Iran refusal to freeze oil production levels saves India; IEA says more oil will be pumped in 2016 than what world needs

A global pact among the Organisation of Petroleum Exporting Countries (Opec) and non-Opec countries producing crude oil to freeze oil production levels in order to counter falling prices ran into trouble due to Iran not willing to toe the line, reports from Doha said.

More than 15 crude oil exporters met at the Qatar capital on Sunday to finalise the deal. Since mid-2014, oil prices have sharply plunged from $115 per barrel at its maximum to only $27 per barrel even as prices are hovering over $40 per barrel currently.

While this may be alarming for oil-producing countries, analysts say, India, for now, is saved from a sudden effect if crude oil prices were to go up following the freezing of production levels beyond a certain point.

“Per se, India is one of the most vulnerable economies due to its dependence on imports. There could be a cascading effect if there is a long-term freeze on oil production,” said former ONGC chairman RS Sharma.

He, however, said that “one also needs to appreciate the fact that the current low levels of oil prices are not sustainable and there is an unprecedented inventory build-up.”

In any, case, India still has silver linings to look up to. “Iran dissents from the group on freezing. Countries like Iran and Iraq have the potential to raise production considerably,” Sharma said.

As international prices of crude oil have fallen to an unprecedented low level, like in 2004 when it plunged to such levels, in 2014-15, the government earned a tax revenue of Rs78,000 crore from petroleum products alone .

Notably, in May 2014, when the current government took over, international crude oil price was $108.05 per barrel. But subsequent lowering of international rates allowed a windfall to the government and Indian refineries and portions of which could be transferred to end users in the form of lower prices.

The fall in prices has also ensured huge savings on imports and industries like auto, aviation and cosmetic have firmed up their accounts.

Meanwhile, the International Energy Agency (IEA), in its monthly report, said on Thursday: “If there is to be a production freeze, rather than a cut, the impact on physical oil supplies will be limited.”

“With Saudi Arabia and Russia already producing at or near record rates and very little upside seen apart from Iran, any deal struck will not materially impact the global supply-demand balance during the first half of 2016,” the IEA said.

According to the body, there will be more oil production in the world in 2016 than what it consumes over a year.