The longer the price of oil remains depressed, India, like other major oil importers, will not only increase its dependence on crude imports, but it will also become more dependent on OPEC.
The possible lifting of the sanctions on Iran will lead to a rush for a share of the lucrative Iranian energy pie similar to Myanmar’s opening up last year. India cannot afford to be left behind.
Given India’s vulnerability to a rise in global crude oil prices as a result of its 75-80 per cent of its crude import dependency, the Iraq crisis could widen its current account deficit, while putting pressure on exchange rate, impeding government’s fiscal consolidation goal and putting off any nudge on interest rates by the Reserve Bank of India.
New energy find in West Asia will set forth new political equations. Syria alone has discovered huge proven gas, oil and shale reserves. Whether the Assad regime survives or a change of regime happens there would determine the global gas system in a large way.
The US has spent over a trillion and a half dollars and this huge expenditure has nearly unhinged its domestic economic equilibrium. At the strategic level the results for the US have been even more disconcerting in terms of Iraq's Shiite-led government refusing to let US troops stay on as well as extending support for fellow Shiites in Syria.
The Pakistanis are playing a high-stakes gamble, one in which they think the odds are stacked in their favour in a way that while they stand to gain a lot even if things don’t quite work in the way they imagine they won’t end up losing too much.
The basic point is that crude oil is a finite resource. Hence, the issue is not ‘if’ crude oil peaks and availability declines, but ‘when’ it peaks and starts its decline. Peak oil is the theoretical point in time at which oil production peaks and begins to fall. Here we refer only to peaking of conventional oil.
The Indian government is now weighing several options to manoeuvre around the ever-tightening sanctions, including the provision of sovereign guarantees to oil tanker operators.
While maintaining a reserve of 100 days worth of imported petroleum consumption at present consumption rates may be the stated policy of the Chinese government, an analysis of the existing capacities seems to suggest that China may be in a position to store much larger strategic oil reserves should it so desire.
Having rejected the western demand for oil sanctions, the real test for the Indian government lies in whether it can implement its public pronouncement.
