Volatility in crude oil prices has an adverse effect on India, world’s third largest oil consumer. Setting up the energy forum may help iron out creases faster.
Oil prices have received a lot of bad press in India in the last few months. As vaccination has gathered steam worldwide raising hopes of a robust recovery in the global economy, crude oil prices have galloped. For India, which imports over 80 percent of its crude requirements, it has come at a big cost. From a low of under $ 20 per barrel in April 2020, prices have shot up to nearly $ 67 per barrel last month. As a result, prices of petrol have hit historic levels of over Rs 100 per litre in more than 150 cities in the country.
In this context, India set up the Arab-India Energy Forum with the league of Arab States at a plurilateral meeting of senior officials in January this year. The first meeting of the forum was held virtually last week. It was co-chaired by India and the Kingdom of Morocco. The inaugural session was addressed by RK Singh, Minister of State (Independent Charge) for Power for India, Aziz Rabbah, Minister of Energy and Mines of Morocco, and Kamal Hasan Ali, Assistant Secretary-General for Economic Affairs of the League of Arab States (LAS).
"The subsequent plenary sessions explored the potential and challenges of cooperation in the fields of energy transition, intra-regional power trading, hydrocarbons and nuclear power generation," read a statement from India’s Ministry of External Affairs. The panellists comprised of representatives from public and private sector institutions from India and the LAS member states as also key regional organisations such as the Organisation of Arab Petroleum Exporting Countries (OAPEC) and the Arab Atomic Energy Agency (AAEA).
In a nutshell, through this forum, India and the Arab world will pursue oil recovery, tight gas extraction, intra-regional power trading and collaboration in hydrocarbons. More importantly, this also opens up another avenue for India to air its views on international crude strategy.
As the third largest oil consumer in the world, behind the US and China, India carries significant heft in the global market. Any major hike in crude oil price is bad news for it as high fuel prices impacts every part of its economy. Most goods in India--movable or immovable, perishable or non, are mostly ferried on trucks that run on diesel.
The recent rise in crude oil price was not entirely driven by market dynamics and has frayed India’s otherwise rock-solid relations with the Arab world especially Saudi Arabia. The rise was partly fuelled by oil producing nations in the Arab deciding to go easy on resumption of full production in their oil wells that had been shut down in the wake of the first wave of the pandemic in the summer of 2020. This led to an open criticism by India’s oil minister Dharmendra Pradhan in February this year.
"A few months back we all were discussing about consumption-centric economic revival, demand revival, and we are supposed to restrict our production cuts and gradually ramp up the production by January - but in contradiction to that, now we all are controlling the oil production," Pradhan said at an energy conference organised by the Atlantic Council. "This kind of scenario will push us to more alternative methods of energy sourcing ... if the producing country will not recognise our aspirations, then innovative new business models are bound to come up."
India had supported OPEC’s decision to cut production last year in view of the oil demand collapsing due to the spread of COVID-19.
Despite a gradual shift to renewables and electric vehicles, India’s need for oil is only set to go up in future. As per a report by IEA, India's oil demand is expected to rise by 5.8 million barrels per day by 2040, accounting for about 40 per cent of the overall increase in global demand during the period. Global oil demand at the same time will increase to 111.7 million bpd in 2040.
The other two big markets - China and the US, are likely to make their transition to non-fossil fuel options much faster indicating that growth for oil from them will be modest.
For India, the Arab world already holds strategic importance as its main oil supplier. For the latter too, the importance of India as a consumer will only grow in times to come. This may also lead to more friction on pricing--a supplier will always want the best price while a buyer would want the lowest.
The Arab-India Energy Forum may just be the platform where a balance between the two could be achieved.