New Delhi: The government is concerned that worsening Iraq crisis will jack up crude oil prices and will increase subsidy burden. The Iraq crisis also has the potential to hit attem-pts of an early economic recovery.
The price of Indian crude oil basket has already shot up from $105.69 per barrel during the early week of June to $110.31 a barrel on Tuesday. Some analysts are predicting that this will add an additional $ 4-5 billion on country’s oil import bill.
Due to Iraq crisis Indian Rupee has also slumped to a seven-week low of 60.39 against the US dollar, which will make oil imports costlier.
Brent crude oil on Wednesday rose towards $114 a barrel, with some analysts predicting it to touch even $120 per barrel if situation in Iraq remained tense.
The Baiji refinery in northern Iraq, the country’s largest, according to reports was damaged on Wednesday as a battle raged over control of the plant and some firms pulled foreign oil workers out of the country.
As contingency plan, India has asked other oil rich countries to provide it additional crude oil in case spread of violence in Iraq disrupts oil supply.
Petroleum ministry has also asked PSU oil refiners to prepare plans to deal with possible supply disruption caused by the conflict in Iraq.
“Any increase in subsidy burden at this moment will force us to cut government spending to stick to fiscal deficit targets,” said government officials.
At a time when there is fear that a weak monsoon will push up food prices, an increase in crude oil will further aggravate the situation.
If crude oil prices increased unusually high, PSU oil marketing companies may be forced to steeply hike petrol and ATF prices. This will also test the resolve of the government whether it could keep petrol as a de-regulated commodity even if its prices goes up too much.
Iraq is India’s second largest crude oil supplier behind Saudi Arabia. It met over 13 per cent of India’s oil need in 2013-14, supplying about 25.1 million tonnes (MT) of oil. India was supposed to import same levels of crude this fiscal also from Iraq.
India’s bilateral trade with Iraq stood at $19.4 billion with imports contributing to $18.5 billion while exports were $0.9 billion in 2013-14.
India’s exports mainly consists of cereals, machinery, iron and steel, pharma, meat products and ceramics.
