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It's all connected: why war in Syria may hurt you in India

Threat of American 'intervention' may spook world economy and spike up oil prices. India's attempts to control current account deficit may get tougher, Pramit Pal Chaudhuri writes.

delhi Updated: Aug 29, 2013 07:49 IST
Pramit Pal Chaudhari
Pramit Pal Chaudhari
Hindustan Times
Syria,Syria crisis,oil prices

A possible Western military intervention in Syria is primarily a cause of concern for India because of its impact on global oil prices.

Just US secretary of state John Kerry saying that the suspected chemical weapons attack that has brought things to ahead, caused Brent prices to jump $ 2.80, reaching a six-month high of over $ 117 a barrel.

Members of the local Syrian community rally against the US' involvement in Syria. AP photo

As the threat of war rises, oil prices are expected to increase in tandem.

This will make it even more difficult for the Indian government to control the country’s current account deficit and, because India’s diesel subsidies, the government’s fiscal deficit. Finance minister P Chidambaram had on Tuesday in Parliament listed bringing both deficits to heel as part of his 10-point plan to revive the Indian economy.

The combination of a weakening rupee and rising oil prices means an imported barrel of oil now costs India Rs 7000. It cost only Rs 5,500 a barrel in April.

The current account deficit is sure to increase, given that India imports over 80% of its oil. New Delhi, which had seen oil prices fall from $ 111 to $ 101 a barrel from January to May this year, had hoped this trend would continue, easing the trade deficit.

Syria, Libya and other political uncertainties have turned this trend around.

The US, the UK and France have made it clear they believe the Assad government was behind the deadly chemical weapons attack in Damascus. AP Photo

At Rs 7000, and the figure is likely to increase as both rupee and oil will work against India in the coming days, the oil subsidy bill for the government will jump to Rs 1300 billion for fiscal year 2013-14, roughly double what the Union budget had prepared for. The current account deficit will also become worse.

Oil prices have been trending upwards the past month because of political tensions inside Egypt and supply disruptions caused by political chaos in Libya. The Syrian threat has added to a general sense of instability in West Asia, the world’s regional source of oil and gas.

Syria is not a major oil producer and its civil war has what little it did produce has shrunk to nothing. Damascus presently survives on oil provided by Iran. The fear is that the Syrian conflagration could spread into Iraq, possibly throw Iran into conflict with the US, and otherwise draw in many of the countries in the region. These countries are large oil-producers.

Iraq, for example, is now OPEC’s second-largest oil supplier and the second-largest source of crude for India. Sunni extremists, some allied with Al Qaeda, have been crossing from Iraq to fight in Syria.

A Free Syrian Army fighter holds his weapon as he looks through a window inside a room in Deir al-Zor. Reuters photo

The Shia-dominated government of Iraq, on the other hand, is supportive of the embattled Shia minority regime in Syria. The head of the UN mission in Baghdad recently warned of the fighting in Syria and the Shia-Sunni conflict in central Iraq that the “battlefields are merging into one conflict.”

No one is quite certain where oil prices will go, but this reflects the uncertainty of the dimensions of a Syrian conflict.

US President Barack Obama, say sources in Washington, would prefer to avoid any intervention and, at best, limit himself to missile and airstrikes.

That could still push oil prices into the $ 120-130 bracket. But a wider war that drew in Iran, Turkey and Israel could lead to a price spike of larger dimensions.

First Published: Aug 28, 2013 14:59 IST