New Delhi: In what may impact India’s energy security efforts in the short-run, Russia and Saudi Arabia on Saturday decided to extend the crude oil supply cut, in the run up to the 176th Organization of the Petroleum Exporting Countries (Opec) meeting that starts in Vienna on Monday.
The announcement was made by Russian President Vladimir Putin after his meeting with the crown prince and defence minister of Saudi Arabia Mohammad bin Salman Al Saud on the sidelines of the G20 Summit in Osaka.
The extension of the compact for the so called Opec plus arrangement will have a wide-ranging impact on energy markets, given that Opec accounts for around 40% of global production. It is expected to have a particular fallout on India due to Opec accounting for around 83% of the country’s total crude oil imports.
“I am also glad to have a chance to share my considerations with you on how we are going to build up our work in the global energy markets. This work has been developing and yielding positive results largely thanks to you persistent efforts," Putin said in a statement. He is expected to visit Saudi Arabia this autumn.
These extension of production cuts also comes in the backdrop of supplies from Iran and Venezuela drying up from the Indian energy basket. With the tensions escalating in the Persian Gulf; India, the world’s third largest oil importer has been trying to impress upon Saudi Arabia led cartel its concerns on volatility in crude oil prices and its impact on Indian consumers. It wants the Kingdom to play an active role within Opec and Opec plus discussions for keeping oil prices at a reasonable level.
The United States on its part has promised India of adequate crude oil supplies as was articulated by secretary of state Michael Richard Pompeo on Wednesday. While sourcing crude from other suppliers is not an issue, the price at which it is bought will impact the Indian economy.
India has been calling for a global consensus on “responsible pricing," with China and India moving ahead to set up a joint working group (JWG) on energy to form a buyers’ bloc to bargain collectively for oil supplies.
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. Between 2013 and 2017, India’s demand for petroleum products grew at a compound annual growth rate of 5.5%. Opec expects global demand to surge 33%, or 91 million barrels oil equivalent per day (mboed), between 2015 and 2040. Of this, 24%, or a 22 mboed jump, is expected from India.