India: No Mom, We Don’t Have Oil at Home
Jay Ramesh
All across the world, people have felt the effects of rising gas prices for about a year. After demand for oil fell off a cliff last April due to worldwide covid quarantines, the price has slowly risen as Russia and the OPEC cartel have decided to voluntarily cut oil production, leading to rising prices. Cartels can only squeeze you for money when they’re the only ones you can buy from, but OPEC’s influence is under threat from a seemingly unlikely buyer: India.
India is even more dependent on foreign oil imports than the US is, with around 84% of all of its crude oil being imported. Around 62% of those imports come from OPEC members in the Middle East, as their prices are typically lower than competing states and their proximity to India lessens burdens on shipping.
Oil is essential for economies to operate. When prices rise, it hurts economies as consumers and businesses depend on it heavily and buy less. India was hit hard by the pandemic, and its economy is struggling to recover. High oil prices coupled with the state’s reliance on foreign imports and pricing only make a bad situation worse.
To solve this problem, India has ordered its local refineries to diversify their oil imports, which is a fancy way of saying, “This shop is too expensive, let’s go look around these other stores.” The country more than doubled its oil purchases from the US in January 2021, and imports are already starting to trickle in from other states such as Guyana where 1 million barrels of oil are expected to be shipped to India by early April 2021.
So why does it all matter?
Well, India is the 3rd largest consumer of oil in the world, which means its buying and selling habits have significant consequences for global oil demand. It’s all about how cartels and monopolies/oligopolies work. Let’s say that one business makes 90% of all stuffed animals. They have the ability to drive their prices far below competitors, as the sheer number of consumers will still generate a profit. After clearing out the market again, they can raise prices higher, and since there aren’t any businesses large enough to compete, it’ll be hard for consumers to look elsewhere for cheaper stuffed animals.
OPEC operates in a similar way. It’s an economic alliance of several countries that come together and artificially manipulate the oil market by deciding on collective supply boosts and cuts. They make up 40% of the world’s oil production and 60% of the world’s internationally traded oil. So, whenever they want to boost their profits, they can either raise prices or undercut the prices of competitors, and world importers don’t have much of a choice.
India does have one advantage over OPEC. The state has a massive oil refining industry, and Prime Minister Narendra Modi has plans to almost double India’s refinery capacity. This well-developed industry means that India has the ability to process almost all forms of crude oil, allowing the country to be more flexible with its imports. India may not have much oil at home, but shopping around could lessen the burden of oil prices on Indian consumers and reduce the power of OPEC. Who cares about brand loyalty anyway?