Are Cheaper Oil Prices on the Way?

The fluctuations in crude oil prices have significant implications for petrol prices globally. Currently, the likelihood of significant reductions in oil prices is low unless certain conditions are met. These conditions include a mutual agreement between the central and state governments to reduce taxes and classify petroleum products under the Goods and Services Tax (GST) with a tax-sharing formula. Alternatively, the government must direct petroleum companies to bear the increased burden of rising crude oil prices through their own accounts.

The recent geopolitical events, particularly the trade embargo imposed by the U.S. on Iran, are contributing to the uncertainty in global crude oil prices. Iran, one of the major oil suppliers to India, is now facing a halt in crude oil imports, which is expected to exacerbate the situation. Furthermore, the production limits by various oil-producing countries and the indirect control over Saudi oil production by the U.S., due to geopolitical alliances like the Iraq and Libya conflicts, are additional factors driving prices higher.

Impact on India’s Economy

India, a significant consumer of crude oil, may feel the brunt of these geopolitical disturbances. The strengthening of the U.S. Dollar against Indian Rupees (CAD) and the impending parliamentary elections are projected to further weaken the Indian currency. This convergence of events is likely to push up the prices of petrol and diesel, as domestic pricing is heavily influenced by international crude oil prices.

However, with the approach of parliamentary elections, the central government may face increased political pressure from opposition parties to reduce central duties and thus ease the price impact on consumer goods such as petrol and diesel. In the short term, this could mitigate some of the immediate price increases. However, it is crucial to note that such a move would likely exacerbate the budget deficit, a challenge that future governments will have to address.

Historical Context of Oil and Petrol Prices

Historically, when crude oil prices were as high as $130 per barrel, petrol prices in India hit approximately ?74 per liter. During this period, the government used surplus funds to subsidize the losses of the oil companies. As crude oil prices fell, the government increased excise duties to curb budget deficits. The cyclical nature of crude oil prices reflects the inherent fluctuations in supply and demand, and government policies significantly influence these fluctuations.

In conclusion, the complex interplay of global economics and politics makes it difficult to predict future oil prices with certainty. While evident signs point to a challenging future for Indian consumers in terms of increasing petrol prices, short-term adjustments in central duties could provide temporary relief. However, such measures come with longer-term fiscal implications that need to be carefully managed.