If asked about the most consequential current foreign trend for India, the replies may range from Gaza to Ukraine and even United States President Donald Trump’s tariff war. But we are also approaching an even more impactful battle: for the global oil market. It is being waged between the Organization of the Petroleum Exporting Countries (OPEC)-Plus and the remaining oil exporters, with consumers playing an increasingly decisive part. Depending on who prevails, the gains for India, the world’s third-largest importer, could vary from tangible to substantive.
Crude is the world’s most valued commodity, with over 100 million barrels per day (mbpd) produced, nearly half of which is traded globally. Depending upon the prevailing unit price, the daily global crude trade currently tops $3 billion. Thus, crude is not only a vital input for transport and petrochemicals; it is also a financial lubricant.
Consumption trends
Over the past two decades, technology and economics have had a profound and largely bearish impact on the oil market. From the supply side, new technological disruptions such as shale, horizontal drilling, and ultra-deep continental shelf drilling have greatly enhanced production.
On the other hand, global demand seems to be approaching a peak. While relatively robust growth in crude consumption continues in the Global South from a low base, the consumption of fossil fuels has been stagnant in the industrialised countries due to factors such as an anaemic post-COVID-19 economic recovery, climatic concerns and the growing popularity of electric vehicles (EVs). Thus, for example, in 2025, the global crude demand is expected to grow by 1.3 mbpd or 1.2%, with only a tenth of that coming from the 38 countries of the Organisation for Economic Co-operation and Development (OECD) with 46% of the world’s GDP. Crucially, the consumption in China, the world’s largest importer, has been curbed largely by an economic slowdown and by the growth of EVs, which now account for half of the vehicles sold.
On the other hand, production of crude has surged by 5.6 mbpd last month over last year, with 3.1 mbpd coming from the OPEC+ (as it unwound COVID-19-era production cuts) and the rest mainly from higher production from (in order of their growth) the U.S., Canada, Brazil, Guyana and Argentina.
The resulting supply overhang is beginning to be felt. The Brent oil prices, currently at $61 a barrel, have declined by 16% since the beginning of the year, with nearly half of that fall coming over the last month. The drop would have been even steeper but for the consumers leveraging the low prices to replenish their strategic petroleum reserves, and the producers hoarding over 100 million barrels of unsold crude on tankers on high seas.
Global events as disruptor
The decline is despite geopolitical disruptions such as the China-U.S. tariff war and concerted Ukrainian drone attacks on Russian hydrocarbon infrastructure. The looming supply glut has affected the inner dynamics of the OPEC+ group of producers: while Saudi Arabia, the leading exporter, wants to quickly unwind the remaining production cuts to regain its market share and reverse the revenue shortfall, Russia, under severe crude exports sanctions, favours a more gradual course.
There are several imponderables, however. First, although it is normal for producers and consumers to see the crude market differently, there is an unusually poignant dispute in the analyses this time. OPEC and the International Energy Agency (IEA), in their respective monthly reports in mid-October, reached diametrically opposite conclusions.
While OPEC sees the global supplies in 2026 being some 50,000 bpd short of the demand, the IEA projects an unprecedented overhang of 4 mbpd. The majority of other think-tanks largely agree with the IEA projection and predict an oversupplied market next year, with Brent prices declining to the low fifties per barrel, a further 10% to 20% fall from their current level.
Technicals apart, the proverbially slippery oil market can also be affected by several geopolitical developments, including the end of sanctions on Russia, Iran and Venezuela, resumed West Asian tensions and the de-escalation of the Trumpian tariff wars.
Further, the International Monetary Fund’s World Economic Outlook (WEO) released on October 16, describes the global economy as “in Flux, Prospects Remain Dim”, predicting a marginal slowdown of the global economic growth rates to 3.2% in 2025 and 3.1% in 2026, with risks to the downside. Further, it sees world trade growth come down to 2.9% in 2025-26, significantly slower than the 3.5% in 2024. Most of these factors tilt towards downside risk to the oil prices.
The outlook for India
The simultaneous decline in both oil price and the U.S. dollar it is priced in is likely to have a net positive impact on India. India’s oil imports in 2024-25 were $137 billion, and a dollar’s decline in oil prices improves its current account deficit by $1.6 billion.
It also reduces the subsidy burden and inflation. With the government keeping most of the gains from lower prices, the fiscal balance improves, boosting capital expenditure and giving a tailwind to growth.
The oil glut may also reduce the reliance on discounted Russian crude, thus removing the underlying cause for the tariff frictions with the U.S. On the flip side, the remittances, exports and investments may stagnate as the West Asian economies attenuate.
However, given the highly cyclical nature of the global oil market, any relief may be short-lived. India would be well advised to keep its consumption mitigation strategies on course.
Mahesh Sachdev is a retired Indian Ambassador specialising in West Asia and oil affairs
Published – October 23, 2025 12:08 am IST