As the spectre of surging crude oil prices, coupled with high volatility in international markets, threatens to adversely impact India’s economy, former Oil Secretary Tarun Kapoor has suggested that the time is ripe for oil consuming countries to organise themselves into a cartel to check unnecessary speculation in crude oil prices.

“We are seeing that oil and gas cargo from Russia has not been stopped and supply is being sent to Europe. The crude oil export from Russia is still on. Then the question arises: why are prices going up? They are rising purely due to sentiments and speculation. I think the US should analyse this scenario more pragmatically as rising oil and gas prices will also benefit Russia’s income,” Kapoor told BusinessLine.

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After retiring as Oil Secretary to the Indian government last year, Kapoor now chairs the Energy Transition Advisory Committee, which has been formed to suggest a road map for Indian oil PSUs to increase the share of clean energy such as green hydrogen, biofuels, in the energy mix of the country. The panel has to submit its report by mid-2022.

The current week began with Brent crude oil scaling $139.13 per barrel on Monday, before easing, which is the highest since 2008. Back home, the crude oil (Indian Basket) FOB price on Tuesday stood at $126.55 a barrel at an exchange rate of ₹76.88 per US dollar.

A case for coming together

Stressing global institutional framework for oil consuming countries, Kapoor said, “Most important is that now is the right time to form a cartel of oil consuming countries. If we can form an organisation of such countries and they can come together to plan out strategies jointly, things will change.”

Elaborating further, he explained, “Here, politics is one-sided as oil producing countries are organised, while consuming ones are not. So they face the brunt and blame the world that this is not in our hands. But there can be a solution. Oil consuming nations will have to come together and exert pressure on oil producers. Here, the supplies are not down, refineries are working, then why should prices go up? Refining costs have not gone up, but end-product prices are up. It seems some are gaining by speculation and taking advantage of the situation.”

Why are crude oil prices going up?

Kapoor pointed out that there has not been a reduction in supplies, yet prices are up. The strategy should be to bring the price down and increase supplies rather than just going for a direct attack and stopping supplies from Russia.

“So the scenario that seems to be panning out is that the same amount of oil and gas is being supplied, but now the price is higher. What the US is doing by making announcements is that this is helping Russia. So instead of earning $70–80 a barrel, Russia is also earning $130 per barrel. So the US has to be very careful about the sentiments as no supply reduction has happened and prices are up. It is important that we look at these issues as this then becomes like a game by the oil producing countries as they stand to gain tremendously at the cost of countries like India where we are huge importers,” Kapoor, who also has experience in developing and scaling up renewable energy (RE) sources, explained.

On the other hand, he said, Russia will be hurt more if the US says that oil price will be brought down to less than $50 a barrel and LNG prices will be reduced to $5-6 per mBtu. “If you cut supplies, you are helping Russia. If crude oil goes below $50 a barrel then several of Russia’s oil producing wells will become unviable, whereas for certain countries it will still remain viable,” he added.

Short and medium-term scenario

Kapoor emphasised that the market scenario is highly dynamic and volatile. “We are seeing that on one side ultimately the war has to end, but then sanctions and other decisions by various countries for curtailment of supplies will continue. For the new order to come it will take 2-3 years. If the situation regarding supplies is not handled carefully internationally, then we are in for this kind of uncertainty and high prices for at least two years,” he warned.