The Oil Crisis That’s Coming
Written by Madhav Bahl, Grade 9 student.
The economic sanctions imposed on Russia seek to remove the third-largest exporter of oil from the global oil trade. This has sent crude prices soaring and made economic recovery difficult for countries like India…
Written by Madhav Bahl, Grade 9 student
The economic sanctions imposed on Russia seek to remove the third-largest exporter of oil from the global oil trade. This has sent crude prices soaring and made economic recovery difficult for countries like India.
Read – What Are Sanctions. All You Need to Know
Oil – the liquid gold
Oil is one of the most important resources in the world. Petroleum and its derivatives (related to petroleum) are used in almost every aspect of modern life- from cooking to space exploration. Petroleum and other oil products like natural gas are found in abundance in only a few countries in the world. The US, Russia, Saudi Arabia, Canada, China, and some Middle Eastern countries possess the largest reserves of crude oil and natural gas.
Russia – Ukraine War and the global oil trade
Russia’s invasion of Ukraine took everyone by surprise. The US and other countries were quick to impose sanctions on Russia and its supporters. But they were wary of imposing harsher sanctions as Russia provides 75 percent of its oil for export and one of its main buyers is the European Union which receives 25 percent of its oil from Russia.
Europe also imports 45% of its natural gas from Russia. Now for the sanctions to be effective, Russia should not be able to receive economic benefits from its trade with other countries. This in turn would mean that Europe and other countries would have to stop buying oil and natural gas from Russia. For Europe, this would lead to a lot of hardships. It will also, in turn, lead to a global low-supply-high-demand situation with oil-exporting countries taking advantage and increasing the prices of their oil. This will have a domino effect on the economies of various countries that are dependent on Russian oil and gas.
India’s oil needs
India is a big importer of crude oil. Although India has some oil reserves, the consumption far outstrips the production leaving India to import almost 85% of its requirement. Iran was the biggest supplier of crude oil to India until recent years. The economic sanctions imposed on Iran after it started its nuclear programme forced India to look elsewhere for oil. The same happened to imports from Venezuela. The economic slowdown due to the Covid pandemic and the recent recovery has increased India’s energy bill. The rising crude price fuelled by the global scramble for oil has not helped. In such a situation, India has turned to Russia to purchase oil at discounted prices.
The US is certainly not happy with India’s decision to buy discounted oil from Russia. This move weakens the impact of sanctions imposed on Russia to force it to withdraw from Ukraine. But India is not alone. China, Germany, and many other countries continue to buy fuel from Russia. Despite this, President Biden publicly censured India for its decision.
If the war goes on…
Russia is one of the biggest exporters of oil. It is also the largest producer and supplier of natural gas in the world. If Russia is blocked from the global oil trade, it would play havoc with the energy bills of many countries as they will be forced to purchase expensive oil from other OPEC members. But, this is not all. Countries will also have to overcome the moral dilemma of enriching countries with poor track records in human rights.
OPEC stands for Organization of the Petroleum Exporting Countries. This is an organization that includes 13 countries. It was created in September 1960 to “coordinate and unify the petroleum policies”
A speedy end to the war between Ukraine and Russia will save precious lives and restore peace in the region. It will also end the economic sanctions imposed on Russia, bring down oil prices, and aid the economic recovery that the world has been looking forward to as the covid pandemic recedes.
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