Context:

Crude oil prices, which have been firming up for the past few weeks on expectations of high demand and tightening supply, are at a nearly 10-month high.

More on News: 

• Global benchmark Brent crude breached the $90-per-barrel mark for the first time in 2023.
• Major oil producers Saudi Arabia and Russia announced an extension of their voluntary supply cuts — totalling 1.3 million barrels per day (bpd) — till the end of 2023.

Reasons For High Oil Prices

• Supply side : Production cuts by OPEC+.
  • Sanctions on Major Oil Producing Nations Such as Iran and Venezuela continue. Demand side Signs of improved macroeconomic conditions.Easing of inflation in major oil consumers like the US.
  • Revocation of ‘Zero-Covid Policy’ in China.
  • Rising demad due to growth of petrochemicals industries.

Impact Of HIgh Oil Prices

• Global economy:
  • Inflationary pressures and spell bad news for the fragile global economy.
  • Jeopardize global economic recovery, and lead to destruction in oil demand.
• Indian economy:
  • India imports around 87 percent of its requirement of crude oil, high oil prices can cause a big headache for the economy.
  • High inflation which affects disposable incomes and discretionary spending.
  • Negatively impact India’s trade balance.
  • Depreciation  of the rupee and Increased pressure on foreign exchange reserves.
  • Low profitability in key sectors (Oil Marketing companies) with high energy cost.
• Transition to Green Economy:
  • High oil prices also incentivise faster transition to cleaner fuels, particularly in the mobility sector.

Way Ahead: In short term, diversification from OPEC+ Countries (to Iran or Venezuela), whereas in Long term focus should be  Renewable energy which enables transition to Green Economy.

Source: The Indian Express