[dropcap]P[/dropcap]rime Minister Narendra Modi has given a pep talk to the global crude oil giants on the ‘pain’ suffered by importing countries due to the skyrocketing crude prices and advised them not to ‘kill the golden goose’, the gyst of his argument being that, if prices continue to rise, the economies of the consuming countries will be hit hard, in turn affecting demand. Lower demand, of course, means a fall in prices. Those in attendance included chairman of the world’s biggest oil producer Saudi Aramco, CEO of the UAE’s Abu Dhabi National Oil Co., BP’s group chief executive officer Bob Dudley and representatives of oil major Schlumberger, World Bank, International Energy Agency and others.
Modi’s analogy was not particularly bad. But, unfortunately, the oil producers know all this and much more. OPEC is always uptodate with its knowledge of the market to the extent that it can estimate the impact of each additional cent in price on the market. The producers have all the means to control the market and this has been the case throughout, except for a brief period when large-scale investments in shale gas production in the US wrested the initiative from them and the prices came down crashing. But the cartel has covered much ground since then. By making fracking for shale gas uneconomical by manipulating crude prices, OPEC has overcome the threat and is now in full control.
The Prime Minister’s request to the major oil exporters to consider a rupee payment mechanism for oil trade with India so as to cushion the fallout of the falling rupee and the rising crude prices may have sounded appropriate. But, here again, all odds are against India. Rupee trade was, in the past, used for oil imports from Iran to circumvent the US embargo against that country, but there is nothing in it to excite such suppliers as Saudi Arabia and the UAE, which transact their entire oil trade in dollars. Rupee trade could work with Iran to some extent as it served the purpose of both sides. That is certainly not the case with other producers.
It is the height of irony that, on the day that the Prime Minister was exchanging ideas with the oil majors, the domestic fuel prices had reclaimed the entire Rs2.5 per litre reduction announced by way of excise duty cut and relief in a coordinated action with the oil marketing companies. Fuel prices are now back to historical highs and there is no respite in sight as global crude prices show no signs of relenting. This makes further cuts in taxes and profits the only option for the Modi government if it wants to go back to people with confidence and ask for votes. But that is, indeed, a tough call!