Oil price hike in India, Indo-Saudi diplomatic relations... can you connect them?

Hello, Good to see you again. Hope you are doing good. Today we are suffering from inflation, economic recession and what not! You know inflation is directly proportional to price hike in fuel oils. And in our India these prices have been going straight touching to the sky since last year, isn’t it? So apart from cursing the government or watching baseless rumours, have you gone through recent international movements that ultimately impacted inflation in India? If the answer is no.. then let's dive deep in the ocean of facts and assume what we have to face in future. In this blog we are focusing on trade ties between India and its 2nd largest oil providing nation Saudi Arabia.

       As we accepted LPG that is Liberalisation, Privatisation and Globalization in economic reform 1991, given by contemporaneous finance minister Hon. Dr. Manmohan Singh, our economy was slowly slowly opening its doors to the globe. In 1947, India officially had a trade tie between Saudi Arabia. 

If we see a geographical location of Saudi, it is much more beneficial for India to open its trade door for west asia as well as african countries, if we establish healthy relations with Saudi. Identifying its importance, four Prime Ministers of India have visited Saudi till the date. In 1955, Hon. Jawaharlal Nehru, in 1982, Hon. Indira Gandhi, in 2010, Hon. Dr. Manmohan Singh and in 2016, Hon. Narendra Modi visited Saudi and signed various agreements towards betterment of both nations in various fields. Accordingly, Saudi’s crown prince Abdullah visited India in 2006 for the first time. And then recently in 2019, Mohammad Bin Salman visited India on occasion of Republic Day. In this visit both nations had some agreements and a MoU was signed. That was based on enhancing national investment and investing in infrastructure funds, Empowering tourism, Investment in ‘Invest India Scheme’, Housing sector improvement, Prasar Bharti and Saudi Broadcast MoU.

       But the question arises how these ties helped in trade? In 2017-18 bilateral trade was carried out of cost 27 Billion US Dollars. So India would have been profited hugely, isn’t it? But the answer is 'No'. Because actually, India imported from Saudi of cost 22 Billion USD and Exported of cost 05 Billion USD. Why is there a huge difference? Because we are importing fuel oil from gulf nations and Saudi has lion’s share in it. According to the studies India imports 1/4th of the total requirement of fuel oil only from Saudi itself. So you can predict how hugely Saudi Arabia is benefitted from India. But everything won’t be in our favor or in Saudi’s favor.

Some international consequences are there to affect our relation with other nations. The main and most important thing is the IRAN Factor. In the presidency period of Donald Trump, the relations between the USA and Iran have gone worse. Due to the Shiya and Sunni Muslim issue, Iran and Saudi Arabia became enemies. 

The interesting thing is Iran's nuclear policy put Saudi in worry; so Saudi became a good friend of one asian nuclear nation so that it would help Saudi if the situation gets worse. And that friendly asian country is Pakistan. I mentioned this point because it has impacted Indo-Saudi relations also. Interesting part is Saudi Arabia is a good friend of Pakistan. But till the date Saudi never opposed India on Jammu Kashmir Issue. I think this is a great success for India in my opinion.

Moving to crude oil issue, in 2020 April-May crude oil prices were collapsed world wide due to extreme downfall in demand. Brent Crude was gone below $0 per barrel. Saudi Arabia also suffered from this issue. All OPEC nations decided to cut down their production historically i.e. 9.2 barrel per day.

 All production was cut down suddenly. But in a goodwill gesture, India promised to buy crude oil in that critical condition from Saudi Arabia. In june 2020, India bought 5.33 million tonnes of crude oil, majorly from Saudi Arabia. That time the average cost was $19 per barrel. The condition was ‘As situation will go normal in future, saudi will resume its production and won’t do any artificial inflation to gain more profit’. Both conditions were approved and MoU was signed between India Strategic Petroleum Reserves Ltd (ISPRL) and Saudi Aramco. Saddest part of events is that as the situation is getting normal, Saudi backstabbed India on the crude oil issue. 

Saudi didn't increase production and oil prices were continuously increasing. In March 2021, crude oil price touched $70 per barrel. However now it is stable at $60-65, but this is also a high price for us. As a result petrol and diesel prices hiked hugely, and in some areas of India petrol was selling at above ₹100 per litre. Increase in fuel charges ultimately impacted other goods and services. Now unfortunately we have to face such sky touching prices for goods. Taking into consideration of this unfair move, India started putting diplomatic pressure on OPEC countries to increase their production and cut the prices but instead of cutting prices Saudi advised India to use strategic reserve oil which India purchased at low price.

