The crude truth: Rise and rise in oil prices and its impact

11 Sep 2023

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.
About OPEC

OPEC is a permanent intergovernmental organization of 13 oil-exporting developing nations, founded in 1960.
Secretariat: Vienna (Austria)
Founding Members: Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
Members: Qatar (1961), Indonesia (1962), Libya (1962), the United Arab Emirates (1967), Algeria (1969), Nigeria (1971), Ecuador (1973), Gabon (1975), Angola (2007), Equatorial Guinea (2017) and Congo (2018).
Objective: Coordinates and unifies the petroleum policies of its Member Countries.

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

About OPEC+

OPEC+ is a larger group of major oil producing nations and includes members of the Organization of the Petroleum Exporting Countries (OPEC), along with Russia and a few other producers. 

OPEC+ produces around 40 percent of the world’s crude oil, with Saudi Arabia as the top producer and Russia in the second spot.

  • 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

 

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Comprehensive coverage with a concise format
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Quick Revise Now !
UDAAN PRELIMS WALLAH
Comprehensive coverage with a concise format
Integration of PYQ within the booklet
Designed as per recent trends of Prelims questions
हिंदी में भी उपलब्ध

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