OPEC Cut: We Were Assured Production Wouldn't Be Cut, It's Their Sovereign Decision, Says Hardeep Puri

Petroleum and gas prices have started to rise and are expected to further rise as oil producing cartel OPEC reduces oil production.

Out of 80 per cent of Indias oil imports, 2 to 3 per cent account from Russia currently.

The Indian government said the oil producing cartel OPEC assured production would not be cut, but also added that the cut is their sovereign decision.

Union Minister of Petroleum and Natural Gas Hardeep Singh Puri on Friday also said that while India is not part of the Organization of the Petroleum Exporting Countries (OPEC), it has a major say in the global oil market as one of the major oil consumers. 

India is the world's third-largest oil importer and consumer after the United States and China. 

The OPEC joined other major oil producers on Wednesday to announce that it will slash oil production by 2 million barrels per day, the biggest cut since the start of the Covid-19 pandemic. The cut would increase oil prices across the world at a time when countries such as the United Kingdom (UK) are already suffering from a cost of living crisis and India too is dealing with high inflation. 

What has Modi government said on OPEC production cut?

Puri further said that such major actions have intended as well as unintended consequences, adding that prices escalating would in turn exacerbate the movement towards recession which in turn will lead to loss of demand. 

"So, it becomes a vicious cycle. Whether that has been fully taken into account or not, it's not for me to comment on the decision has been taken. But I believe that all decisions which are taken and which have global ramifications have both intended and unintended consequences. How these play out we will see," said Puri. 

Puri also said that the OPEC also walked on the assurances given.

He said, "That's why I'm deliberately exercising not just calm, but also restraint in commenting on what has happened, because I'm told that there were assurances given, don't ask me whom, etc., that in fact they were not planning to do this.

"In our interaction with the oil price producers in the grouping that you call OPEC, or OPEC, plus, our understanding, my understanding, based on what we were told last year that this was a temporary adjustment and what you would see is that by February the amount of crude which is released into the market would be sufficient to cater to the increasing demand."

Obviously from March 2020, when the global economy was in a virtual lockdown state there has been a calibrated opening. But now most of the economies are slowly firing on all cylinders, and therefore there's an increase in demand, he said, adding that but the fact of the matter is that large parts of the world today are either in recession or are experiencing conditions (like) recession.

Observing that OPEC’s decisions have been widely commented upon, both in India and in other parts of the world, Puri said, “How much of the proposed 2 million barrels which has been curtailed absorbs less production earlier and how much are going to be fresh cuts is something that will be very carefully studied."

The market was already preparing for having a million barrels cut. So, the announcement of a two-million-barrel cuts, has taken large parts of the world by some surprise and questions are bring asked because it stands to reason if there is a large shortfall in the amounts of energy which are released into the global market, then prices will escalate, said Puri. 

What's OPEC, how much oil it supplies to India?

OPEC is a cartel of 13 oil-producing countries. AP reports that its share of oil exports to India dipped to 59.8 per cent.

The 13 members are: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela, Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria, and United Arab Emirates.

"In December of 2016, OPEC formed an alliance with other oil-exporting nations that were not a part of the organization, creating an entity that is commonly referred to as OPEC+, or OPEC Plus. Prominent members of OPEC+ include Russia, Mexico, and Kazakhstan," notes Investopedia.

(With PTI inputs)