At the OPEC meet this week in Vienna, Petroleum Minister Dharmendra Pradhan will again be demanding an end to the ‘Asian Premium’ on oil charged by OPEC producers. He must do so forcefully and deploy all means for successful closure of this long-pending demand.
There is no reason why India and China should pay more for OPEC oil than the US and European nations. It’s high time the discriminatory Asian Premium pricing mechanism is done away with.
The Asian Premium has its origins in the late 1980s when Saudi Arabia, the de-facto OPEC leader, adopted a marker based price system for its oil exports – West Texas Intermediate (WTI) for the US, Brent for Europe and Dubai/Oman for Asia. The Asian marker was costlier than the American and European ones, and did not fully reflect market dynamics. This was due to lack of substantial production centres (other than in the Gulf region) and oil derivatives market in Asia. Also Asian countries, dependent heavily on oil imports, were essentially price-takers. In short, the oil exporters used their superior bargaining power to squeeze Asian oil importers while charging less to their American and European customers.
But times have changed and so must old practices. While many Asian countries still depend heavily on oil imports, they now have more sources to tap into. The US has started exporting oil thanks to the shale boom. This game-changer in global oil demand-supply dynamics precipitated the price crash from 2014 to 2017 and has shifted the balance of power away from the traditional oil producers. India imported its first US oil consignment last year and must constantly look to diversify its import basket. Then, there is the rapid growth of electric vehicles and renewable energy, which India should encourage to reduce its oil imports. China and India are among the largest oil importers in the world today — a position they must use to collectively bargain for fair, non-discriminatory pricing.