Oil prices crashed this week, sparking a sharp global sell-off in capital markets — but experts say low energy prices could be a silver lining for India, one of the world’s closely-watched economies.
U.S. crude and international benchmark Brent prices plunged to multi-year lows after OPEC failed last week to strike a deal on production cuts with its allies, including include Russia. That led Saudi Arabia, the world’s largest oil exporter and the de facto leader of the energy cartel, to slash oil prices and threaten to ramp up production.
A supply glut has kept oil prices relatively low in recent years, as OPEC+ — made up of the Organization of the Petroleum Exporting Countries and its non-OPEC allies such as Russia — coordinated production cuts to support energy prices. The current agreement expires at the end of March, which means that starting Apr. 1, countries can pump as much oil as they want unless the producers can reach an agreement before that.
“The Indian economy is a major winner from lower world oil prices,” Rajiv Biswas, Asia Pacific chief economist at IHS Markit, told CNBC, pointing out that more than 80% of India’s total energy consumption in the 2018-2019 financial year was imported. He explained that falling energy prices could reduce India’s inflation and lower the cost of its import bill — that could, in turn, help narrow the country’s trade and current account deficits.
India lost its crown as one of the fastest-growing major economies in recent quarters, owing to a number of internal and external factors that dragged GDP expansion to below 5%. In the three months that ended in December, India expanded at 4.7%, in line with market expectations.