OPEC+ countries announced a voluntary oil production cut of 1.16 million barrels per day, which could impact the Indian economy, which depends on oil imports for 85% of its energy needs.

Recent trend in crude oil prices

• Crude oil prices crashed in April 2020 due to the pandemic and recovered when economies opened up.
• Subsequently, prices rocketed in early 2022, but then the global economy slowed and a recession in advanced markets looms large.
• This has resulted in declining demand for crude oil from major economies, causing oil prices to start falling again.

What is OPEC+?

• OPEC+ is a group of oil-producing countries that cooperate to manage the global supply and prices of crude oil.
• It is made up of the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC countries, including Russia, Mexico, Kazakhstan, and others.
• OPEC was founded in 1960 by five countries: Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
• The organization’s primary objective was to coordinate and unify petroleum policies among member countries to secure fair and stable prices for petroleum producers and a regular supply for consumers.

Key functions of OPEC+

• Oil Production Regulation: OPEC+ regulates oil production of its member countries to ensure that oil prices remain stable and there is no oversupply or undersupply of oil in the market.
• Price Control: It aims to control the price of crude oil by regulating the supply of oil to the market.
• Market Monitoring: OPEC+ closely monitors the global oil market to understand the demand and supply dynamics of oil.
• Coordination: OPEC+ member countries work together to make decisions on oil production levels, pricing policies, and other matters that impact the global oil market.
• Research and Development: OPEC+ invests in research and development to explore new technologies and methods that can help member countries to produce oil more efficiently and sustainably.

Reason behind recent production cuts

• OPEC+ countries aim to support market stability by reducing oil supplies.
• The recent production cuts, totalling 3.7% of global demand, will raise crude oil prices per barrel and help cover up the losses producer countries faced after prices crashed.

Impact on Indian economy

• India is the third-largest oil consumer and imports 85% of its total crude oil requirement.
• The cut could raise crude by $10/barrel, increasing import bill and worsening the current account deficit by around 0.4% of GDP.
• This will impact foreign exchange reserves and result in the depreciation of the rupee, which in turn can increase imported inflation.

Impact on common people

• If the rise in crude oil import bill is passed on to the public, it may lead to cost-push inflation as every economic activity gets affected by oil price movement.
• On the flip side, state-controlled oil marketing companies may be stopped from passing on the increased burden to consumers, further worsening the financial balance of the oil public sector units.

Alternatives for India

• India can turn to Russia for more supplies of cheap crude, but of late there has been a small decline in Russia’s share in India’s oil imports.
• As a long-term strategy, the government should focus on alternative energy sources and building better roads.
• The government should work on bringing petroleum products within the goods and services tax, and promote energy-efficient use of vehicles or an eco-driving culture.

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Central Idea: The article provides an explanation of the UN Democracy Fund (UNDEF), its history and objectives, as well as the involvement of India and the United States in its establishment.

Why in news?

• There is a controversy surrounding the fund’s support for NGOs funded by George Soros, who is on a watchlist in India.
• He had alleged the Adani turmoil will weaken Indian politics and lead to a “democratic revival” in the country.

What is UN Democracy Fund?

• The UNDEF was established in 2005 with an initial contribution of $10 million each from the United States and India.
• Its aim is to support projects that strengthen the voice and participation of civil society, promote human rights, and encourage the development of democratic institutions and processes.
• It is funded entirely by voluntary contributions from member states and is governed by an advisory board composed of 16 members representing different regions of the world.

Role in promoting democracy and civil society

• UNDEF’s mission is to support projects that strengthen the voice and participation of civil society, promote human rights, and encourage the development of democratic institutions and processes.
• The fund solicits and receives up to 3,000 proposals from NGOs around the world each year.
• An advisory board considers these proposals and recommends proposals for approval by the Secretary-General.
• Between 30 to 50 projects are chosen every year, and in 15 rounds of funding so far, UNDEF has supported over 880 two-year projects in more than 130 countries.

India’s involvement in the governance of UNDEF

• India has been a member of the UNDEF advisory board since the fund’s inception.
• The board is composed of 16 members representing different regions of the world, and it includes the eight largest member state contributors and six other states to reflect diverse geographical representation, including one “small island” and developing states.
• It also has two individual members and two CSOs.
• The CSOs currently serving on the board include CIVICUS and Transparency, Accountability and Participation Network.

