India, the third largest importer and consumer of crude oil, plans to increase imports from the US and Africa after Saudi Arabia’s decision to raise the official selling price (OSP) for oil supplies to Asia in May. The actions of Saudi Arabia, the world’s largest oil exporter, were largely intended as a retaliation against India’s plan to cut crude oil imports from there.
The Modi government has asked the Kingdom of Saudi Arabia to increase oil production, as this will reduce demand and lower prices. Petroleum Minister Dharmendra Pradhan previously said high crude oil prices are hurting developing countries in their economic recovery from COVID-19. In response to Pradhan’s demand, his Saudi counterpart Prince Abdulaziz bin Salman advised India to use the crude oil reserves it bought cheaply during the 2020 price drop. Pradhan called Abdulaziz’s response “non-diplomatic.”
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In the four and a half months to mid-March, Brent crude jumped about 80 percent to $ 70 a barrel. Currently, the price has dropped to $ 63. The Modi government came under political opposition attacks whenever the price rose above $ 67 a barrel, as it pushed the price of gasoline up to 100 rupees a liter.
Cuts in central taxes to control gasoline, diesel and LPG prices are never an option as the government struggles to cope with widening budget deficits and rising inflation. The government recorded a budget deficit of Rs 18.48 million, or 9.5 percent of GDP, for 2020-2021 due to the pandemic and subsequent disruptions. Moody’s Analytics called inflation “uncomfortably high” and said core inflation rose to 5.6 percent in February from 5.3 percent in January.
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According to sources in the PSU oil companies, the ministry has instructed them to increase imports from the US and Africa because the giants in the Middle East are artificially raising prices. “In May, we will cut imports from Saudi Arabia by at least a third,” said a senior executive.
Instead of an average monthly import order of 14.8 million barrels, Indian refineries in May placed orders for only 9.5 million barrels of Saudi oil. Refiners PSU also plan to buy oil from the Brazilian Tupi brand, the Guyanese Liza oil and the Norwegian Johan Sverdrup to fill the deficit.
Since India imports about 82 percent of the oil it needs, which was worth $ 87 billion in 2018-19, the decline in oil prices benefits the government. The Middle East accounts for 60 percent of all oil purchased by India, followed by Latin America and Africa. However, due to its geographic proximity, the Middle East can deliver goods to India in less time and at low freight rates.
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