the decision to
cut down on production just to inflate the price, just before its monthly meeting
in March.
Not only did Indian opposition fall on deaf ears, but
also it was rebuked by the Saudi oil minister, asking India to release its vast
reserves instead that it bought when the price crashed in 2020.
On the eve of the latest OPEC+ meeting, Dharmendra
Pradhan, the Indian oil minister hit back at his Saudi counterpart by saying
what his Saudi counterpart said was ‘undiplomatic’.
Simultaneously, India asked its major oil companies
to diversify the process of buying crude oil, looking beyond its traditional
sources in the Middle East. With that, the efforts are underway to buy more
from the US, Iran and even Venezuela in the hope that the sanctions against the
foes of the US will be eased out gradually.
While making India’s position clearer, a spokesman
for the Indian oil ministry said on Friday, "Crude supply should be market
determined rather than artificially managed," while adding, "We have
noted that OPEC and OPEC Plus have announced last week a slight easing of crude
production cuts, even though it is still far below the originally announced
schedule of cuts.”
Behind the scenes, India appears to be working on a
calculated strategy to force its suppliers from the Middle East to increase the
production in the short-term so that the domestic price at the pumps does not
go up at a steep rate, leaving it in an uncomfortable political lurch.
The current Indian oil minister is on record saying that
‘oil purchases is a weapon for his country’ in 2015; a period of six years is
too short to evolve his views on the matter and far too short, when rebuked by
his counterpart of a major oil nation.
If India goes ahead with its plan, the US, Iran,
Venezuela and some African countries will be major winners, given the sheer
size of the growing Indian market, at the expense of traditional suppliers of
the crude oil in the Middle East.
