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The saga of fluctuating oil prices: Every drop is govt’s achievement, hike is blamed on international fluctuations

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By Harshmeet Singh

Right before the recent Delhi elections in February this year, the BJP, boosted by its success in the Lok Sabha elections and the state elections of Maharashtra, Haryana and Jharkhand, went all out to list its achievements in huge billboards across the National Capital and national newspapers. Among its ‘glowing’ achievements was “The Modi Government has been able to reduce the price of petrol by close to Rs 15 per litre!”. While the suggested drop in price was actually real, giving its credit to the Indian Government couldn’t have been any farther from the reality. For a country like India, which imports close to 75% of its crude oil needs, the prices of petrol and diesel are far beyond its control.

Prices of oil in major oil importing nations depend upon the international oil prices. These international prices, in turn, are mostly dependent upon the demand and supply mechanism. Any change in the equilibrium between the demand and supply, either way, can result in significant alterations in the oil prices across the world.

 Then why did the crude oil prices actually drop?

In June 2014, the Brent crude oil was being traded at $115 per barrel. In comparison, the price plummeted to $49 per barrel at the end of January 2015. This sharp drop in price was in stark contrast to the sky rocketing prices since 2010. A number of factors contributed towards the earlier soaring oil prices on the global stage. Countries such as China and India, in order to fuel their growth engines, turned into heavy oil importers, whereas conflict in Iraq meant that the supply of oil in the global market took a major hit. With the demand running higher than the supply, the prices showed a major spike.

Right from 2010 till the mid of 2014, the global oil prices hovered close to $100 per barrel. These high prices forced many companies in the USA and Canada to take up oil exploration in their own countries. The next year saw the major economies in Europe, Asia and the USA slowing down which resulted in weakening demand of oil. A number of newly introduced fuel efficiency features also meant that the demand of oil slowed down and came in line with the supply.

The USA’s success in extraction of Shale Gas has also resulted in a sharp increase in the global oil supply. The US produced close to 2.02 trillion cubic feet of shale gas in 2008, which was a 71% increase from 2007. In 2009, the production grew to 3.11 trillion cubic feet. Picture this – Since 2008, the USA has additionally contributed close to 4 million barrels of crude oil every day to the global market.

Although the production in USA boomed in 2008 itself, its impact wasn’t visible in the global oil market until recently. This was majorly due to the ongoing civil war in Libya and economic sanctions on Iran. These factors, combined with the threat that Iraq was facing from ISIS, meant that over 3 million barrels of crude was taken out from the market every day.

By the end of 2014, these conflicts and sanctions settled down. This resulted in the global oil supply overhauling the demand comprehensively. China and Germany, Asia’s and Europe’s most robust economies for a while, also started to slow down. Resultantly, a huge quantity of oil was stored for later use since there were no buyers. This resulted in crumbling prices in September 2014 (co-incidentally, Narendra Modi took over as the Prime Minister at the end of May 2014!).

With the oil prices crashing down, all eyes were on OPEC (Organization of Petroleum Exporting Countries) to see if they would cut their oil production in order to restore the supply and demand equilibrium in the global market. OPEC is responsible for close to 40% of world’s oil production. When the OPEC countries met last year in November, they decided not to cut down on their production, hoping that USA would bend down on its shale gas production since the prices are crashing down. The USA, on the other hand, had multiple motives behind not cutting down shale gas production. Saudi Arabia, a dominant OPEC member, was against cutting down the production due to its past experience. In 1980s, during a similar fall in prices, Saudi Arabia decided to cut down on its production, and, in turn, lost a considerable market share. And a rather lesser known fact is that Saudi Arabia, with its $750 billion foreign exchange reserve, is capable of handling a few hiccups in order to beat its opponents.

Moreover, it is a well established fact that extraction of shale gas is a much more expensive process than the extraction of oil in countries like Kuwait and Saudi Arabia. But when it comes to deep pockets, there is hardly anyone capable of competing with the USA.

Why didn’t the USA cut down its Shale gas production?

Ever since Russia annexed Crimea from Ukraine, the west, led by the USA, has been at cross-swords with Russia. The USA has also imposed multiple sanctions in order to destabilize the Russian economy. Russia is one of the largest oil producers in the world. Its economy and annual budget, like most of the OPEC nations depend highly on the oil export. The USA, with its booming Shale Gas production is looking to decrease Russia’s share in the global oil markets.

Oil and defence are the two main drivers of the Russian economy. Close of 45% of Russia’s annual budget is funded by Oil export. With the global oil prices plummeting, Russia turned towards its defence deals to ensure that its already slowing economy doesn’t crash. Russia’s defence deals with Pakistan, which were highly objected by India, must be seen in this background. With oil prices coming down continuously, Russia isn’t left with many other options but to look for new buyers of its defence equipments.

How long would the oil prices stay low?

With motor vehicles becoming more efficient with every passing year and very few economies looking at a boom in the coming years, the demand for oil may not rise extensively for quite a while. But a conflict in one of the oil producing countries can surely create a mismatch between the demand and supply of oil. The future global events would drive the oil prices in the coming years.

What fluctuates the Oil price in India?

Oil prices in India are based on the global prices and the taxes levied by the Central and state Government. Different states levy different taxes on Petrol, which is why the petrol rates are different across the country. Goa is well known for selling the cheapest petrol in India. In 2012, Manohar Parrikar, the erstwhile Goa CM, reduced the VAT on petrol from 22% to just 0.1%! This slashed the price of petrol from Rs 65 per litre to Rs 54.96 per litre. Goa is, in fact, the only state where petrol sells cheaper than diesel.

The Central Government, on the other hand, seeing the global oil prices drop, increased the import duty on crude oil to 7.5% from the existing 2.5% in December last year. Interestingly, this was just 2 months before the Central Government was patting its own back for bringing down the oil prices in India!