India’s involvement in the establishment of UNDEF

• India played a key role in the establishment of UNDEF as it was one of the founding members of the fund.
• In 2005, India’s then PM, Manmohan Singh, and US President George W. Bush announced the US-India Global Democracy Initiative, which included support for the UNDEF.
• India has contributed to the fund on several occasions since its inception, although its contributions have decreased in recent years.

Contradictions with UNDEF

• India’s relationship with UNDEF has been marked by contradictions.
• While India has supported the fund and contributed to it, it has also put George Soros on a watchlist in India while UNDEF has no objections to the fund giving grants to NGOs funded by Soros.
• This underscores a contradiction between the imperatives of the Modi government’s high table diplomacy and its domestic political ideology.
• It requires only Delhi to deploy a soft touch in the former while playing hardball at home for domestic audiences.

India’s contribution so far

• India has contributed to UNDEF on several occasions since its inception, although its contributions have decreased in recent years.
• India gave $5 million to the fund in 2005, 2006, 2008, 2009 and 2011, but no contribution was made in 2007 and 2010.
• The contributions began dipping from 2012, with the amount being $4.71 million that year.
• In 2014, India slashed its funding, contributing only $200,000 that year and in 2015.
• In 2016, it was a mere $50,000, and no contribution was made in 2017.
• In 2018 and 2019, India was back with $100,000, and in 2020, 2021 and 2022, it gave $150,000.

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Central idea: India has been criticized at the World Trade Organization (WTO) for not adequately addressing questions raised by members regarding its Minimum Support Price (MSP) programs for food grain, particularly rice.

 Genesis of the row

• WTO members such as the US, Australia, Canada, the EU, and Thailand have alleged that India did not provide sufficient responses during consultations.
• The MSP programs have breached prescribed subsidy limits and are under scrutiny at the WTO argued these countries.
• With this, India became the first country to invoke the Bali ‘peace clause’ to justify exceeding its 10% ceiling for rice support in 2018-2019 and 2019-2020.

What is ‘Bali Peace Clause’?

• India’s minimum support price (MSP) falls under the amber box subsidies category.
• India has exceeded its limits for amber box subsidies for rice for two consecutive years, which is why it has been challenged at the WTO.
• The Bali ‘peace clause’ allows developing countries to exceed their 10% ceiling without facing legal action by other members.
• However, it is subject to numerous conditions, such as not distorting global trade and not affecting food security of other members.
• India’s MSP programs are subject to the ‘peace clause’, but some WTO members have accused India of habitually not including all required information in its notifications.

Allegations of Inadequate Reporting by India

• WTO members have been accusing India of not reporting all public stockholding programs under the ‘peace clause’.
• Some members have pointed out that India also lacks an adequate monitoring mechanism to ensure that no stocks are exported.
• India, on the other hand, argues that it is not obligated to notify any public stockholding programs other than for the crop where the subsidy limits were breached.

Impact on India’s MSP Programs

• The criticism from WTO members could have an impact on India’s MSP programs for food grain, particularly rice.
• The conditions set under the ‘peace clause’ could limit India’s ability to exceed the subsidy limits and support its farmers.
• India may have to provide more detailed notifications and monitoring mechanisms to address the concerns of other members and ensure compliance with WTO regulations.

Why is India defending its stance on MSPs?

• India faces several challenges in the agricultural sector, including climate change, soil degradation, and water scarcity.
• The country also has to deal with farmers’ distress due to low prices for their produce, which is why the MSP program was introduced in the first place.
• The challenge posed by the WTO to the MSP program could further exacerbate the problems faced by Indian farmers.

Back2Basics: WTO and its Subsidies Boxes

The World Trade Organization (WTO) is an intergovernmental organization that is responsible for regulating international trade between nations.

• Establishment: It was established on January 1, 1995, and currently has 164 member countries.
• Objective: To ensure that trade flows as smoothly, predictably, and freely as possible.
• Frameworks: Negotiating and formalizing trade agreements, resolving trade disputes between member countries, and monitoring national trade policies.
• Working principles: Non-discrimination, transparency, and fairness in international trade.

