Oil Price: can India weaponize its significant market position?


oil production cut, Saudi Arabia and India

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.

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