By: Vivek Kaul
US sanctions on import of oil from Iran kicked in on 2 May. India imports a bulk of the oil it consumes and a significant portion of this earlier came from Iran. Mint takes a look at the impact these sanctions will have on the Indian economy.1
What proportion of the oil consumed in India is imported?
In 2018-19, India’s oil import dependence, or the proportion of the crude oil consumed that is imported, was 83.7%. This figure was 80.6% in 2015-16. This shows an increase in dependence over a period of just three years. In 2015-16, the total amount of crude oil imported was 202.9 million tonnes (mt). By 2018-19, this had jumped to 226.6mt. India paid $65.6 billion in 2015-16 for crude oil imports. This shot up to $114.2 billion in 2018-19. Other than an increase in the quantity of oil imported, the higher price of the commodity also played a role in pushing up the overall oil bill.2
What proportion of the total crude oil imports comes from Iran?
This proportion varies from year to year. In 2018-19, India imported crude oil worth $114.2 billion. As much as 10.6% of this, or oil worth $ 12.1 billion, came from Iran, indicating that a significant portion of India’s oil imports comes from that country. This is not unusual. India is not the only nation importing oil from Iran, one of the world’s largest exporters of crude. In 2018, it accounted for 4% of total global oil exports. India was among eight nations that were granted waivers from US sanctions on import of Iran oil. The others were China, Japan, South Korea, Turkey, Taiwan, Italy and Greece.3
What will this do to the price of oil?
When 4% of the global oil supply is taken away from the market, the price is bound to go up. As such, the global price of oil has already risen as markets factor in possibilities in advance.
What is the current price of oil?
The price of the Indian basket of crude rose from around $52.40 a barrel in January to $70.70 a barrel on 3 May. The question is whether prices will go up further. Oil prices are tricky to predict, given that a host of factors—from political to economic—are involved. In the recent past, the advent of shale oil in the US and Canada stopped prices from rising. Historically, in a similar situation, oil prices would have crossed $80 a barrel by now. However, if there is any escalation in the threat of a US-Iran clash in West Asia, prices will go up.5
Why have petrol and diesel prices not gone up in India?
Over the last one month, the price of fuel has largely been flat, despite the oil price rising by close to 10%. This is mostly because the Lok Sabha elections are being held and the government wants to avoid doing anything that may have an adverse effect on its fortune in the polls. Once voting ends on 19 May, there may be a jump in petrol and diesel prices, as oil firms look to make up for past under-recoveries.
Vivek Kaul is an economist and the author of the Easy Money trilogy.