Oil Price War

By – Sejal Jain

Amidst the coronavirus outbreak in all over the world where every country is struggling to find an effective way to control the situation and make things better for their citizens.
Since, to remain on the safer side, ruling parties of various countries have to put a complete ban on the air travel, ship travel and private/public vehicles and it has affected the demand of crude oil which has decreased unexpectedly and so has the price.

Coronavirus has caused a reduction in the
consumption of oil this quarter which caused weaker prices. Saudi Arabian analysts saw this as an opportunity to take out some of their competition which is outside OPEC.
Russia and the US are producing oil outside the control of OPEC. Saudi Arabia would want to get them out of the market to capture their market share. Since Saudi Arabia is the lowest cost producer as they can lower prices below the cost of shale oil production in the USA, and lower prices
below the cost of Russia’s production as well. This will cause Russia and US producers to cease production unless they get some sort of subsidy from their government.
Most of the oil producing companies of shale oil in US are privately owned and if they will not receive demand, they have no other option but to shut down which will reduce Saudi Arabia’s competition.
Since Russian Economy is very much dependent on exporting oil, it will affect their economy terribly and hence it will make Saudi Arabia as sole producer going forward.

During this oil war, the benefiters of the situation will be the oil importing countries as they now will have to pay less and hence it could save a lot of their foreign reserves which could make a real difference in their economic growth.

India is expected to be benefited from this ongoing oil war between the exporting oil producing countries since India spends a lot in importing oil and hence, it will now have to spend a lot more less than it used to before.
For example, in the last financial year India spent around 112 billion USD on the import of the oil from other countries while during this price war, India is expected to pay 64 Billion USD for importing the oil and hence it could be a ray of hope during the present economic crisis in India.
It will be interesting to see that if the Indian Government will pass on this benefit to the Indian consumers or

The government of India will now face a choice of either they can decline the oil prices in India or they might not pass on the benefits to the Indian Consumers and keep the extra savings to repay their debts. It will be interesting to see what steps will be taken by the Indian Government in this regard.