Seven other countries are affected, but India is especially disappointed. Of the 220.4 million tonnes of crude oil imported by India in 2017-18, a tenth was from Iran. While New Delhi has been reducing its purchases, it is still short of alternatives that offer attractive credit, insurance and shipping terms to match Tehran’s, and with global oil prices on an upswing, striking fresh bargains is not easy.
The Organization of the Petroleum Exporting Countries (Opec), the oil cartel which accounts for about 40% of global production, has demonstrated an ability to enforce supply cuts among its members to push up prices, even as US clamps on Venezuela’s state-owned oil company act as an additional squeeze. Big exporter Russia is not part of the cartel but tends to play along with Opec each time it sniffs extra money.
All this has left India in a spot.
Indian refiners believe enough volumes can be shipped in from elsewhere, but the cost involved is unlikely to be modest. Take Opec’s so-called “swing producer" Saudi Arabia, which accounted for 16.7% of India’s oil imports in 2017-18. Its role in the market, however, is akin to that of a “central bank" for the commodity, given its ability to close and open spigots to alter supply levels at short notice. Like Washington D.C., New Delhi has tried to impress upon Riyadh the need to keep the world well supplied. India has even asked for a global consensus on “responsible pricing".
But national interests determine how countries act and entreaties seldom influence prices. On its part, America has offered to engage India as a preferred energy partner, as proposed by US energy secretary Rick Perry in April 2018, though American oil has higher transport costs. A better idea might be for India to form a club of Asian buyers—say, with China, Japan and South Korea—and exercise power of collective bargaining. While China and India are the world’s second and third largest oil importers, Japan and South Korea are fourth and fifth. This would involve hard-nosed diplomacy, of course.
India’s efforts to boost domestic production, meanwhile, have been slow. In 2017-18, our imports increased by over 25% to $109 billion over the previous year, and the bill is projected to rise higher still—Prime Minister Narendra Modi’s 2015 target of lowering oil import dependence by 10 percentage points to 67% by 2022 notwithstanding.
This is a worry. The global cost of crude oil determines Indian retail prices of petrol and diesel, an escalation of which could fuel inflation and throw India’s macroeconomic numbers out of balance.
For almost the entire period of its term in office, the ruling National Democratic Alliance (NDA) government has been a beneficiary of relatively cheap oil. This cannot be taken for granted anymore. Barring a calamity, it is unlikely that oil will ever regain or surpass its $147 per barrel peak of mid-2008, thanks to extra American shale oil supplies that turn profitable at higher price levels, but cheap oil cannot be counted upon either.