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Can India Break Its Oil Addiction?

Consumption New Delhi

India is one of the world’s largest oil consumers, accounting for around 4 percent of global consumption. Only the U.S. and China outrank India in this regard, making it a key player in the oil market.

While India’s oil consumption has seen remarkable growth in the past few years, the recent rise in oil prices may soon force the nation to scale back its reliance on oil importation. In this new oil price environment, continued import growth would put a significant strain on the country’s economy.

India’s Prime Minister, Narendra Modi, has largely benefitted from the slump in oil prices over the last three years, exploiting the low prices by levying a heavy tax on this key commodity. Before Modi came into office, Brent crude averaged $99.43 a barrel. In his very first year, that figure fell by 42 percent before hitting historic lows the following year when WTI dropped below $27.

As the economy has benefited from high taxation on petroleum and diesel, India has experienced a retail energy price significantly higher than that of its South Asian neighbors – with taxes accounting for half of the total retail cost of fuels in India.

As the price of oil fell, the Indian government increased the excise duty on gasoline nine times over the course of three years. The failure of the government to pass these savings on to the consumer resulted in the alienation of the poorer classes of Indian society.

At present, there is a $10.2 billion difference between the market and retail price of oil in India. This gap has led to India having one of the largest state supported societies in the world, with only Saudi Arabia, Iran, Venezuela and China spending more on state support.

A False Economy

When oil prices were low in India, the government saw earnings soar as it introduced heavy taxation on oil. However, rather than preparing for the inevitable fluctuation in oil prices the government spent the earnings on its bloated state support system.

And now the chickens are coming home to roost. As oil prices have increased, Modi has been forced to plea with the top three Indian oil marketing companies, Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp., to sell product at a loss so that the state can keep oil prices stable. This short-term solution is far from sustainable.

As the next election looms, India is facing a plethora of problems – one notable example is the lack of funding in the public transport system. Furthermore, after the Indian government failed to pass on oil price savings to the population, the working class has been largely alienated. The lack of investment and the disproportionate wealth distribution in the country is leading to public skepticism over Modi’s policies.

Lobbying groups are constantly increasing pressure on the Indian government to invest some of its tax earnings from petroleum and diesel into the overcrowded public transport systems in some of India’s larger cities. The metro systems of Delhi, Mumbai, Chennai, Kolkata and Bengaluru provide the best transport network for locals to avoid both congestion and pollution. Yet, they are gravely underfunded.

Tackling the Addiction

So, what’s the best way for India to battle this addiction?

One obvious option that Modi will likely consider is to revisit an opportunity from a 2005 proposal. The Prime Minister could invite China to join forces with India in a bid to lower oil prices. With China and India together accounting for 17 percent of world oil consumption, these market giants could establish a bilateral agreement that would give the two nations the necessary clout to reduce the cost of oil from OPEC exporters.

Another, more sustainable, option is to stop relying so heavily on fossil fuels and shift finances toward the development of renewable energies. India is already a significant developer of new technologies, with high hopes of manufacturing a large fleet of electric cars in the coming years. But with failing initiatives, such as the trial of India’s electric car service Ola, there are growing trepidations over Modi’s promise to make all new vehicles electric by 2030.

There were high hopes for expanding India’s renewables from the Paris Climate Agreement in 2015, with India promising to tackle its dependence on fossil fuels and its negative impact on climate change by installing 175 gigawatt (GW) of renewables power capacity over the next 7 years. However, targets have been repeatedly missed for solar, wind, hydro and bio power since 2016.

If Modi wants to convince the public and international powers that he can maintain a stable economy and follow through with initiatives to produce and use renewable energies, his ongoing reliance on toil will have to stop.

India’s pivot away from fossil fuels is fast becoming an economic necessity, and as long as oil prices remain high, India’s economy looks set to struggle.

By Felicity Bradstock for

13 Comments on "Can India Break Its Oil Addiction?"

  1. fmr-paultard on Mon, 30th Apr 2018 10:28 am 

    guys the oak tree is gone! It’s a victim of the “deep state” …haha. wow I’m a good conspiratard right? It’s so easy to be a conspiratard.

    oh hey, is it mandatory quaranteen or deeper thing involving chinese foods and ET? they want oak trees to plant in mars

  2. Outcast_Searcher on Mon, 30th Apr 2018 12:04 pm 

    And yet, aside from a citation for the metro system, NOTHING to back the claims about the problems with the economy and the role of oil in that.

    The Economic Times says the Indian budget is SHORT on outlays. The budget deficit is only 3.5 percent and projected to fall this year.

    So much for the “bloated” state support system being a big problem (completely uncited, of course). The Indian Economy is forecast to undergo rapid growth overall the next decade. Much of the spending is for things to help that, like agricultural support, infrastructure development.

    I call the usual BS doomer talk, unless meaningful support/citations are given for things outside public transport. Public transport is NOT the entire Indian economy.

  3. Duncan Idaho on Mon, 30th Apr 2018 2:03 pm 

    There National consumption is about half of the Ghawar Field daily production.
    Of course, when that goes, things will get really interesting——

  4. BobInget on Tue, 1st May 2018 11:22 am 

    By Alex Lawler

    LONDON (Reuters) – OPEC oil output fell in April to a one-year low due to declining production in Venezuela and lower shipments from African producers, a Reuters survey found, sending compliance with a supply-cutting deal to another record.

