Home/ Industry / Energy/  Oil prices may spike on Aramco drone strikes, affecting Delhi’s import bill

India, the world’s third largest oil consumer, said it is keeping a close watch on the rapidly developing situation with drone strikes on the world’s biggest oil producer, Saudi Arabian Oil Co., or Saudi Aramco, disrupting around 5% of global oil supplies and further worsening tensions in the Persian Gulf.

The reported strikes by 10 drones at Abqaiq and Khurais oil facilities, have disrupted more than half of Saudi Arabia’s oil capacity or 5.7 million barrels per day (mbpd). The US has blamed Iran for the attacks even as Yemen’s Houthi rebels claimed credit. Some oil traders have already begun to speculate if oil prices will cross the $100-mark yet again. “We are keeping a close watch," said an Indian government official, seeking anonymity.

Saudi Arabia accounts for about one-tenth of global crude supply of 100mbpd and is the second largest supplier of crude and cooking gas to India.

A sudden increase in global prices will affect India’s oil import bill and its trade deficit. Every dollar increase in the price of oil raises the import bill by 10,700 crore on an annualized basis. India spent $111.9 billion on oil imports in 2018-19.

“Work is underway to restore production and a progress update will be provided in around 48 hours," Amin H. Nasser, Saudi Aramco president and chief executive officer said in a statement.

This comes in the backdrop of the extension of production curbs by the Organization of the Petroleum Exporting Countries and Russia. India is particularly vulnerable as it imports more than 80% of its oil requirements and around 18% of natural gas.

India’s government is concerned about volatility in oil prices and its impact on consumers amid a slowing domestic economy, adverse external headwinds such as the US-China trade war and fears of a global recession.

State-run oil marketing companies (OMCs) Indian Oil Corp. Ltd, Bharat Petroleum Corp. Ltd and Hindustan Petroleum Corp. Ltd, however, see limited impact on crude supplies following the drone strikes, said two OMC executives requesting anonymity.

A senior official from an OMC said Saudi Aramco has conveyed there would be no impact on crude supply to their refineries. “The crude oil grade that will be supplied may differ, though," the official added.

Paris-based International Energy Agency (IEA) said the global markets are well supplied “for now".

Experts said any impact of the disruption in production at Saudi Aramco will be limited and of short duration. “I expect this to be short-lived. Crude oil prices may go up in the immediate term and could have some impact on the retail fuel prices, but with regard to the availability of crude, India should not face any problem as Indian oil companies have a diversified crude procurement strategy," said K. Ravichandran, senior vice-president and group head-corporate ratings, Icra Ltd.

With President Donald Trump the US pulling out of a historic 2015 accord with energy-rich Iran, there have been escalation of attacks in the strategic Strait of Hormuz— that accounts for a fifth of global oil supplies movement.

“The US will work with our partners and allies to ensure energy markets remain well supplied and Iran is held accountable for its aggression," US secretary of state Michael Richard Pompeo said in a tweet.

International crude prices peaked at $147 per barrel in July 2009. Oil prices have remained subdued with the West Texas Intermediate and Brent crude futures trading lower at $54.85 and $60.25 per barrel, respectively, on Friday.


Utpal Bhaskar
"Utpal Bhaskar leads Mint's policy and economy coverage. He is part of Mint’s launch team, which he joined as a staff writer in 2006. Widely cited by authors and think-tanks, he has reported extensively on the intersection of India’s policy, polity and corporate space.
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Updated: 15 Sep 2019, 10:22 PM IST
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