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India displeased with KSA over reduced oil production decision

After the Coronavirus pandemic, India’s economy is recovering, but the demand for petrol, diesel and other energy sources is increasing in the country at the same time.

However the Organization of the Petroleum Exporting Countries (OPEC), led by Saudi Arabia, has announced plans to cut oil production, which could hamper recovery.

For economic growth, the country needs not only uninterrupted supply of petrol and diesel, but also at a lower cost as India is a country that imports 80% of its energy needs.

India is the world’s third largest consumer of crude oil after the United States and China.

This week, Saudi Arabia announced that it would reduce its daily crude oil production by one million barrels, and other OPEC countries have also announced a reduction of 97 million barrels in European production.

India is not happy with the decline in production, the country’s oil and gas minister Dharmendra Pradhan said in a press conference.

“I insist on fair prices, which is in the interest of both consumers and oil producers,” he later tweeted. “Declining production is probably not the best way to revive the global economy.”

India’s problems

Dharmendra Pardhan has told OPEC Secretary-General Muhammad Barkando that this contradictory policy is creating confusion for oil-buying countries. The minister said India and other buyer countries expected to increase crude oil production and reduce prices, but OPEC’s decision would require the promotion of alternative energy sources.

However, the OPEC Secretary General replied that the historic decision to reduce production by 97 million barrels per day was made in view of this historic economic slowdown. He claimed that whatever he decides is for the good of countries like India.

Oil and diesel prices have risen sharply in India over the past few months. On Wednesday, the price of petrol in Jaipur was Rs 92.69, which is the most expensive oil in the country, while in Chandigarh it was Rs 82.04 per liter, which is the cheapest.

Prices will rise further as OPEC oil production declines. Shaileja Narain, an energy expert in Singapore, told the BBC that prices would rise next month, which could lead to difficulties in the post-Covid economic recovery phase.

He says the decline in oil production is not the only reason for rising oil prices.

“Consumers in different states in India get petrol at different rates,” she says. “This is because state governments impose various taxes on energy. Crude oil is not so expensive in the world markets, but in India it is very expensive because of taxes.”

Why are prices rising?

Obviously, there are many factors that drive oil and diesel prices. Today, the excise duty on petrol is Rs 21 per liter, which according to many experts is very high. It can be reduced to reduce the price of oil in the country.

In addition, state governments levy value-added taxes. In cities like Mumbai and Delhi, the tax is very high and that is why the price of petrol is very high in these cities.

There are other reasons for the rise in daily oil prices.

Shaileja says that the price of oil in India is determined on the basis of the price of oil in the world market, so when the price in the world market goes up, the price in the country also goes up.

Thus, when prices fall in the world market, the daily price in the country also falls.

Oil in India is much more expensive than in neighboring countries like Pakistan, Bangladesh and Sri Lanka. In the past, petrol and diesel prices were controlled by government subsidies, but for many years it has been linked to the global market.

The Modi government has also increased taxes on tattoo oil in the last few years.

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