Global oil war and possible stock market collapse in India


Is it likely that a change in the price of oil is enough to shake the stock market in India? Possible as India imports 80% of its oil needs.

Saudi Arabia was overpowered by its neighbouring country, Iraq in the ace-spot of exporting oil to India. Iraq now ships about 9,60,700 barrels per day(bpd), considerably higher than the Saudi-Arabian 7,87,700 bpd export to the Indian sub-continent.

This has indeed turned the tables on the Saudis and placed Iraq on the top of OPEC members. The oil imports of India from Iraq have risen by some 41 per cent in April and about 79 percent as compared to the preceding year. On the same front, the Arabian’s have lost nearly 14% of their share in April over the same time last year.

Surge in India’s crude oil imports

Analysts report a surge in India’s crude oil imports in the past 4 months. There has been an increase of 6% in this month, and an overall rise of 9.9 percent in the first four months of 2016. According to BP Statistical Review of World Energy, India has outdone Japan to become the world’s third-largest consumer of oil, with its oil demand being on a consistent hike.

India consumes 4.1 million barrels per day, following the footsteps of US(19.39 bpd) and China (11.96 bpd). In 2015, India has accounted for 4.5 percent of global oil consumption and supposedly shall continue to do so. The government sets the fuel commodity’s price at a subsidised rate. It then reimburses companies for any loss from selling off fuel products at lower rates. These losses are what we refer to as under-recoveries. This is cumulated to the fund of government’s total expenditure and consequentially leads to a rise in the fiscal deficit – the amount Government borrows from the markets.

A drop in the oil prices reduces companies’ overall losses, oil subsidies and as a result helps narrow fiscal deficit. However, since diesel has recently been deregulated, the fall in the price of oil will likely have a relatively less effect on the government’s fiscal deficit. Besides, the government has to still pay for the previous under-recoveries. Any sort of a benefit from the reduction will be neutralised by the payments for the past under-recoveries.

Ever increasing demand

It is not unknown that oil enjoys a one-third share in the total aggregate of India’s imports. India imports nearly 80 % of its oil needs and as stated earlier, the demand has been, ever since, increasing. This is exactly why a change in the price of oil will affect India. When the price of this fuel falls, it eventually drives down the value of imports. This implies that the Balance of Payments would be in India’s favour. In simple words, India’s fiscal deficit now narrows down. The burden of the amount of money now owed by India to other countries in foreign currencies is lessened.

To be honest, the mechanism wherein a fall in the price of oil, could trigger a collapse in the stock market, depends largely on the financial devices used to fund oil exploitation and exploration throughout the world. Fasten your seatbelts and embrace yourself for a bumpy ride, and keep the eye open for opportunities. As quoted by none other than the genius himself: “Be really fearful when others are greedy and greedy when the others are fearful.”