With the deadline for the United States’ grant of exemption to seven countries including India from the sanction law CAATSA (Countering American Adversaries through Sanctions Act) against Iran getting over, the impact on the oil market or on India is relatively benign. No doubt, the price of crude oil had breached the $70 per barrel last month with production losses in sanction-hit Iran and Venezuela having tightened the supply position in the global oil markets.
It should be noted that the price of Brent crude oil has been steadily surging in the last couple of months and had escalated by 50 per cent last December, as a direct result of the decision of the production cartel, the Organization of Petroleum Exporting Countries (OPEC) to whittle down their output to bolster prices to capture the scarcity value of oil the world over. For India which was importing close to 11 per cent of its crude oil from Iran, the waiver from sanctions till last week, helped in cushioning the impact. Iran was India’s second largest supplier of crude oil after Saudi Arabia till 2010. Later, Iran was relegated to the seventh slot, following the western nations’ sanctions against Tehran’s alleged nuclear programme and India’s diversification of supply from other sources.
Statements from the India’s Ministries of External Affairs and Petroleum suggests that the focus is now fixated on finding alternative sources of energy and minimizing the impact on the Indian market. New Delhi has in place “a robust plan” to import oil from other countries. Meanwhile, Indian oil companies have ceased placing orders for Iranian oil.
Iraq is now, for the second year in a row, India’s largest crude oil supplier, catering to more than half of the country’s oil needs in 2018-19 fiscal. Iraq sold 46.61 million tonnes (mt) of crude oil to India during April 2018 to March 2019, a tad higher than 45.74 mt it had shipped to India in 2017-18. Thanks to vigorous conservation measures and switch to alternative non-conventional sources of energy backed by moderation in global crude prices in the early part of the last fiscal, India’s provisionally imported 207.3 mt of crude oil last fiscal, down from 220.4 mt in 2017-18.
The Ministry of Petroleum and Natural Gas has said that it is working in concert with other ministries to achieve the goal to reduce the country’s dependency on imported oil and gas. A target of lowering import of oil by 10 per cent by 2021-22 has been fixed. A five-pronged is also strategy is under way for conserving petro products. The strategy comprises of enhancing domestic production of crude oil and gas, promoting energy efficiency and conservation measures, imparting thrust on demand substitution, capitalizing untapped potential in bio-fuels and other alternate fuels/renewables and implementing measures for refinery process improvements.
Measures are in place to step up exploration and production of oil and gas which includes Hydrocarbon Exploration Licensing Policy (HELP) and Open Acreage Licensing Policy (OALP), Discovered Small Field (DSF) Policy, gas pricing reforms with premium for difficult areas. India is committed to easing out constraints in the existing Production Sharing Contracts and promoting enhanced recovery techniques for production of oil and gas. There would be greater incentives for permitting exploration and exploitation of unconventional hydrocarbons such as shale oil/ gas and coal Bed Methane (CBM).
Meanwhile, Indian Strategic Petroleum Reserves Limited (ISPRL) has created strategic reserves facilities for petroleum at three locations, viz., Vishakhapatnam (1.33 million metric tonnes), Mangaluru (1.5 MMT) and Padur (2.5 MMT). A sum of Rs. 4,098.33 crore was approved for fostering these three SRP facilities to be a bulwark against fluctuations in imported oil crude price or potential supply disruptions to address the domestic requirements of essential fuels for keeping the wheels of the economy moving. India is well prepared to meet any potential problems on the crude price front.
Script: G. Srinivasan, Senior Economic Journalist