The Hindu : An attack on Iraq can send oil prices soaring

Online edition of India's National Newspaper
Saturday, Sep 28, 2002

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An attack on Iraq can send oil prices soaring

By Sushma Ramachandran

NEW DELHI SEPT. 27. As international oil prices spurt to cross the psychological barrier of $30 per barrel, India has cause to worry since its petroleum needs are met largely from abroad. Over 70 per cent of the country's crude oil requirements are imported while domestic fields like Bombay High are showing stagnation in the output while new fields have not yielded the expected bonanza.

Consumers will feel the pinch as the administered pricing mechanism has been withdrawn and domestic oil product prices are linked to global rates.

For the time being, the Union Petroleum Minister, Ram Naik, is making efforts to ensure that another hike in diesel and petrol prices is not levied by seeking a cut in excise duty on these products.

This may prove, however, a temporary palliative in case a conflict erupts in West Asia.

As things stand now, fears over a possible United States and United Kingdom strike on Iraq have pushed crude prices to abnormally high levels. Even if an actual conflict does not take place, continuing political tensions are likely to ensure that prices remain at their present level, if not higher. In case the U.S. actually follows through on its threat to attack Iraq, prices could skyrocket as they did during the last Gulf war. It may be recalled that the Government had then imposed a Gulf war surcharge to raise enough resources for oil imports. This time round also, taxation may be the only resort to raise enough money to finance the country's oil needs.

A look at the data on this issue is revealing. India imported 78 million tonnes of crude oil and six million tonnes of petroleum products valued at Rs. 67,000 crores during 2001-02. In the current fiscal, crude oil imports are likely to be higher at 85 million tonnes and the likely import bill is anyone's guess, but with hardening prices in world markets, it could go up from Rs. 80,000 to Rs. 90,000 crores. As for existing inventories, these are limited to about 45 days' stocks of products lying with the refineries. Despite the many public statements of concern over oil security being made by several Ministers, the fact was that there is no system of strategic oil reserves in place. Many other countries have set up such reserves and the issue of creating this mechanism has been under discussion for several decades but nothing had been done to implement it despite the continuing tensions with Pakistan over this period. As a result, in case of any crisis, the country has to rely on imports largely from the West Asian countries to meet its oil requirements.

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