How Trump’s Pursuit of Cheap Oil Will Impact India’s Energy Security – The Diplomat

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

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

Trump’s appeal to U.S. oil producers to extract more oil may have significant implications for the global energy market, including Russia. The U.S., 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 U.S. 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. Russia’s economy is constrained by several restrictive measures imposed by various European countries and the United States. 

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 U.S. 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 stabilize 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 U.S. oil production. 

According to Gordon Kaufman, a petroleum industry expert at the Massachusetts Institute of Technology, in case there is an increase in U.S. 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 U.S. oil and gas producer, does not expect an actual ramp-up of oil production by U.S. 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.

Due to recent developments in global geopolitics (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. The discount on crude oil offered by Russia was as high as $15 to $20 per barrel (compared to the spot price).

India has taken advantage of this, citing its unavoidable dependency on crude imports. In 2021-22 Russia’s position was ninth with a 2 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), the UAE (6.4 percent) and the U.S. (3.6 percent). In 2023-24, crude oil imports ($139.3 billion) accounted for  21 percent of India’s total imports ($678.2 billion). 

Thus, a sizable portion of the Indian government expenditures go toward 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 $23.3 billion (including $10.5 billion of LPG) while exports amounted to $47.7 billion (including $22.1 billion of high-speed diesel and $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 U.S. 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 U.S. 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 emission target by 2070 in COP26 and adopted various measures to decarbonize its economy, especially the energy sector.  

The Indian economy is heavily dependent on fossil fuels. The transport sector in particular depends significantly on imported crude oil and gas. However, the recent progress of India toward decarbonizing its transport sector is impressive. Electric vehicle (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 toward decarbonization of the transport sector in India.

The major challenge of decarbonization through renewable energy in India is meeting large energy demands with a reliable source of energy. Renewable energy is characterized 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 100 GW 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 by 360info™.