The first shipment of American crude oil to India is likely to reach soon.
Why is this a big deal?
The export of American oil was banned for about 40 years.
The ban was implemented in 1975 amid the Arab oil embargo and petroleum shortages.
It was lifted by former US President Barack Obama in 2015.
Indian PM recently secured a comprehensive review of trade relations particularly in the energy sector with US President, during his visit to the USA.
Soon after this, leading Indian oil companies started placing orders for purchasing crude from the US.
Notably, Indian Oil Corporation and Bharat Petroleum placed orders for over 4 million barrels, which is soon to arrive.
What is the need for American shipments?
Brent (oil field in the North Sea) is the benchmark crude that serves as a reference price for buyers in western world, and Dubai serves as benchmark for countries in the east.
Their prices have become uncompetitive following the production cuts by OPEC.
So buying US crude has now become attractive for Indian refiners.
Even after including the shipping cost, buying US crude is cost effective for India retailers.
What is the significance of the move?
India, the world's third-largest oil importer, now joins Asian countries like South Korea, Japan and China to buy American crude.
By tapping the potential of this alternative supply option, India's over dependence on OPEC for imports comes down.
It also opens up new avenues for diversifying India's buying options.
Subsequently, on the other hand, it increases India's bargaining power with OPEC members.
It has also opened new vistas in the Indo-US ties.
It seems to be reducing the impact of uncertainness with global oil prices on Indian economy to a significant extent.
