Can the oil rally hold?

Global oil prices have rallied since February on news that four major oil exporting countries were planning to agree on production cuts


Global oil prices have rallied since February on news that four major oil exporting countries were planning to agree on production cuts. Russia, Saudi Arabia, Venezuela and Qatar said they would do so if other countries agreed to join the deal. It was such a classic prisoners dilemma that prevented a global oil deal over the past 15 years.

It is yet not clear whether the meeting of the oil exporters in Doha over the weekend has led to binding commitments from all players. Iran has clearly decided to stay out of the deal as part of its geopolitical battle with Saudi Arabia. There is the bigger problem about whether a cartel can hold the price of a commodity when demand is slack.

India needs to watch these developments closely. It has been a major net beneficiary of the collapse in global oil prices. The result has been a drop in fuel subsidies, better balance of payments and lower inflation. The oil rally could be a worry if it sustains.