Topics Covered:
Effect of policies and politics of developed and developing countries on India’s interests, Indian diaspora.
Impact of attack on Saudi Arabia’s oil facility
What to study?
For Prelims: Top importers and exporters of oil.
For Mains: Impact of the Recent attack, what needs to be done?
Context: Houthis, a rebel Shia group of Yemen that is backed by Iran, bombed the Abqaiq plant as well as the Khurais oil field in Saudi Arabia using drones.
Impact of the attack:
- Saudi Aramco, the state-owned oil company, had to suspend the production of almost 6 million barrels per day (about 6 per cent of global oil supply).
- It had to restrict the use of 2 mbd of spare capacity.
- This is the largest-ever disruption in crude oil production in Saudi Arabia.
Concerns for India:
- Saudi supplies 10 per cent of global world supply and is the world’s largest crude oil exporter.
- India imports 80% of the oil it consumes, which means there are multiple ways in which the country will be impacted by this disruption. With this attack, Oil prices may go up
- India is already trying to make up for the loss of supply from Iran after US-imposed sanctions. After Iraq, Saudi Arabia is India’s second-largest supplier of crude oil.
- Besides, the global supply has been volatile because of disruptions in some of the other big suppliers such as Venezuela, Libya and Nigeria.
- Supply constraints and rising oil prices would mean that the rupee will weaken further against the dollar — that’s because, as the dollar prices of crude oil rise, India would need to buy more dollars for the same amount of oil, thus depreciating the value of the rupee vis-à-vis the dollar.
- Rising oil prices will worsen the Indian government’s fiscal balance.
- Higher crude oil prices would also lead to higher domestic oil prices, which, in turn, will further depress the demand for all things, especially those that use oil as the primary input — say, cars.
- This dip in consumption demand, which is already under strain as the recent growth slowdown has shown, would likely mean lower economic activity and consequently lower revenues for the government.
Sources: Indian Express.
