India's 'strategy' to ignore Saudi Arabia, know what is the game of oil

By: Paromita Ghosh

Last Update: 2021-04-02 20:47:47 IST

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India imports 85 per cent of its petroleum needs. In such a situation, supply and prices on a global scale make a big difference here. During the Corona period, oil producing countries decided to cut production after the demand fell and prices reached very low levels.

Saudi Arabia is seen to be overshadowing India's request for oil production cuts. The Center has asked all government refineries to review contracts related to the purchase of crude oil with Saudi. Also, companies have been instructed to finalize the deal on better terms.

In order to break the factionalism of the producing countries in terms of fixing prices and contract terms, the government has asked the Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation to step up the possibility of purchasing oil in other areas. Also, they have been asked to unite and talk to the suppliers on their terms.

India imports 85 per cent of its petroleum needs. In such a situation, supply and prices on a global scale make a big difference here. During the Corona era, oil producing countries decided to cut production after demand fell and prices reached very low levels. Continuing the cuts even after normal demand, crude oil prices began to rise. Last month, India urged Saudi Arabia to reconsider production cuts and increase production. This will help keep prices under control. 

Saudi ignored India's request. Even its minister advised India to use oil from its reserve. On this, Union Minister Dharmendra Pradhan said in two words that India has its own strategy about when and how to use its reserves. At that time, Pradhan had given a strong message to Saudi, saying that India was cautious about its interests.

Sources connected to the case say that Saudi and other OPEC countries have been India's main suppliers, but their conditions are often not in favor of the buyer. For example, Indian companies buy two-thirds of oil on fixed annual contracts. It is mandatory for the buyer to purchase the quantity fixed in the contract, while Saudi and other suppliers may reduce supplies when production is cut in the name of controlling prices. 

Why should the buyer pay for the OPEC decisions? Similarly, many other unilateral conditions are also imposed on the buyer company under the contract. In such a situation, it will definitely be beneficial for companies to move towards other options for purchasing oil.