New Delhi: A day after a surge in crude oil prices sent Sensex and Nifty to their steepest drop this year, the Indian government issued a statement spelling out the country’s ‘robust’ energy sourcing plan starting May.
This comes in the backdrop of US secretary of state Mike Pompeo on Monday announcing that the Trump administration would no longer grant exemptions, with the conditional waiver set to expire on 2 May. The US had granted exemptions to China, India, Italy, Greece, Japan, South Korea, Taiwan, and Turkey ‘to ensure a well-supplied oil market’ in November last year for six months after it reimposed sanctions on Iran.
“The Government of India has put in place a robust plan to ensure that there is adequate supply of crude oil to Indian oil refineries from May 2019 onwards. There will be additional supplies from other major oil producing countries from different parts of the world," India's petroleum ministry said in a statement on Tuesday.
An increase in oil prices is likely to put pressure on India’s fiscal and current account and comes against the backdrop of the 2019 Lok Sabha elections, where Prime Minister Narendra Modi is seeking a second term. Indian strategic planners have been worried over short-term supply disruptions, given that the country’s energy needs are primarily met through imports.
“The Indian refineries are fully prepared without any problem to meet the national demand for petrol, diesel and other petroleum products in the country," the petroleum ministry added in its statement.
India is a major importer of Iranian oil and imported 23.5 million tonnes in 2018-19 from the country. Iran is now the third largest contributor to India’s energy security, contributing 11.3% of the country’s crude oil demand.
Of the 220.4 million tonnes of crude imported by India in 2017-18, more than 10% was from Iran.
In November, the US imposed sanctions on exports of Iranian oil after President Trump unilaterally pulled out of a 2015 nuclear accord between Iran and six world powers.
Crude oil prices have surged over 37% this year. The cost of the Indian basket of crude, which represents the average of Oman, Dubai and Brent crude, was $71.11 a barrel on 19 April, according to the Petroleum Planning and Analysis Cell. The cost of the Indian basket of crude registered an average of $66.74 in March.
India, the world’s third-largest oil importer, has been concerned about elevated oil prices adversely impacting the country’s trade deficit and consequently the current account deficit. Every dollar increase in the price of oil raises the import bill by around ₹10,700 crore a year. Oil imports rose by over 25% in 2017-18 to $109 billion from a year ago.