What is the News?
India has announced that it will release five million barrels of crude oil from its strategic petroleum reserves in consultation with other big global oil consumers such as the US, China, Japan, and the Republic of Korea.
How does cheap oil help the government?
The Government of India has benefited from low oil prices in the past giving it the opportunity to raise taxes and find resources for various welfare schemes.
The government has also phased out most of the petroleum subsidies, cleaning up the government balance sheet, making oil prices pass through to consumers.
However, high oil prices forced the government to cut taxes, making it harder for it to balance budgets. Higher energy costs are also seen by experts as a deterrent to consumption.
Is India on a collision course with OPEC?
India’s efforts to influence oil pricing with its status of a bulk buyer has seen little result till now because of cartelization (to control or regulate the price or supply of a commodity by forming a cartel).
Moreover, this plan of release of oil reserves may backfire as OPEC countries may respond to the move by cancelling plans to boost production from their own reserves, thereby negating the addition of stockpiled oil onto the market.
Measures taken by India to reduce Oil Consumption
Ethanol blending is critical to reducing dependence on oil. The target is to achieve 20% ethanol blending of petrol by 2025.
A strong policy backing is given to facilitate the transition from fossil fuel-based transportation to electric mobility.
State-owned oil refiners are always lookout for contracts with new suppliers.
Policy-makers are also eying hydrogen as a fuel.
Source: This post is based on the article “What strategic oil release means for Indian consumers” published in Livemint on 23rd Nov 2021.