With the Iran War having crossed 60 days and a fragile truce holding out the new normal is that not much is normal. The Crude rates seem to be seesawing every few days. The Strait of Hormuz having choked up, passage of Tankers and Container Ships have stopped pushing the economies of many nations into a state of permanent nervousness. Many experts are of the opinion that the world may not be able to sustain this existential crisis and some nations may snap. Though on a different trajectory, the startling move of UAE quitting OPEC is an impact of the war. Of course many feel it would be beneficial for India in the long run with more oil available in market. But there has not been much of planned approach other than knee jerk reactions on the consumer side. Feeble attempts at rationing and conservation efforts have not been enough. India has not even extensively considered that efforts need to be made to educate consumers. Due to compulsions arising out of elections in certain states the government has been busy claiming there is no need to panic as sufficient fuel exists. However, the scarcity of LPG and raising of the commercial LPG costs belie this. As of now the Oil Marketers have been shouldering the increased costs of Petrol & Diesel due to the increased cost of Crude. But this can last for how long? Something has to give way, experts feel. The Oil majors will ultimately have to face the reality of huge losses which in turn will directly impact maintenance, diversification, investment in new projects etc. India has become a perpetual crude guzzler with no plan in sight to manage it. The unilineal approach may not be successful in all situations, as the Iran War has just proved. Do the think tanks and bureaucrats have a plan? Will they make a public discourse to this effect? Some observers feel it would go a long way to assuage the general public in India, rather than the hasty promises of availability of adequate fuel.
What the situation is currently unfolding many opine that something has to break. Such a heightened state of ever-changing dynamic equilibrium cannot last. On the consumer side nations like Japan, North Korea, Australia, India even China is impacted drastically with the increased crude prices and on the supplier side nations like Iran, Kuwait, Saudi Arabia, Oman, UAE are also squeezed. What is the use of producing if you can’t supply? Iran is said be chockfull, due to non-availability of storage. It may not be satirical to state that the tankers caught up in the Hormuz are acting as some sort of stowage. Most the world over are felling the cussedness of some nations is risking the world order. India may have to pay dearly. A prolonged swell of crude oil prices to $100-$150 per barrel will considerably impact India’s macroeconomic outlook. It has the potential to increase inflation, slow down growth, widen the current account deficit and may prompt the Reserve Bank of India to increase interest rates. There is possibility of a wider conflict, which will further disturb global energy markets. Brent crude has surged to around USD 125 per barrel, one of the highest levels in recent years. Experts maintain that budget estimations are based on Crude Oil prices of about USD 65 per barrel. If prices move up to USD 90, it implies a 35%–40% jump in realizations. However, production costs for upstream companies do not increase at the same pace, so most of this gain flows directly into profits. Rising crude can also increase transportation costs, logistic costs have potential to further impact the prices of household goods. India imports about 88 Percent of its crude requirements. Obviously import dependency increases economic vulnerability. Oil companies are today facing losses estimated at between ₹22 and ₹28 per litre on petrol and diesel. High crude prices may widen India’s fiscal and current account deficits. Increased spending on imports and reduced tax revenues can strain government finances and limit investment in development initiatives. Rupee is already under pressure recently breaching the 95 mark against the US dollar. Weaker currency makes imports more expensive, further worsening inflationary pressures within domestic economy. Currency depreciation also increases the cost of servicing external debt and impacts overall financial stability. As oil prices remain high, the rupee is expected to face continued pressure unless global conditions stabilize. There have been diplomatic efforts but not much progress has been achieved. Energy Security is today the number one Priority. Reducing dependence on imported crude through diversification and investment in renewable energy sources is increasingly critical. Efforts to expand domestic production, promote alternative fuels, and enhance strategic reserves will play a role in mitigating future risks. As global tensions continue to influence oil markets, the outlook remains uncertain. While short-term volatility is expected to persist, long-term strategies focused on energy diversification and efficiency could help stabilize the economy.
While the layman may be complacent that the government will take care of his needs, some are increasingly getting worried. The LPG scarcity has directly impacted many peoples’ livelihood and a Covid like exodus from cities of workers has put domesticities and industries into a disquieting situation. The elections may be a diversion but soon people will revert back to their daily life and needs. The future seems not only imperfect but quite uncertain. Well maybe the gods can only help, but …..purushya bhagyam Devo na jaanati, kintam manushya.
