China’s economic collapse pulled the rug out from under global financial markets and helped set off a slide in oil prices that continues to plague the worldwide economy. Investors look to the energy markets as a leading indicator of how the overall global economy is performing, and consistently low oil is the harbinger of a rough year.
The absence of China’s energy demand has left a vacuum in the financial markets. Investors are wondering who will fill the gap and become the next great emerging market. One country in particular has been gaining attention lately with a rapidly growing middle class, sweeping political reforms, and a healthy appetite for oil.
The BRIC Country That's Stealthily Becoming the World's Largest Energy Consumer
Before the stock market crash in China, India was threatening to overtake it as the global leader in energy demand. Last year, India ranked third in terms of global oil demand but its GDP growth rate has finally surpassed China’s, putting it on track to become number one for oil demand.
India imports around 80% of the oil that it uses, mostly from OPEC, and the low commodity prices are only helping to bolster its economic growth. The service industry is the fastest growing sector in India with a middle class that currently accounts for 22% of the population. By 2030, the middle class is estimated to make up 45% of the population.
An auto boom is underway right now as well. There are only 40 cars per 1,000 people in India at present, but cheap fuel is feeding a rapid infrastructure expansion to accommodate growth in the local auto industry.
Adding to the growth in India is China’s refusal to backslide towards a fossil fuel-based economy after initiatives to make electric vehicles and clean energy a priority. Although the U.S. and China remain the world’s top two consumers of energy, India has a clear path to take over through cheap oil and gas.
The demand for fuel and energy has contributed to a boost in Indian imports of African oil to the highest level in five years. In 2015, the country imported a fifth of its oil from African sources as opposed to just over 16% the year before, while Middle Eastern sources remained the same. Gasoline consumption rose by nearly 15% in 2015 as well.
Daily oil consumption is expected to rise from 6 million barrels per day to 10 million by 2040, according to the International Energy Agency (IEA). For comparison, China currently consumes around 10.5 million barrels per day – 75% more than India. However, China’s economy is decelerating while India’s is still heating up.
The Bottom Line
The gap left by China in the energy market will be picked up by India in the coming years. While China and the U.S. are still leading energy consumers, India’s fast-growing economy is undergoing massive changes, from political reform to increased foreign investment, putting it on the fast track to make up what China is leaving behind. Continued low energy prices are only helping to inject more speed into India’s growth. In the next decade, we could see India take over the number two or even number one spot for the world’s largest consumer of oil and gasoline.
