World energy scenario scary

OPEC+, a group of 23 oil-producing nations, has decided to reduce production by 2 million barrels per day till 2023-end

At its 34th OPEC and non-OPEC Ministerial Meeting, via video conferencing, last week, the group of 23 oil-producing nations, known as OPEC+, decided to stick to its existing policy of reducing oil production by 2 million barrels per day from November until the end of 2023.

Observers say the OPEC+ decision portends a scary world energy scenario. In their October meeting this year, led by Saudi Arabia and Russia, OPEC+ agreed to reduce production by 2 million barrels per day. The group ignored the calls from the United States that it pump more to lower fuel prices and help the global economy.

The argument of the OPEC+ is that it has to cut down its output because of a weaker economic outlook. Oil prices have of late declined due to slower Chinese and global growth. Oil prices fell to below $90 a barrel from more than $120 in early June this year.

The decision of the oil producers to reduce their production is likely to hit hard the total oil production. This, in turn, may hinder the world economy. The OPEC+ controls more than 50 per cent of global oil supplies.

The energy scenario gets scary also on the account of the Group of Seven (G7) and Australia's recent agreement to impose a $60 per barrel price cap on Russian sea-borne crude oil. Russia's Deputy Prime Minister Alexander Novak has indicated Moscow would rather cut production than supply oil under the price cap. Any Russian decision to cut its production is likely to hit the economy of those nations which import from Russia.

India has reasons to be concerned at these developments. The country is the world's third largest importer of crude oil behind only the United States and China. India's imports from OPEC countries constitute over 85 per cent of its total crude imports and 94 per cent of the gas imports. The decision of the OPEC plus may lead to a drop in the supply of fuel in the market.

Notwithstanding an increasing emphasis on developing clean energy, oil continues to be the most important source of energy security in our world. Its supply is a must to keep the machine of economic growth functional. Experience is a threat to its supplies leads to a rise in oil prices. At the start of the current year, Brent prices were close to $79 a barrel. But, just two weeks after the Russian invasion of Ukraine in February this year, they soared above $127.

(Jagdish N. Singh is a senior journalist based in New Delhi. He is also Senior Distinguished Fellow at the Gatestone Institute, New York)

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