Petroleum Economics and Crude Oil Diplomacy- The Wider Picture

Posted in Finance Articles, Total Reads: 779 , Published on 16 June 2015

Steep crude price drop would pose as a boon and a bane at the very same time, depending up on what strategies one appoints. From war fronts to political upheaval Crude oil plays a dominant role in spurious activation of entire economies. Even though OPEC has a strong foot hold on crude oil supply with Saudi acting as the Central bank, monitoring varied interjections and leaving smaller economies to suffer, it would be interesting to see what turn this scenario would undertake. Countries do undertake stringent steps in order to rule and politically influence lesser known economies there are times where smaller economies take a splurging step and overcome their shortcomings. Currently economies like Vietnam and Venezuela are on the verge of collapsing.

They might take a strong plunge of diversifying revenue generation either by going through a different path of crude exports or taking other measures to overcome the loss they have generated. A feasibility analysis shows that their reserves are only viable at a price ranging from $105-$110 not less than that. There could also be a case where economies even in the OPEC shift their focus and join hands with US if it comes to their rescue. The odds are plausible; we need to wait for the result. In a nutshell ""Crude designs economic destinies no matter how long it takes or spurge in the friction of dismantling wars of political backdrop.”

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Under threats and wars between super powers either on the basis of oil or other commodities, it’s the smaller countries and emerging economies that suffer. At times of crisis smaller and developing nations like India must be cashing up on low prices and establish strategic reserves like China. Though significant churning in terms of infrastructure investment has initiated but still there’s a long way to go. In order to insulate itself supply disruptions and utilize the opportunity of low oil prices huge storage requirements is the need of the hour. India, which is 79 per cent dependent on imports to meet its crude oil needs, would be in grave danger and the economy which might portray brighter numbers would collapse after a point. Hence for the betterment it’s advised to have future actions plans.

Another view point from Canada is that it’s foretasted that their huge reserves are being waiting eagerly to capture the oil markets yet its playing safe, quite similar to what the US is doing currently.

A particular trend today is the steep decline in the oil market with the OPEC maneuvering and taking extreme steps it must be careful in terms of what the opposition could do. US through strategically well placed has a strong foot hold globally. At a time when economies like Venezuela and Vietnam hampering their economic growth just for the sake of Saudi ruling the world if even a minute assistance is provided by the US, the entire Cartel would be on the verge of diminishing its importance. As a support system established economies must come forward to showcase concern for the less known smaller ones. Russia though not n the good books of US still an affinity could not be negated. For a scenario not leading to ugly disruptions this is the right time to take charge of economies, develop them. Take a positive stride and hence become aware of what possibilities are stored in future.

For India as a backdrop the fuel subsidy could be erratically removed if we venture in the bear market currently prevailing. India macroeconomic indicators have been quite positive over the last two quarters and if prices persist in the range $50-60 then India is a decisive front. It’s up to policy makers what key essence they want to capture at this juncture.


This article has been authored by Tanya Sehgal from School of Petroleum Management, PDPU



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