Iraq oil crisis could derail India economic revival: Report
June 27, 2014, 8:40 am

Kurdish peshmerga fighters take positions on the front line with militants from the al-Qaida-inspired Islamic State in Iraq and the Levant (ISIL), in Tuz Khormato, 100 kilometers (62 miles) south of the oil rich province of Kirkuk, northern Iraq, Wednesday, June 25, 2014 [AP]

“Given India’s vulnerability to a rise in global crude oil prices, considering that almost 75-80% of our consumption is met through imports, the sudden and rather steep rise in the same has the potential to dislodge the envisaged economic recovery of the country in the current fiscal,” says the ratings agency report about oil-import dependent India.

The agency warned that the crisis has the potential to widen the CAD and put pressure on exchange rate as well as “hamper the fiscal consolidation intent of the government” and “increase inflation at a time when the news of a sub-normal monsoon has put pressure on food prices”.

In the 2nd week of June, crude oil prices spiked to 9 month highs in a week’s time owing to the violence in Iraq.

The Indian Crude Oil Basket (comprising the Oman Dubai sour crude and Brent crude in the ratio 69.9:30.1) too has seen a 4 per cent increase (to $111/bbl) during the period.

India’s is the world’s 4th largest crude oil importers, importing nearly 75-80% of its energy requirements. Soaring oil prices could reduce the government’s in managing subsidies.

Iraq met nearly 13% of India’s crude oil requirements/imports last year and is its largest source of crude oil imports after Saudi Arabia. In the current year, India’s planned oil imports from Iraq are to increase to 20% (19.4 mn metric tonnes) of its total requirement.

“Already struggling with record low growth, high inflation, a weak currency, low manufacturing growth and possibility of sub-normal monsoon, the threat of oil supply shock and the resultant increase in prices add to the risks faced by the country which could hamper India’s envisaged improvement in economic growth in FY15. If crude oil prices rise unhindered, it could lead to a reversal in the reduction in the current account deficits achieved in FY14, exacerbating the weakness in the domestic currency,” says the Care Rating’s report.

The Central Bank of India is also likely to delay any action on interest rates, says the report.

Meanwhile, Philippines has witnessed protestors opposing another round of price increase of oil and other products on Wednesday. The protesters, in their statement, accused the “Big 3” oil companies of using the current situation in Iraq to raise pump prices of oil, adding that the country imports mostly its oil needs from Saudi Arabia.

 TBP