GS-3: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
GS-2: Effect of policies and politics of developed and developing countries on India’s interests
Oil Price Rise
Context: Crude oil prices have hit a two-year high with Brent crude rising above the $71 per barrel mark.
Why are crude oil prices rising?
Economic recovery: Crude oil prices have been rising steadily since the beginning of 2021 when Brent Crude was trading at about $52 per barrel buoyed both by hopes of improving demand due to economic recoveries across geographies.
Supply cuts by key oil-producing countries: The Organisation of Petroleum Exporting Countries extended supply cuts made in 2020 when crude oil prices had reached a low of under $19 per barrel through the first five months of 2021. Saudi Arabia notably made an additional voluntary production cut of 1 million barrels per day between February and April.
No impact of Iran relief: A potential breakthrough in international efforts for a new Iran nuclear deal which would see international sanctions on Iranian oil removed would also not have a major impact on oil prices according to OPEC. Any increase in crude oil production from Iran would happen gradually and would not destabilise crude oil prices.
How are high crude oil prices impact India?
Rising Fuel Prices: Rising crude oil prices have contributed to petrol and diesel prices rising to record high levels across the country. The price of petrol has been hiked by Rs 10.8 per litre since the beginning of the year while the price of diesel has been hiked by Rs 11.5 per litre in the same time period.
Inflation: The prices of petrol & diesel are set to rise further unless there is a cut on levies on autofuels or a fall in crude oil prices. These rising prices will feed into transport costs of goods & services thus causing inflation.
State and central taxes account for about 58 per cent of the pump price of petrol and 52 per cent of the pump price of diesel in the national capital.
