HomeGeopoliticsThe Fiasco of the hike in Fuel Price and the OPEC+ dialogue

The Fiasco of the hike in Fuel Price and the OPEC+ dialogue

Over the past month, the prices of oil have hit the inflationary ceiling. We witnessed the prices of oil triggering a spurt among people in the country. The price of petrol breached a hundred rupee mark in many states across India, which include Maharastra, Andhra Pradesh, Madhya Pradesh, Karnataka, Telangana… and others. Not only the price was transcending the century mark in these states but over other cities as well. The petrichor could be felt in 15 cities across the country. 

The cities where the jolt of the inflationary price was felt were Ratnagiri (₹104.47), Aurangabad (₹ 104.06), Gwalior (₹ 105.48), Jaisalmer (₹ 104,81), Indore (₹ 105.14), Guntur (₹ 102.80), Chikmagalur (₹ 101.06), Shivamoga (₹ 100.80), Banswara (₹ 104.68), Parbhani (₹ 105.63) and Kakinada (₹ 103.31). The spike in the prices stirred an outcry among the people, politicians from the opposition shit the road carrying out flag marches and protests. Many congress members protested outside Petroleum Minister Dharmendra Pradhan’s residency. Rahul Gandhi slammed the government for the rising price and labeled them as “tax extortionist.” 

This is not the first time the world and India have faced an oil crisis. There have been crises in the past where the prices of the barrel climbed dollars, ex – 1973 oil crisis, 1979 crisis, etc. The recent oil spike is because of the negotiations that failed between the OPEC+ and other oil-producing nations, coupled with the adverse consequences of the pandemic and resultant economic slowdown. Few countries proposed to boost up oil production by 4,00,000 barrels a day until the market price reaches its normal. As the world economy slipped because of covid last year, the oil-producing countries took to 10 million barrels of oil production in 2020, with an optimizing hope to bolster the world’s laggard economy. 

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Last week the price of crude oil hit $76.98 per barrel, the highest since 2014 while international crude oil hit $77.32 per barrel which was the highest since 2018. The reason and factors for oil price hikes are pricing, cost factors, refinery capacity, demand, etc. The experts of Goldman Sachs have claimed the price of the oil barrel to climb to $100 if the current unrest is not stabilized. If the states levy the oil prices bluntly to the consumers without checking and taking condescending measures, then this could add further to inflationary pressure and slow the economic recovery. 

While countries like Russia and S. Arabia are in a favour of increasing oil production by 4,00,000 barrels a day till the end of the year, UAE has not yet agreed to it.

According to calculations, every increase in the dollar for crude oil could ill affect India financially over an annualized basis where the country’s bill could soar uphill ₹10,700 crores. According to economists globally, the delay in the stability of fuel prices could render countries with lowering demand and weakening consumer sentiments further adding up to unchecked and quarrelsome inflation. 

The OPEC+ had agreed last year to cut output by almost 10 million BPD from May 2020, with plans to phase out the curbs by April 2022. The cuts now stand at about 5.8 million BPD, but if the UAE blocks any deal, the remaining cuts would likely stay in place. Another scenario is where the groups agree to increase output by the end of 2021 but postpone discussions about the deal until April 2022. Simply said, ‘the ends justifying the means.’ 

The UAE has a very ambitious production plan, investing billions of dollars to boost capacity whereas the OPEC+ pact has left about 30% of the UAE’s capacity idle. S.Arabia ghettoed its stand and the argument in the negotiations where they pitched the suggestion of releasing fewer barrels because of uncertainty posed by the pandemic. The only way to prevent loss is to reach a consensus mutually among the OPEC+  and thereby ensuring that the price war among the countries is contained. 

In India, we have witnessed a steady price hike continuously wherein the national capital of the price breached a ‘cent’ mark by ₹100.91. In places like Chennai, Kolkata and Mumbai, the oil prices surged up to ₹101.67, ₹101.01, ₹ 106.93. In order for the government to reduce the burden witnessed by the citizen, it has to ensure a formulation of planned viable economic action and the proper implementation of that plan by firstly – ensuring a cut on the excise duties to provide some relief, secondly – sliding the crisis under the GST berth but this is a far-sighted approach requiring various steps in the procedure and also requiring the approval of the commission. 

Until the OPEC+ crisis isn’t resolved, the world economy would be under robust pressure to recoup itself from the rampant torn conditions. Economic slowdown adds to further cataclyse and the paroxysm of the decrease in demand and inflation seems diabolically visible.