How Trump’s Pursuit Of Cheap Oil Will Impact India’s Energy Security

To fulfill one of his major electoral agendas of providing cheap oil (‘drill baby drill’), in his inaugural speech, US President Donald Trump argued for increasing the domestic production of crude oil and utilising it to spur prosperity in the US economy.

His message of promoting carbon-intensive fossil fuels is detrimental to global decarbonisation initiatives and climate change mitigation measures.

Trump’s appeal to US oil producers to extract more oil may have significant implications for the global energy market, including Russia.

The US, being the single largest oil-producing country (it produced 19,358 thousand barrels per day in 2023 with a global share of 20.1 percent), has substantial power to influence the global oil market.

The increase in US oil production could lead to a surge in global energy supplies, potentially driving down prices.

However, as a production cartel, the Organization of the Petroleum Exporting Countries (OPEC) with a global share of 35.3 percent (in 2023) or OPEC+ (OPEC+Russia, Mexico and a few others with a global share of 54 percent) has relatively better control over global oil production and prices.

Russian oil

Any reduction in crude oil prices in the global market is expected to have an adverse impact on the Russian economy. It is heavily reliant on oil and gas exports, especially now that it is at war with Ukraine and constrained by several restrictive measures imposed by various European countries and USA.

Lower crude oil prices could reduce Russia’s revenue from energy exports, potentially affecting its ability to fund domestic programs and military expenditures.

However, the actual impact of Trump’s announcement on Russia will depend on other factors as well.

These include the global demand for oil and alternative sources of energy, the response of other energy-producing countries (especially OPEC), the response of US domestic producers and the effectiveness of various energy sanctions on Russia.

OPEC and price stability

On the other hand, this announcement is unlikely to have any significant impact on OPEC’s oil production decisions and pricing strategies.

Historically, as a cartel, OPEC has usually adjusted its production levels to maintain crude prices and stabilise the global crude market. Thus, it is likely that OPEC members will continue to stand together and adopt appropriate measures as a response to any unilateral changes in US oil production.

According to Gordon Kaufman (a petroleum industry expert at the Massachusetts Institute of Technology), in case there is an increase in US oil production, as a countermeasure, the OPEC members, especially Saudi Arabia (which holds a 12 percent share in global crude extraction), may even reduce their own production to keep global prices stable.

Even Exxon, a major US oil and gas producer, does not expect an actual ramp-up of oil production by US companies in response to Trump’s policies.

Impact on India

In spite of being the third-largest crude oil importer (accounting for 10.3 percent of global crude imports in 2023), India is a price taker in the global crude market and has no control over crude prices. India’s sources of crude import are quite diversified but its import dependency for crude oil was as high as 88 percent in 2023-24.

However, due to recent developments in global geo-politics (disturbances in the Middle East and the Russia-Ukraine war), Russia has become a major source of crude oil imports for India, with reduced imports from Middle Eastern countries.

In 2022, after Russia invaded Ukraine, the European Union imposed a price cap on crude imports from Russia. In response, Russia offered a substantial discount on its crude oil compared to global Brent crude prices, and India has taken advantage of this citing its unavoidable dependency on crude imports.

The discount on crude oil offered by Russia was as high as US$15 to US$20 per barrel (compared to spot price). In 2021-22, Russia’s position was ninth, with a two percent share in India’s crude imports.

Due to huge crude imports from Russia at a discounted price, Russia’s share increased to 33 percent in 2023-24, making it the largest import source for India followed by Iraq (21 percent), Saudi Arabia (16 percent), UAE (6.4 percent) and the US (3.6 percent). In 2023-24, crude oil imports (US$139.3 billion) accounted for 21 percent of India’s total imports (US$ 678.2 billion).

Thus, a sizable portion of the Indian exchequer spends go towards crude imports, not including imports of various petroleum products. On the other hand, the export of refined oil products is a major source of revenue earnings for India.

In 2023-24, the total import of petroleum products (other than crude imports) was worth US$ 23.3 billion (including US$ 10.5 billion of LPG), while exports amounted to US$ 47.7 billion (including US$ 22.1 billion of high-speed diesel and US$ 11.2 billion worth of motor spirit).

Trump’s pursuit of cheap oil could have both stimulating and adverse implications for the Indian economy. Any reduction in global crude prices will certainly benefit the Indian government’s exchequer and provide a higher margin to domestic oil companies in India.

However, this clear promotion of a fossil fuel-driven economic growth strategy by the US president would pose significant challenges to India and other developing countries which are most vulnerable to the threat from climate change and global warming.

Moreover, the US withdrawal from the Paris Climate Agreement under Trump 2.0 will also impact global initiatives for carbon neutrality.

India is already experiencing various adverse effects of climate change such as intensified extreme weather events and adverse impacts on its agricultural productivity and public health.

India had announced its aim of achieving a net zero emissions target by 2070 in CoP26 and adopted various measures to decarbonise its economy, especially the energy sector.

The Indian economy is heavily dependent on fossil fuels. The transport sector depends significantly on imported crude oil and gas. However, the recent progress of India towards decarbonising its transport sector is impressive.

Electric vehicles (EV) sales in India increased from 1.53 million units in 2023 to 1.95 million units in 2024, which was 7.44 percent of the total vehicles sold in 2024.

Other than EVs, increasing penetration of compressed natural gas (CNG) in the transport sector, a mandate for biofuel blending, and the introduction of hydrogen fueled vehicles (mostly in the pilot stage) are other major steps towards decarbonisation of the transport sector in India.

The major challenge of decarbonisation through renewable energy in India is meeting large energy demands with a reliable source of energy where renewable energy is characterised by intermittency of generation.

Moreover, the availability of critical minerals plays an important role in renewable-based energy technologies. The global market for critical minerals is very concentrated and primarily dominated by China.

Since India does not have sufficient critical minerals, its import dependency on China for critical minerals will pose a substantial challenge to its energy security.

However, as indicated in this year’s Budget, India is targeting 100GW of nuclear capacity by 2047. Unlike renewables, nuclear energy (with appropriate safety measures) as a non-fossil source can provide a reliable energy supply and ensure energy security.

Trump’s ‘drill baby drill’, therefore, is unlikely to have much of an impact on India’s energy security.

(Originally published under Creative Commons from 360info™. Read the original article here)