How would Oil War Triggered by Saudi Favor India?

How would Oil War Triggered by Saudi Favor India?

Being the largest energy consumers, India and China may head for an oil bonanza with the world's largest oil producer Saudi Arabia, to scale up production more than 10 million barrels from next month. Oil cartel OPEC along with other huge oil producers was planning to expand the ongoing production cuts beyond March. This was planned as a measure to overcome the low oil prices of slothful demand conditions in an oversupplied market.

The Saudi provides about a fifth of India's oil imports, and it has initiated an all-out price war by slashing prices for its crude by the most in over 30 years. Alongside, the Saudi Aramco is providing heavy discounts on crude in markets such as Asia, Europe and the USA to attract refiners to use Saudi crude. This discount is a striking gain for India, as the country imports nearly 83 percent of its oil requirements.

The fall in dollar price of crude reduces the import bill by almost 3000 crore. Thus, a discount per day of about 10 percent on crude price of just about $45 a barrel would aid the country to save more than $2 billion.

"Amidst turbulence and the virus, some good news: oil at $45 per barrel. Recent $20 drop saves India $30 billion per annum. Also global interest rates have collapsed making money cheap. Let's leverage these for policy to boost growth," states Uday Kotak, Managing Director & CEO, Kotak Mahindra Bank.

However, this would depend on the current prices holding up for the rest of the year. Analysts expect that the oil may remain under pressure for a long time and may range between $50-60 a barrel in FY2021. The other oil producers intending to protect their market would follow Saudi's steps, this could trigger a price war which would favor India.