Mains Paper 3: Economy | Infrastructure: Energy, Ports, Roads, Airports, Railways etc.
From UPSC perspective, the following things are important:
Prelims level: OPEC Meetings and their Outcome
Mains level: Effects of rising crude oil prices on Indian Economy.
The world is waiting to see whether the Organization of the Petroleum Exporting Countries (OPEC) will decide to increase crude oil production at its meeting to be held in Vienna
Why is this meeting so important?
- With OPEC accounting for around 40% of global production, any decision will have a wide-ranging impact on energy markets.
- The meeting is also significant as it comes in the backdrop of a supply cut by OPEC and Russia, which triggered a rally in global crude oil prices.
- Prices have fallen since then. Also, there are growing fears of a trade war escalation, which may impact global growth.
How do international crude oil prices affect India?
- Retail prices of petrol and diesel in India track global prices of these fuels, not crude, but they are broadly linked to crude oil price trends.
- Crude oil prices impact India’s oil import bill and trade deficit. Lower oil prices had dramatically improved India’s terms of trade in 2015-16.
- A rally in global oil prices had pushed up the average cost of the Indian basket of crude
How did the Indian government respond to high prices?
The government has so far refused to roll back its decision to link domestic and international fuel prices and has said that it is working toward a ‘long-term solution’.
Why is this meeting particularly important for India?
- India’s energy needs are mainly met through imports, and OPEC accounts for around 83% of the country’s total crude oil imports.
- Oil minister who is scheduled to participate in the 7th OPEC seminar has maintained that India is a price-sensitive customer and will seek reasonable rates as its energy demand grows.
- He has also said market fundamentals do not support such high prices
Is Opec alone responsible for the oil market uncertainty?
- There have been both internal and external pressures on the grouping.
- There has been a rally in oil prices due to factors such as US President Donald Trump pulling his country out of the 2015 nuclear accord with Iran, and Opec and Russia cutting supplies.
- In addition, Venezuela’s oil output has collapsed to the lowest since the 1950s and geopolitical tensions have also played a part.
Organisation of the Petroleum Exporting Countries (OPEC)
- OPEC is an intergovernmental organization of 14 nations
- The 14 countries accounted for an estimated 44 percent of global oil production and 73 percent of the world’s “proven” oil reserves
- OPEC’s stated mission is “to coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry
- The OPEC Conference is the supreme authority of the organization and consists of delegations normally headed by the oil ministers of member countries
- The Conference ordinarily meets at the Vienna headquarters, at least twice a year and in additional extraordinary sessions when necessary