By K Raveendran
The stage is again set for the great deception game. With oil already on the boil, there is a task on the hands of the Modi government and its faithful oil companies to enact another episode of the pe-election drama, which has by now become a regular feature of every Indian election, upwards of state assemblies. The Ministry of Petroleum already announced a reduction of Rs 2 per litre in petrol and diesel prices across India, effective from March 15. That was before the elections were announced.
But now the global oil market situation has changed. The spectre of $100 per barrel oil is once again haunting the global energy market. After a brief respite, oil prices have been on a steady climb, raising concerns about inflationary pressures, economic growth, and geopolitical instability.
A crucial factor propelling oil prices is the tightening grip of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+. Since 2020, this group has been strategically managing production cuts to stabilize oil prices after a dramatic plunge during the pandemic. This strategy has been successful, with Brent crude, the global benchmark, reaching near $95 per barrel in September 2023.
However, recent decisions by OPEC+ to deepen production cuts, coupled with voluntary reductions from Saudi Arabia, have further restricted supply. This comes at a time when global demand, particularly from China, is showing signs of robust recovery. The reopening of its economy after strict COVID-19 lockdowns has significantly boosted its oil consumption needs.
In India, the relationship between fuel prices, international oil markets, and elections is a complex and often contentious one. A recurring pattern emerges: oil companies hold prices steady during election periods, only to see them rise afterwards.
Oil companies, primarily state-owned giants like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL), dominate the fuel retail market. These companies are often seen as instruments of government policy, particularly when it comes to fuel prices.
During elections, political parties are naturally sensitive to public sentiment. Rising fuel prices can be a major point of contention, potentially swaying voters. To mitigate this, the government may exert implicit or explicit pressure on oil companies to maintain fuel prices, even if international crude oil prices rise. Subsidies can also play a role. The government can utilize budgetary resources to absorb some of the price increase, shielding consumers from the full impact. However, this approach can strain public finances and is not always sustainable.
Once the elections are over, the pressure to hold prices eases. Oil companies, having absorbed losses during the election period, may seek to recoup them by raising prices in line with international trends. This price hike can be seen as a way to restore profitability and maintain financial health.
Market forces also play a part. International oil prices are dynamic, and if they remain high post-election, domestic prices will likely adjust accordingly. Oil companies, operating in a global market, cannot indefinitely sustain losses on fuel sales.
This cycle of price manipulation serves the ruling party and the government very well. The public, however, faces the brunt of the price hikes after elections, potentially negating any short-term benefits gained during the voting period. This can be particularly burdensome for low-income households and transportation sectors reliant on fuel.
Furthermore, the practice can distort the market and create uncertainty for businesses. Companies struggle to plan their budgets effectively when fuel prices are subject to political considerations rather than purely reflecting market forces.
One the elections are over and the results are out, it does not matter much for the ruling party if prices begin to go up. In fact, that is exactly the central theme of the scheme. The government declares that petroleum prices are a function of the market forces and it has nothing to do with it. The petroleum companies play ball and do the rest. Prices are ‘readjusted’ according to market forces, which means they get the licence to more than make up for the losses, often perceived rather than real, suffered on account of the holding of pries during the pre-election phase. Everything works with clocklike precision, except of the pocket of the hapless consumers, who have no option but to pay up. (IPA Service)
The post The Great Oil Price Game Is On; Be Ready To Be Rattled By Post-Election ‘Adjustments’ first appeared on Latest India news, analysis and reports on IPA Newspack.
