Geopolitics rejigs globoil balance

Before Narendra Modi's rush back to New Delhi from Riyadh due to the terrorist attack in Pahalgam, much of his visit to Saudi Arabia was about security - defence and energy. India's engagement with Saudi Arabia to balance global oil market dynamics reflects a new compact among buyers and sellers to keep energy supplies stable. Opec+ is struggling to keep a lid on supply as members violate production limits. They are citing national interest as a reason to keep oil flowing. Policing overproduction has become geopolitically difficult. The cartel is under pressure from the US to keep oil prices low. Western customers are not as reliable in keeping up their side of the energy offtake bargain because of climate commitments in Europe, and large US reserves seeking a pathway to the market. Besides, the world's leading trade partners are squabbling over tariffs that are expected to dampen oil demand.

India, the world's third-largest oil importer, has seen the share of Opec oil plummet due to cheaper supply from Russia. Its pace of economic growth and increasing energy intensity ensure a stable and rising demand for oil, which helps producers plan output. India is at a stage where it needs to tap all energy sources to speed up growth. It is negotiating with the US to rebalance bilateral trade, and energy imports offer an adjustment mechanism. India is underinvested in overseas oil prospecting and production, which makes it dependent on the market mechanism for a stable and inexpensive supply. By contrast, China has a more aggressive position on ensuring supply through strategic investment in upstream oil projects across the world.

The world energy market is transforming rapidly due to geopolitical realignments and economic momentum towards emerging economies. Within BRICS, India is unique in that it is neither a resource nor a manufacturing-driven economy. This lends India's growth a measure of stability that would benefit an oil market seeking a new equilibrium. It now has a voice in the market that needs to be heard.