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Saturday, June 1, 2019

Making sense of buyer's power

In economic theory monopsony is a market structure in which one large buyer controls big portion of the market and thus exercises bargaining power.

After 2017, China has overtaken United States to become the largest oil importer. China in last year imported 239.2 billion $ worth of crude oil from 15 different countries.

India is third largest oil importer after US and China and roughly imports 125 billion US dollars worth of crude oil every year.

The rising purchasing power of private buyers in China and India has positioned both countries close to having monopsonic power in the oil world.

In last week of April a high level delegation from Chinese National Energy Administration visited India, to discuss forming a block of energy importing nations.

This block will also be beneficial to other Asian importers as this will reduce the Asian premium.

Asian premium
Owing to the dependence of Asian nations on Middle Eastern countries to supply oil, these oil exporting nations charge a premium on their exports to Asian countries. West in contrast need not to pay such extra amount.

India and China have repeatedly raised their voice against this so called Asian premium but to no avail.


Efforts are underway to make Japan and South Korea-world’s fourth and fifth largest oil importers- part of this block. The emergence of this energy hungry block could tilt the power away from OPEC.