The WTO has three types of subsidy boxes – green, blue, and amber. Each box represents a different level of trade-distorting subsidies.

1. Green box subsidies: These subsidies are considered non-trade-distorting and are allowed under WTO rules. They include measures such as research, disease control, and infrastructure development.
2. Blue box subsidies: These subsidies are considered less trade-distorting than amber box subsidies but can still distort trade to some extent. They include measures such as direct payments to farmers to reduce production, provided that certain conditions are met, such as the use of fixed areas or yields.
3. Amber box subsidies: These subsidies are considered the most trade-distorting and are subject to reduction commitments under the WTO Agreement on Agriculture. They include measures such as price support, input subsidies, and direct payments that are not subject to certain conditions.

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For the first time, United Nations members have agreed for an early conclusion of the International Legally Binding Instrument of BBNJ under the United Nations Convention on the Law of the Sea (UNCLOS).

Background

• The UN Convention on the Law of the Sea was established in 1994 before marine biodiversity became a well-established concept
• An updated framework to protect marine life in the high seas had been in discussions for over 20 years.
• BBNJ is an agreement that aims to protect marine biodiversity in areas beyond national jurisdiction (ABNJ).
• ABNJ refers to the high seas, which are not governed by any country but are still important for global biodiversity.

What is the BBNJ treaty?

• The BBNJ Treaty also called the Treaty of the High Seas, is an international agreement that aims to preserve and sustainably use the marine biodiversity of areas beyond national jurisdiction.
• This includes the high seas, which are outside of countries’ exclusive economic zones and makeup nearly half of the Earth’s surface.
• These areas are currently poorly regulated and only 1% of them are protected.
• The High Ambition Coalition on BBNJ was launched in February 2022 to negotiate and achieve a comprehensive and ambitious outcome.

Key areas of agreement

The negotiations focus on elements agreed upon such as the-

1. Conservation and sustainable use of marine genetic resources,
2. Area-based management tools like marine protected areas,
3. Environmental impact assessments, and
4. Capacity-building and technology transfer

Consensus reached

• A new body will be created to manage the conservation of ocean life and establish marine protected areas in the high seas
• The treaty establishes ground rules for conducting environmental impact assessments for commercial activities in the oceans
• Several marine species, including dolphins, whales, sea turtles, and many fish, make long annual migrations, crossing national borders and the high seas

What is the significance of this treaty?

• Beyond jurisdiction coverage: BBNJ refers to the areas beyond the jurisdiction of any single country, such as the high seas, the deep sea floor, and the international seabed area. These areas are critical for the health of the ocean, the well-being of coastal people, and the overall sustainability of the planet.
• Covers entire oceans: BBNJ comprises 95% of the ocean and provides invaluable ecological, economic, social, cultural, scientific, and food-security benefits to humanity.
• Hard-arrived consensus: BBNJ is governed by a patchwork of international agreements, conventions, and bodies, but there is no single comprehensive framework that regulates activities in these areas.

Various threats

• BBNJ, despite its resilience in the past, is currently at risk due to several emerging dangers such as pollution, overexploitation, and the observable consequences of climate change.
• In the future, the escalating need for marine resources, whether for food, minerals, or biotechnology, may intensify these issues.
• For example, deep-sea mining, where valuable metals are extracted from the ocean floor, is becoming more prevalent despite the fact that little is known about the biodiversity in these areas.

Why protect deep seas?

• The deep seafloors, believed to be the harshest habitat, are also facing the extinction process.
• A recent study assessed 184 species of Molluscs in the deep sea and found that 62% are listed as threatened: 39 are critically endangered, 32 are endangered and 43 are vulnerable.
• Yet, the International Seabed Authority, a Jamaica-based intergovernmental body, is allowing deep-sea mining contracts.

Way forward

Ans. Create legally binding instrument

• To address these threats, there is a need for a legally binding instrument for BBNJ.
• The instrument would provide a framework for the conservation and sustainable use of BBNJ and would address gaps in the current international legal regime.
• The legally binding instrument would establish a mechanism for the conservation and sustainable use of BBNJ, including measures to protect biodiversity, manage human activities, and ensure the equitable sharing of benefits.
• It would also provide for capacity-building and technology transfer to support the implementation of these measures.

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