Oil Market Crisis

Global oil markets are witnessing major shifts due to slowing demand growth, rising geopolitical competition among producers, and the growing push toward clean energy. Amid this, a fresh conflict has emerged—not with weapons, but with oil barrels—as key oil-producing nations engage in a strategic price war that could have significant global and domestic consequences.

Why is OPEC+ increasing production now?

• Supply-Demand Imbalance Post-COVID: After the pandemic, the world hoped for a quick economic rebound. However, what actually happened was a K-shaped recovery — where only certain sectors and countries bounced back strongly, while others struggled.
  • As a result, global oil demand grew sluggishly, and producers — especially those with smaller economies — began pushing their own output to earn revenues, leading to oversupply.
• Saudi Arabia’s Changing Strategy: As the largest producer in OPEC+, Saudi Arabia had cut production deeply (by 3 million barrels/day in 2023-24) to support prices. But when other OPEC+ countries like Iraq, UAE, Nigeria, and Kazakhstan failed to stick to their promised cuts, Saudi Arabia lost patience.
  • Riyadh has now chosen to flood the market with oil again — a tactic it has used in the past (1986, 1998, 2014, 2020) to discipline overproducers and retain market share. This may lead to another oil price war, a situation where prices are pushed lower intentionally to squeeze out less efficient producers.

Why Are Oil Prices Still Falling Despite These Moves?

Despite Saudi Arabia’s efforts, prices fell sharply — Brent crude went as low as USD 60/barrel, its lowest since the pandemic — before stabilizing near USD 65. This is due to several structural changes in the global oil landscape:

• Peak Oil Demand: The International Energy Agency (IEA) now predicts oil demand will grow by just 0.73% in 2025 — extremely slow by historical standards. This brings credibility to the “Peak Demand” theory — the idea that global oil use will plateau or decline before 2030. Key reasons:
  • EV revolution, especially in China
  • Climate commitments and net-zero goals in Europe and elsewhere
  • Shift to renewables and hydrogen
  • Slowing global economic and trade growth (post-Trump’s tariff policies and post-pandemic fatigue)
• Fragmented Oil Supply: Today’s oil market is more fragmented than before:
  • Shale oil from the U.S.
  • New producers like Brazil, Guyana, etc.
  • Heavy investments in offshore and deep-sea fields that are now operational.
    • Even at lower prices, these producers keep pumping oil to recover investments — worsening the supply glut.
• Geopolitical Calculations and U.S. Influence: Saudi Arabia’s latest moves may also be politically motivated:
  • It is a show of alignment with President Trump, who is pressing for lower oil prices to tame U.S. inflation.
  • The move coincides with an expected S.-Saudi arms deal and defence agreement (USD 100 billion)
  • There’s also anticipation of sanctions easing on Russia, Iran, and Venezuela, which could add more oil to the market — so Saudi wants to pre-position itself at a competitive level.

India: Caught in the Crossfire

• India is the third-largest oil importer globally and is deeply impacted by such fluctuations. In 2024–25, India spent USD 137 billion on crude imports.

India’s Measures to Reduce Oil Imports

• FDI in Oil and Gas PSUs: In 2021, the government allowed 100% Foreign Direct Investment (FDI) in oil and gas Public Sector Undertakings (PSUs) under the automatic route, encouraging private and foreign investment in India’s energy sector.
• Coal Bed Methane (CBM): India is exploring Coal Bed Methane as an alternative energy source to reduce its dependence on crude oil. CBM is a natural gas extracted from coal beds, which is seen as a cleaner alternative.
• Underground Coal Gasification (UCG): The government is using UCG to convert coal into synthetic gas, which can be used for electricity generation and industrial processes. This helps in reducing dependence on imported oil and gas.
• National Gas Hydrate Programme (NGHP): India is also exploring gas hydrates (frozen methane deposits found under the ocean floor) as a potential energy source. NGHP aims to map these resources and explore their commercial viability.
• Open Acreage Licensing Policy (OALP): Under the OALP, India has opened up oil and gas exploration to private and foreign companies, allowing them to bid for exploration blocks in unlicensed areas. This aims to boost domestic oil and gas production.