Saudi Arabia’s warning that oil prices could soar to “unimaginably high” levels comes as a grim reminder of the vulnerability of import-dependent countries like India to the fluctuations in global oil market. While the statement by the conservative Kingdom’s Crown Prince Mohammad bin Salman was more to do with geopolitics of the region and his country’s rivalry with Iran, the implications of such a scenario will be far more serious for India which imports over 80% of its oil requirements and around 48% of natural gas. With India being the world’s third largest oil importer, a record gain in international crude oil prices could aggravate the country’s fiscal situation and make it tougher for the government to combat economic slowdown. The unfolding events in West Asia, marked by growing tension between Iran and the United States, have raised the spectre of a spike in transportation fuel prices in India, with traders worldwide speculating that oil prices might cross the $100-mark yet again. The fresh fears are largely driven by escalating tension in the Persian Gulf in the backdrop of the September 14 drone attacks on Saudi Arabian Oil Company facilities that caused the biggest ever-disruption in global crude oil supplies. With half of Saudi’s oil production capacity being disrupted, the impact on global supplies was far worse than when Saddam Hussein invaded Kuwait in 1990 and the 1979 Islamic Revolution in Iran. Saudi Arabia, whose economy is heavily dependent on oil exports, wants strong global action to rein in Iran which is blamed for the drone attack.
There are growing fears that the global economy will take a big hit if tensions are allowed to rise in the Gulf as the region accounts for about 30% of the world’s energy supplies and 20% of global trade passages. Saudi Arabia is already struggling to find alternative development models in the post-oil economy because oil reserves are likely to deplete over the next three decades. The diversification of the economy may have started in right earnest but with most of its reserved assets being directed toward supporting the war in Yemen and funding several US military research projects, Saudi Arabia is unlikely to sustain for long on its savings. It needs to specify how to spend its reserve assets to be able to fund non-oil projects. One way to expand the economy is to further develop its religious tourism industry and provide for infrastructure to accommodate more people, increasing the flow of religious tourists. In the post-oil global economy, the Kingdom will face a plethora of daunting challenges including political and economic instability and public discontent. However, the US would continue to help Riyadh to maintain its pre-eminent position in the Muslim world.