Crude oil price at $110 per barrel is not sustainable in the long term as it could lead to overall inflation and affect consumption across countries, India's minister of petroleum and natural gas said on Tuesday.
Oil prices surged this year following the Russia-Ukraine crisis, with Brent crude, the global benchmark for two thirds of the world's oil, rising to a notch below $140 in March over concerns of supply disruptions.
Prices have since cooled, but remain above $110 per barrel.
India, the world's third-biggest crude importer, has been feeling the heat from rising oil prices as its economy is still recovering from the pandemic-induced slowdown, with inflation rising rapidly.
“For a country that imports 85 per cent of its requirement of crude and about 50 per cent of its gas, clearly global prices have a major impact,” Hardeep Singh Puri told a panel discussion at the World Economic Forum in Davos.
“Oil prices at $110 per barrel is not sustainable. The fact that it is not sustainable is being seen in countries around India. It is being seen in Latin America and Africa. Everyone should look at the fact as an existential threat.”
However, higher oil prices have also led India to speed up its aim to blend ethanol with petrol, a move that will help the country cut down its crude imports in the long-term.
India, which had set a target to achieve 10 per cent ethanol blending in petrol by the end of 2022, already reached 9.99 per cent this month, the country's Ministry of Petroleum and Natural Gas said.
Encouraged by the progress, the ministry is fast-tracking its next goal of bringing ethanol blending to 20 per cent, said Piyush Goyal, India's minister of commerce and industry, minister of consumer affairs, food and public distribution, and minister of textiles.
“Two weeks ago, Mr Puri has decided to advance the target by five years. So we are going to be achieving 20 per cent ethanol blending by 2025 or 2026,” Mr Goyal said during the panel discussion.
“All of that is making India suffer in the short term but we will benefit in the long run. We are making use of this opportunity to transition. That will also help our farmers. Our farmers get nearly $10 billion worth of additional income with ethanol taking centre stage.”
Consumers are also likely to be open to transition to electric vehicles and adoption could pick up as they see higher prices at pumps, Mr Goyal added.
India has announced plans to tap into renewables to feed its growing power demand. Last year, it said it plans to increase its renewable energy capacity to 500 gigawatts and meet 50 per cent of its energy requirements through non-fossil fuel sources by 2030.
Mr Puri said the transition to greener technologies will happen, but that it should not be rushed.
“We can't afford to get disrupted in the process of transition. We have to ensure energy is available to people [in the process of transitioning to greener sources]. Sixty million people are filling up at the pumps and five million barrels of oil are consumed every day.”
UAE currency: the story behind the money in your pockets
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
More from Neighbourhood Watch
