How OPEC's latest decision on oil can impact India?

Oil prices going up: The decision by top ministers of OPEC+ to maintain unchanged oil output policies comes at a time when crude oil prices have surged to their highest levels in five months. Led by a ministerial committee (JMMC) of the Organization of the Petroleum Exporting Countries (OPEC) and allies, including Russia, the meeting aimed to assess market conditions and member adherence to output cuts.

The rally in oil prices this year has been fueled by various factors including tighter supply, attacks on Russian energy infrastructure, and conflicts in the Middle East. Brent crude traded above $89 a barrel on Wednesday, marking its highest level since late October 2023. To stabilize the market, OPEC+ members, particularly Saudi Arabia and Russia, had previously agreed to extend voluntary output cuts of 2.2 million barrels per day (bpd) until the end of June.

Russian Deputy Prime Minister Alexander Novak announced Russia's commitment to focusing on reducing oil output rather than exports in the second quarter, aiming to evenly share production cuts with other OPEC+ members. In response, OPEC+ welcomed Russia's announcement and outlined plans for participating countries with outstanding overproduced volumes to submit detailed compensation plans to the OPEC Secretariat by April 30, 2024.

The impact of high crude oil prices on India, a net importer of crude oil, is significant. With as much as 85 per cent of its energy needs fulfilled through imports, India's key economic indicators such as inflation, current account deficit, import bill, currency depreciation, and fiscal deficit are affected by rising global crude oil prices. Additionally, oil marketing companies (OMCs) face pressure from increased crude prices, leading to potential adjustments in retail fuel and gas prices by the government to mitigate cost pressures and support consumers.

How will high crude oil prices impact India?

Oil is very important as far as India’s finances are concerned as India is a net importer of crude oil, and fulfills as much as 85 per cent of its energy needs through imports. Everything from inflation and current account deficit to currency stability is determined by the prices of oil. If crude prices stay above the normal levels, it raises the import bill which puts pressure on India’s finances. 

This also impacts common people's pockets, when oil prices in the global market go up, the oil marketing companies remain under pressure to hike the price of oil in India, which leads to a rise in inflation.