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Will the Afghanistan situation have a bearing on global oil prices?

Changing face of Afghanistan under the Taliban rule

Will the political turmoil in strategically-located Afghanistan impact global crude oil prices? No one has the answer yet.

For the uninitiated, it may seem far-fetched that the political brawl in Afghanistan, which neither features as a prominent oil producing country nor a major consumer country, would have a bearing on global crude prices.

But the impact of such utter confusion and uncertainty could easily spill over in the region including Iran and other countries such as the Saudi Arabia and UAE which are major oil producers in the world. Saudi Arabia is the second largest oil producer in the world, exporting about 59 per cent of its crude.

Also read: Taliban won’t get $9 bn reserves held in US and Swiss banks, says Afghan central bank chief

“What happens in Afghanistan in near future will impact oil prices, especially if the Talibans go back to their old ways and allow sanctuaries to Islamic fundamentalists from hydrocarbon-rich Middle East, North Africa and Central Asia,” energy expert Narendra Taneja in a tweet said.

“If they changed, they will not be Talibans,” he added.    

Taneja told India Narrative that if the turmoil is restricted within Afghan boundaries, the impact would be limited. But if Afghanistan continues to be on boil, and boil violently, the oil producing regions of Middle East and Central Asia could get affected and, consequently, oil prices,” he said.

Barrons, a Dow Jones & Company publication, said that tensions in the “Middle East have the potential to lift prices.” It noted that earlier JP Morgan had predicted that oil prices could touch $80 a barrel with rising demand and constraint supply.

Matt Gertken, head of geopolitical strategy, BCA Research—a provider of global investment strategy, in an interview with Barrons, however said that the OPEC (Organization of the Petroleum Exporting Countries) 2.0 “has regained discipline after last year’s market-share wars.” “The group won’t want prices to rise too high, which would accelerate global green efforts. The most likely outcome is increased volatility in oil prices,” Barrons quoted him as saying.

Also read: Brent near $75/bbl on supply concerns, falling US inventory

Brent crude price on Tuesday touched $66.74 a barrel. Global oil prices have been rising throughout 2021 driven by hopes of economic recovery. The major oil producing countries had also cut supplies. 

Increase in global crude prices has a direct bearing on India’s economy. This could be even harsher at this point, especially as the country, which imports over 80 per cent of its total crude requirements, is still grappling with the after-effects of the Covid 19 pandemic.

Domestic prices of petrol and diesel are already at an all time high.

Meanwhile, India has already started to diversify its oil importing markets to reduce dependence on particular exporting countries. Countries like the US, Nigeria have come up as important suppliers of crude for India.