India’s Ascendance as a Global Oil Demand Driver
The global energy market is closely watching India’s burgeoning oil demand as it seeks to understand future crude oil consumption trends. While China has historically been the primary driver of global oil demand growth, its consumption has recently plateaued, creating an opening for India to take center stage. In 2024, India emerged as a significant force in the oil market, fueling debate between the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) regarding global demand growth projections. While the IEA predicted a modest increase of under 1 million barrels per day (bpd), OPEC ultimately estimated a figure closer to 2 million bpd, with India playing a crucial role in both scenarios. Looking ahead to 2025, the U.S. Energy Information Administration (EIA) projects that India will surpass China, accounting for a quarter of global oil demand growth. This shift underscores India’s rapidly expanding economy and the changing dynamics of the global energy landscape.
This projected dominance in demand growth, while significant, is not entirely unexpected given the contrasting economic trajectories of India and China. China’s economic slowdown, coupled with a shift toward electric vehicles and alternative fuels in the transportation sector, has dampened its oil consumption growth. In contrast, India’s robust economic expansion and increasing demand for transportation and cooking fuels are driving its appetite for oil. Historically, from 1998 to 2023, China consistently outpaced India in annual oil consumption growth, often leading the world. However, the EIA forecasts a stark reversal in 2025, with India contributing 25% of global oil consumption growth, based on a projected global demand growth of 1.3 million bpd. This projection translates to an increase of 330,000 bpd for India, compared to a more modest 250,000 bpd increase for China.
The EIA attributes China’s subdued growth to several factors, including the rapid adoption of electric vehicles, the increasing use of liquefied natural gas (LNG) for trucking, a declining population, and slowing economic growth. These factors have collectively curtailed the demand for transportation fuels, traditionally a major driver of oil consumption. The majority of China’s remaining oil demand growth is projected to stem from the petrochemical industry, which utilizes oil as a feedstock for manufacturing plastics and other products. Despite India’s higher growth rate in both percentage and volume terms, it’s important to note that China’s overall oil consumption remains significantly higher. In 2023, India consumed 5.3 million bpd, while China’s consumption was more than triple that amount, at 16.4 million bpd, according to EIA estimates.
Industry projections reinforce the notion that India will be a crucial driver of global crude oil demand. In September 2024, India’s Minister for Petroleum and Natural Gas, Hardeep Singh Puri, echoed the EIA’s forecast, stating that India would account for 25% of the near- to medium-term global increase in oil demand. Recognizing its growing influence in the global oil market, the Indian government has proactively diversified its crude oil supply sources, expanding from 27 countries in previous years to 39 in 2024. This strategic move aims to secure reliable access to crude oil and mitigate potential supply disruptions. As India’s demand continues to rise, it is likely to attract even more suppliers eager to tap into this expanding market.
The contrasting trends between India and China highlight a significant shift in global energy dynamics. While China’s oil demand growth is moderating due to structural changes in its economy and transportation sector, India’s robust growth trajectory positions it as the new engine of global oil demand. This development has significant implications for oil producers, traders, and policymakers worldwide. Oil-producing nations are increasingly vying for a share of the Indian market, while refiners and traders are adjusting their strategies to accommodate this shifting demand landscape. India’s increasing prominence in the global oil market underscores the importance of understanding the country’s specific energy needs and policies.
India’s rising oil demand presents both opportunities and challenges. On the one hand, it creates a vast market for oil-producing nations and stimulates economic activity in the energy sector. On the other hand, it raises concerns about energy security, price volatility, and environmental sustainability. India’s dependence on imported oil makes it vulnerable to global price fluctuations and geopolitical instability. Moreover, the increasing consumption of fossil fuels contributes to greenhouse gas emissions and exacerbates climate change. Therefore, it is crucial for India to pursue a balanced energy strategy that promotes both economic growth and environmental sustainability. This includes investing in renewable energy sources, improving energy efficiency, and developing alternative transportation fuels. By diversifying its energy mix and adopting sustainable practices, India can mitigate the risks associated with its growing oil dependence and ensure a secure and sustainable energy future.
