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Consumers may feel pinch of high oil prices post Lok Sabha polls

Benchmark Brent crude prices on Tuesday surged to $74.70 per barrel, the highest since November 2018, mainly due to the US decision to withdraw waivers to all countries, including India, from importing Iranian crude oil from May 2.

business Updated: Apr 24, 2019 07:29 IST
Rajeev Jayaswal
Rajeev Jayaswal
Hindustan Times, New Delhi
crude oil prices,US sanction on Indian oil imports,iran oil
Petroleum and natural gas minister Dharmendra Pradhan said India will get additional supplies from other major oil producing countries to compensate for the loss of Iranian oil.(Bloomberg)

The US sanction against India’s oil import from Iran will not disrupt domestic fuel supply because Indian refiners have made alternative arrangements, but consumers may feel the pinch as oil marketing companies are under immense pressure to hike petrol and diesel rates post-elections, government and industry officials said.

“Crude oil imports have become costlier. The US sanction has added to the woes. Oil companies are unable to proportionately increase retail prices of petrol and diesel due to political constraints. Ultimately, the consumer will face the heat as oil companies cannot absorb it [higher crude oil rates] indefinitely,” an executive working for a state-run oil marketing company said on condition of anonymity.

Benchmark Brent crude prices on Tuesday surged to $74.70 per barrel, the highest since November 2018, mainly due to the US decision to withdraw waivers to all countries, including India, from importing Iranian crude oil from May 2.

Petroleum and natural gas minister Dharmendra Pradhan said India will get additional supplies from other major oil producing countries to compensate for the loss of Iranian oil.

“Govt has put in place a robust plan for adequate supply of crude oil to Indian refineries.There will be additional supplies from other major oil producing countries;Indian refineries are fully prepared to meet the national demand for petrol,diesel & other Petroleum products,” he tweeted.

The average cost of India’s crude import in the first fortnight of current month was $69.84 per barrel, about $3 costlier than the average import price in March, and about $12.4 per barrel more than $57.43 a barrel average price four months ago in December. Despite volatile international crude oil prices domestic rates of petrol and diesel have been relatively stable in last one month. Petrol was sold at Rs 72.95 per litre and diesel at Rs 66.46 in Delhi pumps on Tuesday. HT reported on April 17, that while international oil prices (Brent crude) increased by over 9% from March 10 to April 10 to close at $71.73 per barrel, petrol prices increased by less than 1% during this period.

Although the government deregulated pricing of petrol from June 26, 2010 and diesel from October 19, 2014, it keeps an indirect control over its retail rates through state-run refiners – Indian Oil Corporation, Hindustan petroleum Corporation and Bharat petroleum Corporation – which control almost 90% of the fuel retail market. Such tacit control is exerted by almost all governments during elections, executives working in state-run energy firms said, asking not to be identified.

According to industry experts, while the US sanction against Iranian crude has pushed up international oil prices for all consumers, the discontinuation of crude import from Iran may have its economic cost for Indian refiners. India imports more than 80% of crude it processes. It imported about 23.5 million tonnes of Iranian crude, almost one-tenth of its total requirement in 2018-19 on lucrative terms such as a 60-day credit and other discounts, government officials with direct knowledge of the matter said on condition of anonymity.

Experts feared a spike in international crude oil prices that will adversely impact the Indian economy. DK Srivastava, chief policy advisor, EY India, said, “Global crude prices may shortly touch $ 80. India’s CAD [current account deficit], growth and inflation will be affected in the short run.”

The government has little control over international oil prices, government officials said. It may, however, have an option to slash taxes on petrol and diesel to provide immediate relief to consumers, they added.

Officials are, however, confident on the supply side. An oil ministry official, who did not wish to be identified, said Indian refiners have long-term contracts with oil producers such as Saudi Arabia, UAE and Kuwait. “The contracts have in-built provisions to import more crude oil from these countries, hence, India is secured from the supply side and refiners will meet 100% fuel [petrol, diesel and kerosene] demand of the country.”

Government officials said the impact of sanctions on supplies would be minimal as Indian refiners were yet to sign the annual crude oil supply contract with Iran. “The terms of the contract were being negotiated for 2019-20 imports. Currently, Iranian crude is imported as per the old contract,” the oil ministry official quoted above said.

First Published: Apr 24, 2019 07:29 IST