Iraq crisis: No panic yet but need to be ready, Oil Ministry to PMO

Posted online: Friday, Jun 20, 2014 at 0000 hrs
New Delhi : As Islamist militants close in on Baghdad, the Petroleum Ministry has assured the Prime Minister’s Office that any “possible disruption” of crude oil supplies from Iraq would have “a limited effect on the domestic availability of products”.

Separately, the ministry issued directions to state-run refineries on Wednesday to prepare a contingency plan for shifting to alternate crude oils in case of a “possible disruption” of supplies when the battleground shifts to southern Iraq.

“It is imperative that public sector oil companies draw up contingency plans quickly and also make medium and long term plans, including diversification of their sources of import of crude oil, in order to minimise the impact of any geopolitical instability in the Middle East,” it wrote to the four PSUs on June 18. Ministry officials will meet officials of Indian Oil, Bharat Petroleum, Hindustan Petroleum and Mangalore Refinery & Petrochemicals on Friday to finalise the contingency plans.

Among the options being considered are “increasing spot purchases or approaching national oil companies of other countries for supply of additional volumes”.

Iraq, the OPEC’s second largest crude oil producer, was to provide 19.4 million tonnes crude out of the 97 million tonnes imports planned for 2014-15. It supplied 25 million in 2013-14, taking care of 13.2 per cent of India’s total imports.

The ministry said major crude supply disruptions appeared “unlikely at present” as the fighting had not spread to southern Iraq where a large number of crude producing fields and the oil loading terminal of Basrah are located. If that were to happen, it could at worst disrupt a supply of 19.4 million tonnes that could only dent India’s exports.

“Production of petroleum products within the country is 220 million tonnes as compared to consumption of 158 million. Therefore, while a shortfall in crude oil availability will have a limited effect on the domestic availability on products, it could have a material impact on our exportable surplus,” it argued.

However, a prolonged battle would significantly increase crude prices, resulting in a higher trade deficit and a consequent depreciation of the rupee against other currencies; raise the prices of deregulated products such as petrol, aviation fuel etc; and drive up government subsidies for controlled products, it said.

A one-rupee depreciation against the dollar raises the annual under-recovery by about Rs 7,900 crore while a dollar increase in crude price raises it by about Rs 4,400 crore. A prolonged battle would therefore increase the under-recoveries and hence the budgetary provision for fuel subsidy, it said.