Fears of increasing problems due to expensive crude oil

The international crude oil market is again witnessing volatility amid supply concerns. In view of this, the price of crude oil per barrel has reached the level of 90 dollars which was not seen since last year. The rise in oil prices followed news that two major producers, Saudi Arabia and Russia, plan to extend voluntary supply cuts for the next three months.

Saudi Arabia has talked about reducing crude oil production by 10 lakh barrels per day, while Russia has also expressed its desire to reduce supply by 3 lakh barrels per day. Due to this, the supply of crude oil may remain low during the winter months. Energy demand increases in the Northern Hemisphere during the winter months. It becomes necessary to consider the geopolitics behind the decline in oil production. The drop in crude oil supply in the international market has added to the trouble for the US and European countries and is also seen as a sign of growing rapprochement with Saudi Arabia and Russia under the leadership of Vladimir Putin. America will definitely not like this.

Although crude oil prices have fallen sharply from their highs, analysts expect crude oil to become more expensive by the end of this year and reach around $95 per barrel. Some people are even saying that the price can be 100 dollars or more. China's economic recovery has been slower than expected but US performance is belying concerns of a slowdown. The Federal Reserve may have to raise its growth rate forecast for the full year.

A good outlook on the economy's performance could keep crude oil prices higher for the next few months. This will increase inflation all over the world. Oil prices in the first half of 2023 have been much lower than the same period last year. Oil prices rose after Russia's attack on Ukraine last year. The effect of this was that the pace of inflation in the global economy moderated somewhat. People thought that there was no need to do much to control inflation, but now with the rise in crude oil prices, the situation may worsen again.

A rise in crude oil prices, especially in India, may raise many concerns. Crude oil prices are rising at a time when the country is going to be holding elections one after the other. Crude oil in India has reached almost 90 dollars per barrel. Due to the increase in oil prices, the issue of obtaining fiscal benefits through higher taxes has now become a curious situation.

The impact of higher cod oil prices on domestic production and its impact on tax collection cannot be ignored. The central government's latest figures on tax revenue are disappointing as they show a decline in net tax revenue.

Although sources have recently asserted that there is no need to revise the budget estimates for economic growth, revenue and exchequer, there is little doubt that tax collections will not increase proportionately in the future. Fiscal math can be confusing.

It may be politically difficult for the government to cut spending ahead of a general election. The prime minister recently said in an interview that an unwavering stance on fiscal responsibility is a key policy feature of his government. But rising crude oil prices, rising inflation and declining revenue may prove to be the toughest challenge for the government