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What the fall in oil prices means | Editorial HT – editorials


The world’s number two and three oil producers are going to fight each other over how to take on the number one oil producer, the United States. The result: bloodshed in the world’s energy markets, but a major windfall for India, the world’s second-largest consumer of oil. The expectation of an oil price war between Russia and Saudi Arabia has already pushed oil prices below $ 35 a barrel. If the two do not reach an agreement soon, both countries will pump millions of barrels of extra oil and keep black gold in the red zone throughout this year. A $ 20 fall in oil prices reduces India’s balance of payments deficit by $ 30 billion. Most of these savings will go to the government, providing more than 20% of the top portion of your expected income for this year. There will also be some drawbacks: the value of India’s oil and gas companies will be affected, remittances from the Persian Gulf will be reduced and the price of a privatized Bharat Petroleum will be reduced. But overall, it will be a major stimulus for a government struggling with falling revenues and rising deficits.

In the past three years, Russia (the third largest producer) and Saudi Arabia have raised oil prices by reducing production. However, Moscow was increasingly unhappy with this strategy because it failed to address its real problem – the US oil shale oil industry. Driven by windfall profits and increasing market share, the US industry. UU. He was getting stronger and stronger. Washington also used this influence to impose sanctions against the Russian energy industry. These geopolitical concerns were not shared by Saudi Arabia (second largest producer). The drop in demand due to the coronavirus was the drop that filled the glass. Moscow decided to unilaterally adopt an alternative strategy to increase production and lower prices, with the idea of ​​removing high-cost oil producers and the American shale from the business. But this would also destroy the Organization of Petroleum Exporting Countries led by Saudi Arabia. Riyadh’s response is to threaten to push prices so low that Russia will be forced to return to the negotiating table.

If this chicken game with hydrocarbons is played throughout the year, India will count its blessings. But you must recognize that prices will eventually stabilize at a higher level. New Delhi must safeguard its renewable energy sector and redouble its efforts to gasify its economy. These remain the best bets to propel India towards a safer and greener future. The current instability in the world oil market further underlines the need to move away from yesterday’s energy sources.

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