By R. Sasankan

Crude oil prices are often seen as a very good barometer of the mood in the global economy. When the prices are up, everyone seems to be chuffed about the economy – from central banks and academicians to industry shoguns and high rollers in the stock markets.

The mood turned decidedly downbeat at the start of this year and it has become even more sombre after US President Donald Trump’s whimsical flip-flops over reciprocal tariffs that threaten to unscramble the rules-based global trading system that over 120 nations crafted close to 30 years ago.

Result: Brent crude sank to this year’s low of US$ 62.49 per barrel on Wednesday, April 30 amid signs of progress in the talks between the U.S. and Iran. Brent crude oil is expected to trade at US$ 68/BBL by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. Looking forward, they estimate it to trade at $71.50 in the next 12 months.

Brent crude oil prices are currently hovering around levels that we have not seen since February 2021 – and there are several factors that are commingling to make sure that the lid on oil prices stays firmly in place at least for some time.

There are three factors that are starting to weigh on crude prices: first, the Opec+ members are seriously mulling the possibility of relaxing the production cuts that were initially agreed upon in April 2023 and endorsed once again in December 2024. Second, President Trump is increasingly inclined to lift the economic sanctions against Russia that were imposed after the invasion of Ukraine in February 2022. And finally, the US itself has turned into a dominant force in the crude oil export market.

Cheap Russian crude oil has helped refiners in India thrive at a time when Gulf crude prices stayed stubbornly high because of the Opec+ output cuts. Trump cannot unilaterally roll back the sanctions that the western nations collectively imposed on Moscow. While the US president is responsible for some aspects of the country’s foreign policy, Congress is in charge of regulating foreign commerce, which means that both branches of government will have a say over the future of economic sanctions. However, the sanctions against Russian oil may be lifted if the talks to end the war in Ukraine succeed.

The question that now bubbles to the surface is this: what strategy should India adopt at a time when crude oil prices fall and the prospect a buyers’ market emerges? India is the third largest importer of crude oil in the world with an import dependency that has already crossed 88 per cent. Sadly, the authorities have rarely shown any resolve to exercise that heft while negotiating long-term supply contracts. Over the years, crude oil deals have been riddled by corruption and kickbacks that have benefited only a few people in power, sacrificing national interest at the altar of avarice.

The Modi regime needs to break out of this cycle of greed by resetting its priorities and striving to advance the country’s interests over any other narrow consideration. The softness in the crude oil market presents an opportunity to India to hammer out a clear strategy to meet its crude oil requirements. Is the Indian government prepared to do everything within its power to attain that objective?

Traditionally, India has depended on the countries in West Asia to meet its oil requirements. The imposition of US sanctions against Iran was a big blow to India since it bottled up access to a major source of favourably-priced crude oil. India was also hit when sanctions were imposed against Venezuela, an important source for heavy oil which was also relatively cheap.

After the West Asian nations cranked up prices, Russia emerged as an important source of supply for India. The attraction of a supply source of a commodity like crude oil basically lies in the price. The greatest attraction of Russian crude has been the huge price discount. Now, the emergence of the US as an important exporter of LNG and crude has further weakened India’s dependence on West Asia. India has very good relations with the West Asian countries but India cannot afford to ignore the bait of cheaper oil or LNG prices. This is precisely why the US has emerged as a potentially important source of supply for India. President Trump obviously cannot invoke his favourite tariff weapon to foist costly crude and LNG on other countries.

Is the crude trade tending to become a buyer’s market? Not yet but nothing can be ruled out. The present trend looks quite normal in a commodity market. When there are large number of suppliers, competition intensifies and prices come down. This is a matter of survival for the sellers and they try to cultivate the buyers with incentives. This is all the more so when prices keep falling and producers are unable to restrict the supplies. OPEC producers are now busy reversing their earlier agreed production cuts which will push the prices down further.

In my view this is the right time for India to come out with a clear strategy to meet its crude requirement. I have been covering India’s petroleum sector for a very long time but haven’t come across anything that could be construed as a clear articulation of a credible petroleum policy by India.

It does not make any sense to recklessly diversify source of crude oil supply. Sources need to be stable enough to meet our requirements. As there is no shortage of crude oil in the market, the key factor that will influence the choice ought to be the price. Iran played that card very well; the price it offered was the lowest among all the suppliers from whom India sourced crude oil, with the added attraction of geographical proximity.

India’s official energy experts tend to forget the fact that India has one of the lowest per capita oil and gas consumption levels in the world. We aspire to be a developed country. If we are serious about clambering up the ladder, we will need to raise our per capita energy consumption by at least three to four times from current levels.
But instead of trying to work towards that goal, Indian energy pundits are foolishly peddling the virtues of blending ethanol into fuels sold at the pumps -- and counting up the gains from foreign exchange savings.

India taxes its consumers too much by keeping oil prices high at the pumps. We want to remain energy poor and yet hope that we will somehow miraculously morph into a developed nation. The idea just doesn’t make any sense. If I had my way, I would acquire oil and gas reserves at current price levels and reduce prices of petroleum products by at least 30-35 per cent. We need to stop the pernicious practice of trying to reap a harvest of votes in the sugar belt by transferring huge amount of money through an elaborate subterfuge through which ethanol is purchased at twice the global price.