Rising Oil Price: world's third largest consumer feels the pinch

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The rising oil price has already affected the world’s third largest consumer of crude oil, India, both economically and politically.

During the last six months, fuel price has gone up by a staggering 23%, taking its toll on the freight operators with a significant rise in the cost of rentals.

Since most of the internal transport of goods depend on trucks on  networks of highways in this vast nation, the cost of goods for ordinary people is going to skyrocket in the far away regions, if the fuel hike continues at this rate – in proportion to the obvious increasing transport cost; India population is mainly rural and how they live – and spend - really matters when it comes to its economy.

Indian economy that showed an impressive growth for decades suddenly came to a screeching halt due to the pandemic; for the first time in 70 years, it went through its worst recession.

Although, it is showing the signs of a feeble recovery, the rise in the price of fuel on recent scale could potentially hamper it considerably. Both Saudi Arabia and the UAE increased the fuel price for Asia, the region with the world’s second and the third largest consumers of crude oil and the impact has been enormous.

Against this backdrop, Indian finance minister came up with her budget this month with the focus mainly on infrastructure and health care. The government came under fire from the opposition for this approach.

One of the highlights in the budget was relatively insignificant increase on defence. By coincidence, both India and China agreed to pull back their troops from where they are right now to where they were years ago – a sign of reconciliation after months of sabre-rattling near the LAC, the line of actual control of the disputed border.

In another development, India and Pakistan agreed to observer the ceasefire agreement signed between the two nuclear-armed nations in 2003.

The peace overtures by India towards its neighbours show that India has very little room for manoeuvre when it comes to reviving its economy, which was once the envy of the developing world.

In this context, the rising fuel costs can create friction against the growth engine, hampering its forward march.

Since India is a major consumer market for the world as well, its slow growth can cause ripple effects on every single major market too.

That’s why economists watch India’s moves to get its growth back on track at a very difficult time – with a heightened interest.

By

Crude Oil Futures