How Geo-Politics Benefits India And Oil Is The Biggest Example

An agreement between Saudi Arabia and Russia (world’s largest and second-largest producer, respectively) could steady the oil prices. What does this mean for the Indian policy-makers?

It may at best end up as a psychologically self-satisfying stand rather than an economic weapon. But still, an agreement between Saudi Arabia and Russia (world’s largest and second-largest producer, respectively) could steady the oil prices.

However, nothing much may move on the ground because two fundamental flaws. One reason why the world will continue to enjoy cheap oil as this move is not an output cut but a freeze.

Another is due to Iran’s refusal to join the oil coalition that has materialised 15 years after a last  agreement among oil producing countries.Chances are that the freeze will keep oil prices range-bound at around the present levels -though a moderate rally cannot be ruled out.

And what does this mean for the Indian policy-makers? They could continue to enjoy the leeway low oil prices allow in managing the budget. According to Goldman Sachs the agreement between Saudi Arabia and Russia to freeze production will have little impact on the oil market.

Oil is trading near a 12-year low as record stockpiles continue to swell more than a year after the Organization of Petroleum Exporting Countries decided to keep pumping to defend market share amid a global glut. The oil market is also struggling to accomodate record Russian output and US shale fields production of more oil and gas.

The success of the deal will depend on Iran, Iraq and other large exporters taking part, with the participation of Iran “unlikely,” according to Goldman. The Persian Gulf state’s Oil Minister, Bijan Namdar Zanganeh, will meet with his counterparts from Iraq and Venezuela in Tehran on Wednesday.

Iran, which was OPEC’s second-biggest producer before sanctions were stepped up in 2012, “will not forgo its share of the market,” the Oil Ministry’s news service Shana reported Tuesday, citing Zanganeh. Iran has continued to comment that it is committed to growing production and regaining market share.

“Asking Iran to freeze its oil production level is illogical,” Iran’s OPEC envoy, Mehdi Asali, was quoted as saying by the Shargh newspaper. Moves to freeze output at January levels will make little difference to the overall supply-demand balance this year and not be enough to clear the 600,000 barrels per day surplus projected for the year, analysts at FGE said in a note. “It could pave the way for further action to be taken should the likes of Saudi Arabia, other OPEC members and Russia deem it necessary,” FGE said.

United Arab Emirates oil minister Suhail bin Mohammed al-Mazrouei tweeted on Tuesday that the country’s oil policy was open to cooperation with all producers toward the mutual interest of market stability. He did not elaborate.Kuwait said late on Tuesday it was committed to an agreement to freeze output provided other producers backed it.

Iran exported around 2.5 million barrels per day (bpd) of crude before 2012. Sanctions cut that to around 1.1 million bpd. A Reuters survey showed Iranian production at 2.9 million bpd in December.
The sanctions, imposed over Iran’s disputed nuclear program, were lifted last month after an agreement with world powers, allowing Tehran to resume selling its oil freely in world markets.

The last global deal, involving OPEC and non-OPEC producers, dates back to 2001, when Saudi Arabia persuaded Mexico, Norway and Russia to contribute to production cuts, although Moscow never followed through and raised exports instead.