Earlier this month, due to the Russo-Ukraine war, crude oil had gone near $140 a barrel. On March 16, it was trading at $ 99.32 a barrel. Meanwhile, peace talks between Russia and Ukraine are going on a positive note.
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Lockdown has been imposed in many cities due to the spread of Corona in China, which has reduced the demand for crude oil. The US and other Western countries have urged OPEC countries to increase crude oil production. Iran and Venezuela are also expected to increase the supply of crude oil in the international market.
What will happen if the price of crude oil crosses $100 per barrel?
Consumer Cost: From 2014 to 2020, due to the fall in crude oil prices, the wholesale inflation rate remained around 5 percent. In mid-2020, wholesale inflation reached close to 10 per cent with a jump in crude oil prices. Wholesale inflation increased by 20 per cent during March 2020 to February 2022, while oil and energy commodity prices increased by 40 per cent. In such a situation, if the price of crude oil remains beyond $100 per barrel, then consumer costs will increase in the coming days.
subsidies cut
Before 2014, the central government used to spend heavily on subsidies of petroleum products. The maximum amount of Rs 1.64 lakh crore was spent on subsidies in 2012-13. In 2014, petroleum products were handed over to the market.
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This reduced the subsidy expenditure of the government. In 2019-20, the government spent Rs 266 billion on subsidies of petroleum products. If there is a sudden jump in the price of crude oil, then the government can end the subsidy and pass the burden on the consumers. If this happens, there will be a huge increase in the retail prices of petrol and diesel.
problem in financial management
When the BJP-led coalition government was formed in 2014-15, crude oil prices were at a very low level. But the government did not cut the prices of petrol and diesel accordingly. This move brought more revenue to the government and helped in overcoming the fiscal deficit. In the financial year 2020-21, the government got revenue of Rs 4.6 lakh crore from tax on petroleum products, which was three times more than in 2013-14. Now if crude oil prices remain above $100 a barrel, the government will have to cut taxes to keep prices under control domestically. This will reduce revenue collection. If this happens, then the government will have to raise funds from outside for development related works, which can cause problems in financial management.
Clear way for purchase of crude oil from Russia
America has cleared the way for India to purchase Russian crude oil. The US has said that it has no objection to India buying crude oil from Russia. This will not violate the sanctions imposed on Russia. However, the US has said that under its guise, India cannot help Russia in the war. At the same time, America has said that India can buy crude oil from Russia at a lower price.