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In the past year, due to the global lockdown, major industrial activities were halted. Hence, the oil demands dropped significantly, and with lesser demand, oil producing countries had to curtail oil prices. However, as the effects of the second wave started to ease and the vaccination drive gained pace, industrial, manufacturing, and travel industries started to recover slowly. These three sectors are the major consumers of oil and as demand increased, since the second half of this year, oil prices rallied up sharply. The sharp rise in oil prices was also important for the high inflation rate in various economies - including the US and India. To keep the inflation rate under control and to ease the lives of common citizens, some countries have decided to hit their strategic petroleum, which is kept to be used during national emergencies.

Hit the strategic petroleum

India is one of those economies that are going to release their strategic petroleum for the first time. The Ministry of Petroleum and Natural Gas of India is going to release 5 million (50 lakh) barrels of crude oil from India's strategic petroleum. After multiple diplomatic discussions with the US, the Indian government has recently stated that the country's strategic petroleum will be hit. Along with India, the UK, China, Japan, and South Korea are also going to do the same on their domestic front, as the US reached out to all of these major oil-consuming countries to hold hands.

Earlier, the US, along with India communicated with OPEC to reduce the oil prices and increase production of crude oil in the current FY to mitigate the surging oil prices but OPEC ignored the request. Hence major oil-consuming countries decided to release their strategic petroleum. In an official statement, the Ministry of Petroleum and Natural Gas of India said, “India has repeatedly expressed concern at the supply of oil being artificially adjusted below demand levels by oil-producing countries, leading to rising prices and negative attendant consequences.”

Inflationary pressure

At present, India's inflation rate is standing at 4.48%, and the US's headline inflation (CPI) is standing at 6.2%. This rate is the highest margin in the US in the past 30 years. Along with these two major economies, other countries too are facing high inflationary pressure. Hence, the governments thought to keep inflation under control by cutting the oil prices. Immediately, the countries, including the US, could cut the crude oil prices below the seven-year high rates of $80/barrel.

However, this cannot be a long-term policy to keep the crude price under control. This can only ease the plight of the consumers for the time being. Recently, the central government has curtailed petrol and diesel prices by ` 5 and `10 respectively. But in the future, prices are expected to surge again when OPEC decides to hike prices. Analysts are saying that the interest rate at nearly zero, as decided by the US Federal Reserve, is not helping the inflationary pressure in the country. Without an interest rate hike, only by cutting the crude oil price, this cannot be controlled. 'Supply-chain bottleneck' is another challenge for the country's monetary policy now, as Jerome Powell, US Fed Chairman mentioned.

India's crude oil reserve

In 2020, India purchased crude oil at a rate of $19/barrel to create a 5.3 Million MT (MMT) of strategic oil reserves, when the prices were lower in the international market. This strategy has helped the central government to save more than $685 million in its crude bill. According to reports, India is also trying to build an additional 6.5 MMT of strategic petroleum reserves. Importantly, the members of the International Energy Agency (IEA) generally maintain emergency oil reserves equivalent to at least 90 days of net imports. Some opposition leaders are, however, saying that India should increase domestic crude oil production, rather than hitting the country's strategic petroleum.