# OPEC and India

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## OPEC and India

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General awareness on current topics is essential as not only you will be getting questions on GK in various MBA entrance exams but it will be useful for Essay writing test and WAT also.

Today, you will read General Awareness Topic: “OPEC and India”

The Organization of Petroleum Exporting Countries (OPEC) was founded in 1960 to coordinate the petroleum policies of its members, and to provide member states with technical and economic aid. OPEC is a cartel that aims to manage the supply of oil in an effort to set the price of oil on the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.

OPEC membership is open to any country that is a substantial exporter of oil and that shares the ideals of the organization. As of 2011, OPEC had 12 member countries, including founder members Iran, Iraq, Kuwait and Venezuela. OPEC's influence on the market has been widely criticized. Because its member countries hold two-third of crude oil reserves and nearly half of natural gas reserves in the world, the organization has considerable power in these markets.

OPEC is a swing producer and its decisions have had considerable influence on international oil prices. For example, in the 1973 energy crisis OPEC refused to ship oil to western countries that had supported Israel in the Yom Kippur War or 6 Day War, which Israel had fought against Egypt and Syria. This refusal caused a fourfold increase in the price of oil, which lasted five months, starting on October 17, 1973, and ending on March 18, 1974. OPEC nations then agreed, on January 7, 1975, to raise crude oil prices by 10%.

India imports three quarters of its annual oil and gas requirements, with the Middle East and North Africa regions contributing to a substantial chunk of it. India's import bills amount to $18 billion. India is now a huge importer of energy, and its dependence on imported energy will rise further in coming years. It is India’s Rs2 lakh crore problem and is called crude oil. As Indian crude oil import is the part of bulk imports in the balance of payments (BoP), the fluctuations in international crude oil prices tends to fluctuate the domestic economy’s current account balance, foreign exchange reserves, inflation etc. Since international oil prices are controlled by OPEC, any price rise has its impact on Indian economy. In 1973, after first oil shock and in 1980 after the second oil shock Indian economy went into crisis. According to Goldman Sachs report, a rise in global oil prices by$10 a barrel would reduce India's economic growth by 0.2 percentage points and also affect the country's current account deficit. Global oil prices have almost doubled in the past one year. In 2011, the political unrest in Libya, a major oil exporter and OPEC member, had disrupted supplies and pushed up crude prices further.

Rising crude oil prices will impact the inflation whether the government absorbs the burden or pass it to the consumer by increasing the prices of petroleum products. If the government acts as buffer between international prices and domestic prices by absorbing the extra cost, oil subsidy bill will rise and will affect fiscal deficit. The recent strengthening of crude oil prices could impact economic growth momentum.

Prices are fore-casted to rise due to global economic recovery (leading to increased oil demand), and slower growth in non-OPEC oil supply and continuous production restraint by members of OPEC. Despite environmental concerns and various conservation policies, the energy demand is bound to grow due to economic growth, expanding population and higher standards of living. Energy growth can be expected to grow by more than 40% by 2030.

As it is being believed that demand for oil is going to rise faster than its supply, the prices are unlikely to come down in future on a sustainable basis except for a few aberrations. In such a situation, in order to ensure sustainable growth for the country’s economy, dependence on fossil fuel had to be reduced and alternate source of energy are needed to be developed.  Yet, Fossil fuels, oil and natural gas will continue to meet most of the world’s energy needs and thus OPEC having the maximum oil reserves will remain the leading player in the world oil scenario.

Meeting the demand of oil consumers, being mindful of the major global climate change challenges, as well as oil capacity investment needs, are likely to be the predominant issues facing this large organisation going forward.