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Oil prices are struggling to recover from the flood of supply that sent markets reeling in 2014. While producers are hurting, energy importers are thriving - and few countries are benefiting more than India.
Prime Minister Narendra Modi's government has used the financial flexibility afforded by cheap oil to accelerate much needed structural changes to its economy. Here's how.
At the end of 2015, the country consumed an estimated 4 million barrels of oil a day, with 75% of that coming from imports, according the Energy Information Administration. This heavy reliance on imports means the low price of oil has a big impact on the prices of other goods and services in the economy.
This is reflected in India's declining inflation.
Source: Bloomberg, as of October 2016.
How India has seized the advantage
The Indian government has capitalized on falling inflation and low oil prices to put in place long-term structural changes that could continue to benefit the Indian economy, even if oil prices were to rebound.
The oil-fueled fall in inflation has enabled the country's central bank to cut interest rates to support growth. And low oil prices have allowed the government to reduce fuel subsidies, creating more room in the budget to invest in crucial infrastructure projects - such as power, railways and airports.
Additionally, India is taking full advantage of current prices by building a strategic petroleum reserve of 39 million barrels of crude oil. And with plans to store another 91 million barrels by 2020, the country will enjoy a handy buffer against future price fluctuations.
This strategic planning, coupled with the significant economic tailwinds of cheap oil, might see investors benefit from tapping into the local market, regardless of where oil prices go in the future.
If you're looking to access the Indian market, consider the iShares MSCI India ETF (INDA), or broaden your search to other countries.
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