Saudi Arabia, Russia, agree to freeze oil output

Top global producers Saudi Arabia and Russia agreed to freeze oil output in a bid to increase prices after a 70 per cent drop due to chronic oversupply.

The move is based on the condition if other major producers joining in.
It was designed to stabilise the market following the dramatic price fall since mid-2014.
This marked the first move to stem the price fall since it began nearly 19 months ago.
Reason for delay:-
Saudi Arabia and other OPEC producers had been refusing to reduce output in a bid to drive less-competitive players, in particular U.S. shale oil producers, out of the market.
Recent Development:
OPEC has agreed to cut oil production now.
Impact on India:
  • India, being the 3rd largest importer of crude oil imports 85% of total oil and 95% of natural gas from OPEC nations.
  • In recent time due to cheaper oil prices in international market due to overproduction and non-coordination among OPEC countries Indian economy had immensely benefited.
  • However, this decision may result in spike in oil prices which can have major implications for the India’s current account deficit and overall economy in general.
  • In recent times, lower oil prices kept the Indian economy on the shining path and managed to keep inflation under control making it fastest growing economy in G20 countries

Explain the process of formation of crude oil and natural gas. Examine why there is so much oil in Middle East but less in India

Crude oil and natural gas are obtained from sedimentary rocks. They were formed from remains of dead plants and animal that were buried under sand and rocks. over millions of year, high pressure and heat, in the absence of air, converted them to oil and gas.

Reasons why crude oil is abundant in middle east then India—
  1. Sedimentation occurred between 30 degree north and south were temperature was high and organic activity was high. Middle east lied between these range where India missed it.
  1. Middle east was at favourable position during mid cretaceous Global warming, coupled with sea level rise and abundance of plankton
  2. 500 million years history of sedimentation on continental margins of Gondwana.
  3. Though oil is formed in sedimentary rocks but all sedimentary rocks do not contain oil. An oil reservoir must have three pre-requisite conditions–
    1. porosity-to accumulate large amount of oil. (middle east rocks are formed of limestone and dolomite which have high porosity. Indian rocks are hard and not so porous) 
    2. Permeability to discharge oil and gas when oil is drilled (dolomite and limestone has high permeability).
    3. porous sand beds, sandstone should be capped by impervious bed so that oil do not dissipate to surrounding rocks.


All these conditions are favorable in middle east and not in India. So India is a energy (petroleum) deficit country.