Indian oil minister S. Jaipal Reddy is rather sought after these days. You would be, if you represented one of the biggest consumers of the crude stuff. So it is just about right that OPEC’s 5th international seminar here in Vienna had Reddy speak at a session titled: “Oil and the World Economy.”
In face of growing international pressure to reduce its dependence on Iranian oil and running out of capital market mechanisms to actually pay for the stuff in wake of US/EU sanctions, the Indian minister certainly had a few things to say and wanted to be heard.
India is the world's fourth-largest oil importer with all of its major suppliers being OPEC member nations, viz. - Saudi Arabia, Iraq and Iran. Given what is afoot from a global macroeconomic standpoint, Reddy has called upon oil producing and consuming countries to work together to build trust and share market data to establish demand certainty in international oil markets.
Unsurprisingly, he admitted that in an oil-importing country like India, higher oil prices lead to domestic inflation, increased input costs, an increase in the budget deficit which invariably drives up interest rates and slows down the economic growth.
“There could not be a more direct cause and effect relation than high oil prices retarding economic growth of oil-importing countries,” Reddy said adding that a sustained US$10 per barrel increase in crude prices reduces growth in developing countries by 1.5%.
“We are meeting in difficult times. The Eurozone crisis, the continuing recession in the global economy, rising geopolitical tensions, a sustained phase of high and volatile international oil prices, extraneous factors continuing to influence the price formation of oil – all these pose serious challenges to the health of the global economy and stability of the world’s financial system. The current global financial crisis, which has lasted longer than we thought in 2008, is the greatest threat faced by the global economy since the Great Depression eight decades ago,” he said further.
Reddy revealed that between the Financial Year 2010-11 and 2011-12, India’s annual average cost of imported crude oil increased by US$27 per barrel, making India’s oil import bill rise from US$100 billion to a whopping US$140 billion.
“Furthermore, since we could not pass on the full impact of high international oil prices, we had to shell out subsidies to consumers amounting to US$25 billion dollars...India’s GDP grew at 6.9% during the last financial year down from the 8% plus growth rate experienced in the past few years,” he continued.
India and perhaps many others see themselves distinguishing two schools of thoughts here in Vienna. One school holds that the global economy has built up enough resilience to absorb oil price hikes due to (a) stronger demand from emerging economies and, (b) more enlightened Central Bank policies; the other school is categorical that high oil prices are one of the primary reasons for the weak conditions in the economies of the US and Europe.
“We subscribe to the latter view and hold that very high and volatile oil prices will continue to weaken global efforts for an expeditious recovery from the ongoing global economic recession and financial crisis,” Reddy concluded.
The viewpoint of an importers’ club member is always welcome at an exporting cartel’s event. For good measure, the representatives of Nigeria, Ecuador and Iran provided the exporters’ perspective and IFC’s spokesperson did the balancing act as a sideshow. As for the word “Iran” and the sanctions it faces; the Oilholic has been told in no uncertain terms by quite a few key people that it’s...er...ahem...a taboo subject at this meeting. That's all for the moment folks. Keep reading, keep it 'crude'!
© Gaurav Sharma 2012. Photo: Indian Gas Station © Indian Oil Corporation Ltd.