Last Saturday, as simultaneous explosions went off at Aramco’s Khurais oilfield and Abqaiq processing facility in Saudi Arabia, an all-too-familiar sense of dread swept over Indian markets and consumers. At the pump the spectre of rising oil prices came back to haunt people while RBI governor Shaktikanta Das told CNBC-TV18 that India’s current account and fiscal deficit could take a hit if oil prices continued to rise.
Just how long will India allow itself to be held hostage by the global oil mafia?
That 10 automated drones could disrupt 5% of the global oil supply is a cautionary note on their destructive powers but is also about how oil continues to be the lynchpin around which global business revolves. In the immediate aftermath of the attack, US oil futures spiked 14.7%, the biggest spike in the last 10 years. It forced US President Donald Trump to authorize release of oil from the country’s 645 million barrels of Strategic Petroleum Reserves. With analysts now saying that even a disruption of a few weeks could increase the risk premium in oil prices, the portents are grim for India whose dependence on oil imports for meeting its energy needs is at an alarmingly high 84% and whose strategic reserves are the lowest among the countries most impacted.
Over the last few decades, many countries have kicked their earlier dependence on oil. Using its comprehensive natural geothermal resources, Iceland meets nearly 90% of its total energy requirement through non-fossil fuel energy sources while in Sweden the renewable share of total energy consumption has gone up from 33% in 1990 to 54% in 2018, thanks to its utilization of water and biomass. Even Tajikistan whose fragile economy survives on remittances, uses hydroelectric plants to ensure that 64.1% of its energy needs are met by renewable sources.
Meanwhile India has continued on a path of a predominantly oil-based economy despite substantial alternate energy sources like solar and wind. As a consequence, it is likely to surpass China to become the second largest oil demand growth centre globally in 2019, says research and consultancy group Wood Mackenzie. Significantly, the rate of growth in Chinese oil demand has slowed as the country embraces a less oil-intensive model of development while curbing vehicle usage to improve urban air quality. With provincial governments too pushing cleaner transport fuels and electric buses, diesel demand growth has come down.
By contrast, India’s past choices have come back to haunt its quest for the right energy mix. In the years between 1999 and 2014, the Sheila Dikshit government in Delhi, obsessed with building expensive flyovers in the capital city, paid less attention to public transport. The results are there for all to see—more cars than ever before doing little to curb the traffic congestions the flyovers were built to address while contributing to some of the worst pollution levels in the world.
It is time for India to change tack and to take charge of its future. Instead of worrying too much about the travails of traditional vehicle manufacturers, India should be concerning itself with encouraging innovations in alternate fuels and clean mobility technologies and promoting startups in the energy sector.
Oil is the single largest mover of geo-strategic affairs in the world. Thus, much of India’s oil needs could well be met by increasing imports from nearby Iran. In turn, the world’s fifth largest oil producer could use the earnings on modernizing and updating its vast oil capacities. Yet, the Opec collective along with the two superpowers US and Russia have their own battles with Iran and so India has to perforce rely on Iraq, Saudi Arabia and had to, in the past, on Venezuela. But US sanctions on Iran and Venezuela have meant that India has had to change its suppliers. Obviously the US, now the world’s largest oil producer, would like India to up its imports from there but given the distance and the far higher transportation cost involved that is clearly not the best option.
In any case, all this twisting and turning renders India increasingly more vulnerable. The collapse of its much-hyped oil prospecting plans condemned the country to dangerous levels of dependence for its fuel imports on countries which are potentially geopolitical hotspots.
China, the world’s largest importer of oil, took a call early on to develop renewable sources with the twin objectives of cutting pollution as well as reducing its reliance on fossil fuels with its concomitant strategic benefits. To power its vast manufacturing base it needed to up its total power generation capacity sourced mainly from coal and other fossil fuels till recently. But increasingly it has been boosting renewable sources (water, wind and sun). In a post on the subject in March 2018, John Mathews and Xin Huang say that if this pace of change is continued over the next decade, “China’s power capacity would be more green than black within the next decade—by 2028".
Also China’s economy incorporates a high export component and a significant part of its energy use is for export. Any cost-pressure emanating from an energy crisis such as the one we are witnessing today can be set off against its exports.
By contrast India will always be one of the worst affected by any oil crisis and should therefore pursue a non-fuel based growth aggressively. The Narendra Modi government’s solar push over the last five years has been a step in the right direction but it is only a step. The time is ripe to turn this into a mass movement such that the tyranny of big oil can finally be ended. This moment of crisis, can be turned into India’s biggest opportunity in decades. As Sanjeev Pandiya writes in Value Research Online. “At some point, as the threat from solar becomes clear, there will be a ‘race to the bottom’, as marginal producers realise that their oil reserves become useless if they hold onto them. At that tipping point, every drop in oil prices will actually result in an increase in production (subject to variable cost getting covered)."
What author Peter Maass called “inebriating crude" has brought little joy to the countries that are its largest producers. Indeed countries like Japan and South Korea with no known oil reserves have trumped oil-rich nations like Iran, Nigeria or Venezuela. For the sake of its future, India needs to rid itself of its addiction to oil.
Sundeep Khanna is an executive editor at Mint