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Oil in the Driver's Seat

In last year and most probably this year as well the most important topic of discussion among investors and the business community is about the central banks' actions that are being introduced to fight inflation. But the real topic of discussion should be how are the governments' actions impacting the energy supplies of the world because this will give clarity on inflation and the central banks' actions in future.

Looking at Europe this might bring more clarity. Currently, Europe is aggressively trying to find an alternative supply for oil and other related products as Russia gets fully removed from the post-introduction of a price cap on petroleum products from February 2023. Even if they can get alternative supplies the cost at which can source makes inflation and economic sustainability a big problem. This has already led BASF one of the world’s largest chemical companies to permanently downsize operations in its home country Germany and shift them to China.

Why China ? One might ask but the simple reason is the energy supply is more than demand even at the current stage. This comes along with another benefit that it buys a steeply discounted supply from Russia, Iran and Venezuela which are heavily sanctioned countries. Recently it has announced a cooperation deal with Saudi Arabia in various areas especially oil and related products.

Within this trend, even India emerges as a beneficiary but to a limited extent as it only gets a discount from Russia. But such a trend not only provides a strategic shift of the countries individually but also decides the future of the global economy as the energy supply policy dominates the real-world outcomes.


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