Low crude prices offer a strategic handle for India

Saudi Aramco is trading close to its issue price, two months after the world’s most valuable company went public. Its fortunes are linked to crude prices, hovering at $53-54 a barrel, their lowest in a year. Mint explores how low crude prices give India a strategic advantage.

Will low oil prices help India in geopolitics?

India sources its oil from a bulk of countries, with Iraq as the biggest supplier followed by Saudi Arabia and Iran. The US has emerged as a key oil producer and is now India’s sixth-largest supplier less than three years after we started importing oil from that country.

This change in India’s dependence on countries for oil reflects how oil plays an important role in geopolitics by fostering deeper economic ties between nations. The price drop gives India a chance to leverage it for getting a better bargain: for example, paying for oil imports in rupees or getting trade concessions with some of these countries.

How will this benefit the Indian economy?

The first Narendra Modi regime benefited from moderation in oil prices, which enabled it to manage the fiscal consolidation with higher expenditure on key programmes and infrastructure projects. The current tempering comes as the exchequer is facing a revenue shortfall and amid concerns over the bulging fiscal deficit.

The additional oil bounty can be utilized to create adequate space for an increase in government expenditure. Some pass-through of reduction in oil prices to domestic prices will also benefit industry in the form of lower input costs and may result in a moderation in inflation indices.

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