It is ironical that even as prime minister Narendra Modi has been strengthening personal relations with crown prince of Saudi Arabia, Mohammed bin Salman (MBS), India’s oil minister, Dharmendra Pradhan is sabre-rattling by using India’s oil purchase as a “weapon”.
Either India’s oil ministry does not want to learn from the world oil history, or truly believes that India can dictate terms to force the Organization of the Petroleum Exporting Countries (OPEC) to adapt oil production policy to meet its needs of lower oil price by increasing oil production. This is a perfect example of the tail trying to wag the dog.
Though OPEC was formed as early as 1960 to control oil pricing, it was only after the first oil shock of 1973 that it was able to exercise its power. When the oil price went up by 400% to precipitate economic crisis, OECD formed the International Energy Agency (IEA) as a countervailing force and build strategic oil reserves.
None of the powerful OECD countries threatened OPEC individually. But, through IEA, they sent a powerful message. IEA countries managed to reduce oil demand, and OPEC learnt the lesson. Though oil demand is inelastic in the short term, in the medium and long term, this is not the case.
Late Sheik Yamani, who had served as the Saudi oil minister, had famously said that the Stone Age did not come to an end because our planet ran out of stones.