    The Organization of the Petroleum Exporting Countries pumped 32.12 million barrels per day this month, the survey found, down 70,000 bpd from March. The April total is the lowest since April 2017, according to Reuters surveys.

    OPEC is reducing output by about 1.2 million bpd as part of a deal with Russia and other non-OPEC producers to get rid of excess supply. The pact started in January 2017 and runs until the end of 2018.

    Adherence by producers in the deal rose to 162 percent of agreed cuts from a revised 161 percent in March, the survey found. There was, again, no sign that Saudi Arabia or other big producers had boosted output significantly to cash in on higher prices or to compensate for the Venezuelan decline.

    “Thus, higher U.S. oil production is needed to plug the supply gap,” said Carsten Fritsch, analyst at Commerzbank, referring to the lack of extra barrels from other OPEC members to compensate for declines.

    Oil has topped $75 a barrel this year for the first time since 2014, and was trading near $74 on Monday. Still, OPEC says supply restraints should be maintained to ensure the end of a glut that had built up since 2014.

    In April, the biggest decrease in supply came from Venezuela, where the oil industry is starved of funds because of economic crisis. Output dropped to 1.50 million bpd in April, the survey found, a new long-term low.

    Production in Angola, where natural declines at some fields are weighing on output, slipped and the country is pumping over 260,000 bpd less than its OPEC target. Nigerian exports, which have risen this year, slipped in April.

    Production in Libya, which remains unstable due to unrest, edged lower after a suspected act of sabotage briefly stopped flows from Waha Oil Co.’s fields, industry sources said.

    OPEC’s two largest producers, Saudi Arabia and Iraq, pumped slightly more but not enough to offset the declines elsewhere.

    Output in top producer Saudi Arabia edged up due to higher exports, sources in the survey said, but remained below the kingdom’s OPEC target.

    Iraq, the second-largest, pumped more because of an increase in exports from the south, the outlet for most of the country’s crude, despite maintenance at a loading terminal.

    Output in the country holding the OPEC presidency this year, the United Arab Emirates, remained steady in April as it continues to show higher compliance than in 2017, sources close to the matter said. Kuwait also maintained full compliance.

    Nigeria and Libya were originally exempt from cutting supply because their output had been curbed by conflict and unrest. For 2018, both told OPEC that output would not exceed 2017 levels.

    OPEC has an implied production target for 2018 of 32.73 million bpd, based on cutbacks detailed in late 2016 and taking into account changes of membership since, plus Nigeria and Libya’s expectations of 2018 output.

    According to the survey, OPEC pumped about 610,000 bpd below this implied target in April, not least because of the involuntary declines in Venezuela and Angola.

    The Reuters survey is based on shipping data provided by external sources, Thomson Reuters flows data and information provided by sources at oil companies, OPEC and consulting firms.

    (Additional reporting by Rania El Gamal in Dubai; Editing by David Evans)

  5. BobInget on Tue, 1st May 2018 11:29 am 

    I would like to wish all those who work for a living
    to organize and vote this coming fall.
    May Day 2018 “May 1, celebrated in many countries as a traditional springtime festival or as an international day honoring workers”.

  6. fmr-paultard on Tue, 1st May 2018 11:32 am 

    bob, voting doesn’t do any good. the old lady at the town hall (non jewish just in case we’re told jews control america) started raising minimum tax exmptions for old people.

    if you get MOAR votes, the old lady (non jewish) will keep raising tax exemptions to get MOAR old people to vote FOAR MOAR taxes.

  7. fmr-paultard on Tue, 1st May 2018 11:38 am 

    i’m a libtard like you and when you said may day and workers! it speaking directly to my brain. i don’t like democracy either. president paul said never accept invitation to dinner wolves where you’re a only sheep and we get to vote for the bbq.

  8. Cloggie on Tue, 1st May 2018 11:47 am 

    the old lady at the town hall (non jewish just in case we’re told jews control america)

    …from Washington’s illegal wars against Muslim peoples, wars that Americans are forced to fight for the benefit of Israel.

  9. fmr-paultard on Tue, 1st May 2018 12:00 pm 

    PCR is not even a libertarian, did not support President Paul. When he was advising Reagan he didn’t have problem with grenada, canada, iran-contra affairs. The old man is senile ..stuck in the basement with his blog. He’s never been on TV to defend his position, he can’t. A blog allows him to sensor dissenters.

    it smells.

  10. BobInget on Tue, 1st May 2018 12:08 pm 

    Sorry to woke.

  11. MASTERMIND on Tue, 1st May 2018 1:04 pm 


    that is so true. Paul Craig Robert is a whack job. Just look at the picture of him on his blog…The eyes never lie! He is stone cold fuck nuts crazy. He is just like Makdat..A loney old senile incel..

  12. Cloggie on Tue, 1st May 2018 1:11 pm 

    “He’s never been on TV to defend his position, he can’t”

    Most likely he was never invited.

    The USSR never invited Solzhenitsyn in talkshows either.

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