Global Oil Market Battle and Impact on India

The global oil market in 2025 is witnessing a critical contest between OPEC-Plus and other oil exporters. This battle shapes crude prices and supply dynamics. India, the world’s third-largest oil importer, stands to gain or lose substantially depending on the outcome. The crude oil sector remains vital not only for energy but also for global finance and geopolitics.

Current Market Context

Global crude production exceeds 100 million barrels per day. Nearly half of this is traded internationally, with daily crude trade valued above $3 billion. Technological advances like shale extraction and deep-sea drilling have boosted supply. Meanwhile, demand growth is slowing, especially in industrialised countries. The rise of electric vehicles and climate concerns have curbed fossil fuel use. Recently, demand is expected to grow by only 1.3 million barrels per day, mainly from developing nations. China’s consumption growth has slowed due to economic factors and EV adoption.

Supply and Price Trends

Crude production surged by 5.6 million barrels per day year-on-year. OPEC+ increased output by 3.1 mbpd after easing COVID-19 cuts. Other producers like the US, Canada, Brazil, Guyana, and Argentina also raised production. This has created a supply glut. Brent crude prices fell 16% in 2025, dropping to $61 a barrel. Price declines were cushioned by strategic petroleum reserves purchases and producers storing unsold crude on tankers.

Geopolitical and Economic Influences

Despite tensions such as the China-US tariff war and Ukrainian attacks on Russian oil infrastructure, oversupply weighs heavily on prices. Saudi Arabia wants to swiftly remove production cuts to regain market share. Russia prefers a gradual approach due to sanctions. OPEC and the International Energy Agency (IEA) disagree on 2026 supply-demand balance. OPEC forecasts a slight shortage, while IEA expects a large surplus. Most analysts side with the IEA, predicting further price falls. Other factors include possible sanction relief for Russia, Iran, and Venezuela, West Asian geopolitical tensions, and the easing of US tariff conflicts.

Global Economic Outlook

The International Monetary Fund’s 2025 outlook signals a slowdown in global growth to about 3.2%. World trade growth is also expected to decline. These trends increase downside risks for oil prices. Lower energy demand due to economic uncertainty and climate policies will influence the market.

Implications for India

India benefits from lower oil prices and a weaker US dollar. Oil imports cost $137 billion in 2024-25. A $1 fall in oil price improves the current account deficit by $1.6 billion. Subsidy burdens and inflation ease, supporting fiscal health and growth. Reduced reliance on discounted Russian crude may ease US tariff tensions. However, slower growth in West Asian economies could affect remittances, exports, and investments. Given market volatility, India must continue energy efficiency and diversification efforts.

Questions for UPSC:

1. Point out the impact of technological advancements on global oil production and how they influence geopolitical relations.
2. Critically analyse the role of electric vehicles in shaping global crude oil demand with suitable examples.
3. Estimate the effects of fluctuating oil prices on India’s economy and fiscal policy in the context of global market changes.
4. What are the implications of geopolitical tensions in West Asia on global energy security? How does this affect India’s foreign policy?

Answer Hints:

1. Point out the impact of technological advancements on global oil production and how they influence geopolitical relations.

1. Technologies like shale extraction, horizontal drilling, and ultra-deep offshore drilling have boosted oil supply globally.
2. Increased production from non-OPEC countries (US, Canada, Brazil, Guyana, Argentina) challenges OPEC+ market control.
3. Enhanced supply contributes to price volatility and supply gluts, weakening traditional oil-exporting countries’ revenues.
4. Shifts in production power alter geopolitical alliances, e.g., US energy independence reduces reliance on Middle East.
5. Technological edge becomes a strategic asset influencing global energy diplomacy and sanctions enforcement.
6. Producers with advanced tech can leverage production cuts or increases to influence global prices and political leverage.

2. Critically analyse the role of electric vehicles in shaping global crude oil demand with suitable examples.

1. Electric vehicles (EVs) reduce demand for fossil fuels, especially in developed countries with high EV adoption.
2. China, the largest crude importer, now has EVs accounting for half of vehicle sales, curbing oil demand growth.
3. EV growth contributes to stagnation or decline of crude consumption in OECD countries despite economic growth.
4. EV adoption is driven by climate policies, technology improvements, and consumer preferences shifting away from fossil fuels.
5. Despite EV growth, developing countries still show rising crude demand due to industrialization and transport needs.
6. Long-term crude demand peak expected as EVs replace internal combustion engines, impacting oil market dynamics.

3. Estimate the effects of fluctuating oil prices on India’s economy and fiscal policy in the context of global market changes.

1. Lower oil prices reduce India’s import bill ($137 billion in 2024-25), improving current account deficit by $1.6 billion per $1 price drop.
2. Reduced oil prices ease inflationary pressures, lowering subsidy burdens on the government.
3. Fiscal balance improves, enabling higher capital expenditure and supporting economic growth.
4. Decline in reliance on discounted Russian crude may ease US tariff tensions, improving trade relations.
5. However, slower growth in West Asian economies (due to oil price impacts) may affect remittances, exports, and investments.
6. Volatile oil prices necessitate sustained focus on energy efficiency and diversification to mitigate external shocks.

4. What are the implications of geopolitical tensions in West Asia on global energy security? How does this affect India’s foreign policy?

1. West Asia tensions risk supply disruptions in a region critical for global oil exports, causing price volatility.
2. Sanctions on key producers (Russia, Iran, Venezuela) complicate supply chains and market stability.
3. India’s energy security is vulnerable due to heavy dependence on Middle East oil imports.
4. India pursues diversified energy sources and strategic petroleum reserves to mitigate supply risks.
5. Geopolitical tensions influence India’s balancing act between regional powers and global partners (US, Russia, Gulf states).
6. India’s foreign policy emphasizes maintaining stable relations with West Asian countries to secure uninterrupted energy supplies.