Recently, the Government hiked the price of petrol by Rs 3.96 per litre and diesel by Rs 2.37 per litre, citing International fluctuations. It is actually amusing to note that the drop in prices is attributed to the Government’s achievement, where as a hike in prices is blamed on international fluctuations!

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CJI faces revolt from four senior most SC judges

The four judges -- Justices Ranjan Gogoi, Kurian Joseph and Madan B. Lokur besides Justice Chelameswar -- released a letter they wrote to Justice Misra a couple of months ago

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Supreme court went into a frenzy as four senior judges revolt against CJI. Wikimedia Common
Supreme court went into a frenzy as four senior judges revolt against CJI. Wikimedia Common
  • The sudden revolt against Chief Justice of India (CJI) by the four senior-most judges of Supreme Court has sent the whole judicial system into an uproar.
  • The four judges accused the CJI of corruption and breaches in a surprise Press Conference.
  • Judge Loya’s death’s controversy, supposedly, sparked this reaction out of the other judges.

Divisions in the Supreme Court burst out in the open on Friday when four senior-most judges took an unprecedented step of addressing the media to accuse Chief Justice Dipak Misra of breaching rules in assigning cases to appropriate benches, with one of them pointing to the plea regarding the mysterious death of Special CBI judge B. H. Loya.

The hurried press conference was called to reveal CJI's corruption. Pixabay
The hurried press conference was called to reveal CJI’s corruption. Pixabay

At a hurriedly called press conference at his residence, Justice J. Chelameswar and three other colleagues said the Supreme Court administration was “not in order” and their efforts to persuade Justice Misra even this morning “with a specific request” failed, forcing them to “communicate with the nation” directly.

The four judges — Justices Ranjan Gogoi, Kurian Joseph and Madan B. Lokur besides Justice Chelameswar — released a letter they wrote to Justice Misra a couple of months ago, conceding that he was the master of roster but that was “not a recognition of any superior authority, legal or factual of the Chief Justice over his colleagues”.

Asked specifically if they were upset over reference of the matter seeking a probe into the suspicious death of Judge Loya, Justice Gogoi said: “Yes.”

Judge Loya's death is said to have happened due to a conspiracy. Pixabay
Judge Loya’s death is said to have happened due to a conspiracy. Pixabay

Judge Loya, who was hearing a case relating to the killing of gangster Sohrabuddin Sheikh in an alleged fake shootout in which BJP chief Amit Shah was named an accused (later discharged), died of cardiac arrest in 2014. His family has raised doubts over the circumstances in which Judge Loya died and have sought an independent probe into it.

Plea’s seeking probe came up for a hearing in the Supreme Court on Friday when the top court expressed concerns over it and said it was a “serious issue”. It asked the Maharashtra government to produce all the documents related to the case before January 15.

In a seven-page letter, the four judges said they were not mentioning details of the cases only to avoid embarrassing the institution because “such departures have already damaged the images of this institution to some extent”.

The clash among the judges in the highest court also comes in the wake of a controversial order in November in which Justice Misra declared that the Chief Justice “is the master of the roster” having exclusive power to decide which case will go to which judge.

The CJI called himself 'master of roster' further enraging other judges. Pixabay
The CJI called himself ‘master of the roster’ further enraging other judges. Pixabay

The CJI had given the order a day after a two-judge bench headed by Justice Chelameswar had passed an order that a five-judge bench of senior most judges in the apex court should be set up to consider an independent probe into a corruption case in which bribes were allegedly taken in the name of settling cases pending before Supreme Court judges.

Holding that the Chief Justice was only the first among equals, the four judges contended that there were well-settled and time-honoured conventions guiding the Chief Justice in dealing with the strength of the bench required or the composition thereof.

“A necessary corollary to the above-mentioned principle is the members of any multi-numbered judicial body, including this court, would not arrogate to themselves the authority to deal with and pronounce upon matters which ought to be heard by appropriate benches, both composition-wise and strength-wise with due regard to the roster fixed,” they wrote in the letter.

They said any departure from the two rules would not only lead to “unpleasant and undesirable consequences of creating doubt in the body politic about the integrity of the institution” but would create “chaos”.

The four judges also touched upon another controversial issue, the Memorandum of Procedure (MoP) on the appointment of judges over which the Supreme Court had locked horns with the government.

The four judges also touched upon other problematic issues. deliason.files.wordpress.com
The four judges also touched upon other problematic issues. deliason.files.wordpress.com

The government, the letter said, had not responded to the communication and “in view of this silence it must be taken that the MoP has been accepted by the government on the basis of the order of this court”.

Justice Chelameswar told the media that they were “convinced that unless this institution is protected and maintains its requirements, democracy will not survive in the country or any country… The hallmark of a democracy is independent and impartial judges.

“Since all our efforts failed… Even this morning, on a particular issue, we went and met the Chief Justice with a specific request. Unfortunately, we could not convince him that we were right.”

Justice Gogoi said they were “discharging the debt to the nation that has got us here”.

The government appeared to distance itself from the controversy, saying the judges should sort the issue themselves.

Minister of State for Law P. Chaudhary said: “Our judiciary is one of the known, recognised judiciaries in the world. It is an independent judiciary. At this stage, I think no agency is required to intervene or interfere. The Chief Justice and other members should sit together and resolve. There is no question of panic.”

the matter should be resolved among the judges themselves, says P. Chaudhary.

The Supreme Court split had an immediate political fallout, with CPI leader D. Raja saying after meeting Justice Chelameswar that Parliament will have to devise methods to sort out problems like this in the top judiciary.

Two judges, Justice S. A. Bobde and Justice L. Nageshwar Rao, are understood to have called on Justice Chelameswar. IANS