India’s Crude Import from OPEC

In News

• India’s crude import from OPEC steadies after six years of slump.

Surge in crude import

• OPEC’s share of India’s crude imports for the 2021-22 has risen after a span of 6 years.
• The surge is primarily because of refiners importing more crude from the OPEC to counter rising global prices and also easing of Covid-19 lockdown.
• In the next few months OPEC’s share of India’s overall imports could decline because refiners in India are buying cheaper Russian oil that has been sanctioned by the western countries after Russia’s invasion of Ukraine.
• Russian oil continued to account for less than 1% of India’s crude imports in 2021-22. It has increased to a little less than 2 percent in recent months on account of Russia offering crude at discounted rate.
• The share of OPEC crude in India’s imports improved while that of Latin America and Africa declined.

The Organization of the Petroleum Exporting Countries (OPEC)

• OPEC is a permanent, intergovernmental organization created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
• The five Founding Members were later joined by Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria, Angola, Gabon, Equatorial Guinea and Congo.
• OPEC headquarters is in Vienna, Austria. Earlier it was situated in Geneva, Switzerland but was moved to Vienna in 1965.
• Qatar moved out of OPEC in 2019, Indonesia in 2016 and Ecuador in 2020.
• OPEC’s objectives:

• to coordinate and unify petroleum policies among member countries
• to secure fair and stable prices for petroleum producers 
• To secure an efficient, economic and regular supply of petroleum to consuming nations 
• ensuring fair return on capital to those investing in the industry

 How oil prices are determined by OPEC?

• OPEC is a cartel which behaves like a loose oligopoly thus determining the level of output based on profit maximization.
• However, it has to factor in various conditions to arrive at the production figure based on global demand and supply, uncertainties etc.
• Crude prices not only depend on current supply and demand but also on projected future supply and demand.
• OPEC adjusts member countries’ production targets based on current and expectations of future supply and demand.
• Gauging future supply and demand is challenging as market conditions are uncertain and are changing rapidly.
• There can also be significant lags in OPEC production target adjustments in response to market conditions, which also can impact prices.
• Despite the mandates to manage production and maintain targeted price levels, member countries do not always comply with the production targets ascertained by the organization.
• Prices of crude are also affected by member countries’ reluctance to maintain production targets.
• Furthermore, unexpected outages, disruptions can reduce OPEC production thus affecting crude prices.

How much is India dependent on OPEC for its oil import?

• India as of now imports roughly 70 percent of its crude from the OPEC members.
• On a decadal comparison, the imports have reduced drastically from 87 percent of India’s total crude import to 70 percent in 2021-22.
• This reduction is on account of India expanding its import basket to rope in non-OPEC members so as to have a stable and consistent supply of crude.
• The United States is the largest non-OPEC crude importer to India.

How crude import from Russia can affect India’s dependence on OPEC?

• At present India’s crude import from Russia accounts for less than 2 percent of India’s need which is lesser than its domestic production.
• In short to medium run it is not favorable for India to import a large chunk of its import needs from Russia due to sanctions and secondly Rupee-Rouble payment arrangement has a limitation.
• In the near future, the Russian crude import can’t affect India’s dependency on OPEC much but in the long run with India investing in Russian gas fields and ironing out the payment arrangement issues, India’s dependence on OPEC can be drastically reduced.
• India should look at OPEC plus nations as well to reduce its import demands from OPEC.

Source: IE