Energy in 2023

India will replace China as the driver of oil demand growth

  • In India, the relationship between GDP growth and oil demand will continue to remain strong and positive over the next decade. A growing  population, higher purchasing powers and rapid economic growth will result in greater penetration of passenger cars, freight transportation and air-travel. We expect India’s oil demand in 2033 to rise to 372m tonnes of oil equivalent (mtoe) from an estimated 259mtoe in 2023—making it the biggest contributor to world’s oil demand growth over the next ten years. In contrast, we expect China’s oil consumption to peak by 2030 owing to decelerating economic growth and rapid electrification of its transportation sector. The declines in China and much of the developed world will offset the growth in India and other developing countries, resulting in global oil demand reaching a peak by 2031.  
  • All of this incremental demand in India will be met by imports, as domestic oil production, which meets just 15% of demand, is expected to fall further owing to declines at maturing fields and sparse new discoveries and development. Such high levels of dependence on external suppliers will make India’s energy security vulnerable to potential trade disruptions as the country sources most of its oil from geopolitically sensitive regions such as the Gulf countries and Russia.
  • An important driver for oil demand growth in India is its relatively under-developed electric vehicles (EVs) segment. We expect that, due to high prices and a lack of widespread charging infrastructure, EVs will account for just 7% of new-car sales by 2028, in contrast to an expected 42% share for China. Moreover, the large commercial vehicles segment is hard to decarbonise and oil remains the only available fuel option. The Indian government has significantly increased capital outlays for large infrastructure projects, including highways, which will result in higher fuel consumption for trucks and other heavy vehicles. 
  • Although the Indian government has set preliminary targets for electrification of the transportation sector, it is unlikely that there will be a stronger push for EVs given the country’s coal-dominant electricity sector. Unless power generation moves away from coal, a more carbon-intensive fuel than oil, electrification of the transport sector would in effect increase emissions, undermining the country’s efforts to reach net-zero emissions by 2070.

The analysis and forecasts featured in this video can be found in EIU’s Country Analysis service. This integrated solution provides unmatched global insights covering the political and economic outlook for nearly 200 countries, enabling organisations to identify prospective opportunities and potential risks.