Recently crude oil in international market have come down sharpely.One major investment bank of USA have predicted that it could fall upto around $25 per barrel.Last yr., oil prices rose upto $150 per barrel.So this swing in oil prices provides a good case to study it's impact on todays's geopolitics.
Petroleum oil is chief source of energy in many sectors like energy,transportation,industery etc.Above all that,economy of many countries like Iran,Venezuela is mailnly dependent on oil.These ecnomies can be better termed as Oil Economies.Other industries in these countries are not developed to an extent even to support the domestic demand.So these countries are net importer of main items like manufactured goods and even food grains also.
Last yr.,when oil prices were shooting up like anything,these economies earned high windfall gains in the form of hugh amount of Petro Dollars.Oil reserves were seen as power in the hand of thse countires.Iran,seen by USA as a rogue state, openely criticised USA for it's policies.Venezuela even threatened to cut it's supplies to USA.Oil was being seen as a commodity to invest even better than gold.This clout of petro-dollars and oil reserves helped to improve their standing on international arena.
But,as everyhting has to pass througha full circle.So oil prices are no exceptions to it.Recent financial crisis and recession in major economies is resulting into plunging demand,in case oil also.Even confidence of investors is lacking.This condition looks to persist for a period of at least one year or so.Oil prices are aleady at a level of 30% of their peak prices.Further decline in demand and thus prices may lead to political instability in oil economies.It will also dent their position at international level by shrinking their options for influence.Even a cut in production of crude oil may not help much to boost prices due to low demand and even production can not be cut beyond a limit as it is the only main source to sustain their economies.Situation is bound to be complex if low prices continues.Political turmoil may destablise the Middle East and Latin America.India will also feel the ripple of these turmoil waves.
So How is India placed in emerging scenarios and what should be India's response to it?India imports around 73% of it's demand of crude oil.So low prices is a good news for India as such.But it may rise again in future also and in the era of globalisation,there can not be any complete de-coupling.So Indian response must be to earn profit as well as strategic advantage from oil business.In recent times,India is trying to establish itself a major gloabl hub for refinary like Singapore.This business is to be less impacted by swinging oil prices.India is also geographically well placed to become refinary hub of world.If we observe the world map, it could be easily noticed that major oil producing countries like in middle east are on western side and all major emerging economies like China,S-E Asia,Japan,Korea are on the eastern side.India is in the middle having a geographical advantage to refine the imported crude oil and export to these economies.Reliance refinary at Jamnagar is one of the good steps forward.To reduce dependence on import,new discoveris in KG Basin are encouraging.New Exploration Licensing Policy have also attracted new investment from across the world. India needs to continue with these efforts.
So plunging oil prices can play havoc for oil economies and can lead to a geopolitical tsunami.Indian response will have to be dynamic and better equipped to handle the destruction caused by it.
Petroleum oil is chief source of energy in many sectors like energy,transportation,industery etc.Above all that,economy of many countries like Iran,Venezuela is mailnly dependent on oil.These ecnomies can be better termed as Oil Economies.Other industries in these countries are not developed to an extent even to support the domestic demand.So these countries are net importer of main items like manufactured goods and even food grains also.
Last yr.,when oil prices were shooting up like anything,these economies earned high windfall gains in the form of hugh amount of Petro Dollars.Oil reserves were seen as power in the hand of thse countires.Iran,seen by USA as a rogue state, openely criticised USA for it's policies.Venezuela even threatened to cut it's supplies to USA.Oil was being seen as a commodity to invest even better than gold.This clout of petro-dollars and oil reserves helped to improve their standing on international arena.
But,as everyhting has to pass througha full circle.So oil prices are no exceptions to it.Recent financial crisis and recession in major economies is resulting into plunging demand,in case oil also.Even confidence of investors is lacking.This condition looks to persist for a period of at least one year or so.Oil prices are aleady at a level of 30% of their peak prices.Further decline in demand and thus prices may lead to political instability in oil economies.It will also dent their position at international level by shrinking their options for influence.Even a cut in production of crude oil may not help much to boost prices due to low demand and even production can not be cut beyond a limit as it is the only main source to sustain their economies.Situation is bound to be complex if low prices continues.Political turmoil may destablise the Middle East and Latin America.India will also feel the ripple of these turmoil waves.
So How is India placed in emerging scenarios and what should be India's response to it?India imports around 73% of it's demand of crude oil.So low prices is a good news for India as such.But it may rise again in future also and in the era of globalisation,there can not be any complete de-coupling.So Indian response must be to earn profit as well as strategic advantage from oil business.In recent times,India is trying to establish itself a major gloabl hub for refinary like Singapore.This business is to be less impacted by swinging oil prices.India is also geographically well placed to become refinary hub of world.If we observe the world map, it could be easily noticed that major oil producing countries like in middle east are on western side and all major emerging economies like China,S-E Asia,Japan,Korea are on the eastern side.India is in the middle having a geographical advantage to refine the imported crude oil and export to these economies.Reliance refinary at Jamnagar is one of the good steps forward.To reduce dependence on import,new discoveris in KG Basin are encouraging.New Exploration Licensing Policy have also attracted new investment from across the world. India needs to continue with these efforts.
So plunging oil prices can play havoc for oil economies and can lead to a geopolitical tsunami.Indian response will have to be dynamic and better equipped to handle the destruction caused by it.