 This stubbornness of Saudi was intolerable. So India started widening its way to purchase oil, that means India started searching for new oil exporters. But irony is instead of keeping promise, Saudi Aramco hiked crude price $1.8 per barrel only for asian countries. However it has even cut prices for US customers.. such a shameless thing.. isn't it? I think price hiking only for Asia was an indirect sign to India who is already searching for new exporters. In answer to this, India played very strategically, India cut down its import from Saudi Arabia around 36 percent. Savage!!!

Now lets understand graphically, since 2007 Saudi Arabia was 2nd most traded country for crude oil. But here in February 2021, India majorly cut its import from Saudi Arabia, resulting saudi falled from 2nd place to 4th place. 

India is now diversifying its way to purchase oil. But the sad part is, there is still a price hike declared for asian countries. This hike will be imposed from May 2021, and obviously we are supposed to face even more price hike in petrol and diesel cost.

At last, I am just hoping for betterment of bilateral trade between India and Saudi Arabia. We have been friends for a long time and I wish for a long live Indo-Saudi relationship. No undiplomatic move or strategy should be entertained. And India did neither and nor will. Just hoping for the best. I hope my price hike prediction goes wrong. Wish we start our economy again with full capacity and we will be less dependent on other nations. We are dreaming to be Atmanirbhar bharat and one day we will be successful definitely.

Jai Hind!

-Aditya More

References-

1) Embassy of India in Riyadh, Saudi Arabia

https://www.eoiriyadh.gov.in/page/india-saudi-bilateral-relations/

2) The Diplomat- 'India Saudi Arabia relation'

https://thediplomat.com/tag/india-saudi-arabia-relations/

3) The Economics Times- 'The Reality behind India Saudi Arabias growing ties'

https://m.economictimes.com/news/politics-and-nation/the-reality-behind-india-saudi-arabias-growing-ties/articleshow/71871401.cms

4) Ministry of External Affairs, Govt of India

5) The Arab News- 'The strategic partnership is a new high in Saudi India Ties'

https://www.arabnews.com/node/1618176

6) The Business Standards- 'India tops up strategic reserves with cheaper crude, saves over $685 mn'

https://www.business-standard.com/article/economy-policy/india-tops-up-strategic-reserves-with-cheaper-crude-saves-over-685-mn-120092300594_1.html

7) The Economics Times- 'India tops up strategic reserves with cheaper crude, saves over $685 million'

https://m.economictimes.com/industry/energy/oil-gas/india-tops-up-strategic-reserves-with-cheaper-crude-saves-over-685-million/amp_articleshow/78272483.cms

8) The New Arab- 'Can Saudi Arabia and Pakistan mend frayed ties?'

https://english.alaraby.co.uk/english/indepth/2021/4/14/can-saudi-arabia-and-pakistan-mend-frayed-ties

9) Saudi Gazette- 'Saudi Arabia — between China, India and America!'

https://saudigazette.com.sa/article/605018

10) The Hindu- 'OPEC ignores India's call; Saudi asks New Delhi to use cheap oil it bought last year'

https://www.thehindu.com/business/Industry/opec-ignores-indias-call-saudi-asks-new-delhi-to-use-cheap-oil-it-bought-last-year/article33995625.ece

11) The Economic Times- 'India blames Saudi oil output cut for surge in oil prices'

https://m.economictimes.com/markets/commodities/news/india-blames-saudi-oil-output-cut-for-surge-in-oil-prices/amp_articleshow/80351913.cms

12) The Print- 'Saudi Arabia’s oil hawkishness is forcing India to look for other sources'

https://theprint.in/economy/saudi-arabias-oil-hawkishness-is-forcing-india-to-look-for-other-sources/618862/

13) The Business Standards- 'India to buy oil from cheapest supplier on favourable terms, says Pradhan'

https://www.business-standard.com/article/current-affairs/india-to-buy-oil-from-cheapest-supplier-on-favourable-terms-says-pradhan-121032601097_1.html

14) The India Today- 'US becomes India's second biggest oil supplier, Saudi plunges to No. 4'

https://www.indiatoday.in/business/story/us-india-second-biggest-oil-supplier-saudi-plunges-four-1779755-2021-03-16