The battle to set oil prices
Context
- Crude oil prices have crashed in the global market following the COVID-19 pandemic and its effects on the global economy.
- OPEC countries and its alliance partners failed to reach an agreement to cut back on production to enable prices to remain stable.
Oil price war and Russia
- Russia refused any production cuts, unleashing an energy war with Saudi Arabia.
- Russia’s decision to reject any production cuts is driven directly by its strategy of denying market share to American shale oil producers.
- Russia is also signaling to Saudi Arabia that its American patrons can do little to protect its oil interests and it would be prudent for Saudi Arabia to reach some understanding with Russia.
Benefit to importing countries
- Lower crude oil prices are good for oil importing countries like India.
- The global economy may find lower energy costs helpful in overall growth.
- India stands to save ₹10,700 crores for every $1 drop in prices. This may help manage current account deficit, fiscal deficit and inflation.
How oil price war affect global economy
- Collateral adverse consequences like the battering of the stock markets worldwide.
The way forward
- The energy war between Russia and Saudi Arabia may not sustain for long.
- Saudi Arabia’s production cost is the cheapest in the world and it can ramp up production to around 12 million barrels a day.
- By offering discounts, it can undercut other producers, including Russia. Domestic considerations also matter.
- Meanwhile, oil importing countries, like India, can enjoy a breather and cushion the adverse impact of COVID-19 and other factors.
Source : The Hindu