Oil Caution For Indian Economy

Oil Caution For Indian Economy

Crude oil prices have sharply risen by almost 25 per cent in the past two months. There are several reasons for this. The latest anxiety could be due to the yet unknown impact of the purge in Saudi Arabia. Eleven members of the royal family, including the richest man in the world, four ministers and many prominent businessmen were taken into custody as part of an anti-corruption drive. The man behind this unexpectedly harsh and decisive action is the Crown Prince of Saudi Arabia. The outside world is still trying to understand the causes that led to this coup (of sorts), and the possible fallout. The Middle East even in the best of times has been a volatile region, with multiple, multi-dimensional conflicts, many of which are proxy battles between bigger powers of the world. Many of the present conflicts, whether in Syria, ISIS part of Iraq, Yemen or even Palestine are seen through the lens of rivalry between the large two powers, namely Saudi Arabia and Iran. The USA, which has big stakes in the Middle East, abruptly chose to take sides with the Saudis, against the Qataris. That is a completely new angle. This column is not about that region’s geopolitics, but suffice to say that the new Saudi development is causing oil prices to respond.

In addition, there is the Venezuela factor. That oil producing country is on the brink of defaulting on its external debt obligation. Already the country has seen the rise of extreme poverty and malnutrition. It gets 90 per cent of its export revenues from oil. So it, too, may be causing some blips in global oil prices. Apart from conflict-disrupted supply, there are also demand factors. The Chinese economy, second largest in the world, is showing higher than expected growth. The International Monetary Fund (IMF) is projecting a much stronger growth on both sides of the Atlantic. India, too, will grow at least 0.5 per cent higher than this year. All of this means that there will be demand pressure. Read More…

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