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India to tap Iran for oil if prices stay high

Context:

  • Ahead of a critical OPEC meeting India’s Petroleum and Natural Gas Minister said that India is persuading oil exporting countries to moderate surging oil prices and warned that high prices would push the country to tap alternative petroleum import sources such as Iran.
  • India’s Finance Minister called for speedier monetisation of oil and gas assets in 2021 and asked Ministries to expedite capital expenditure projects to revitalise the economy after the second wave of COVID-19.

Relevance:

GS-III: Indian Economy (International Trade, Mobilization of Resources, Growth and Development of Indian Economy), GS-III: Industry and Infrastructure

Dimensions of the Article:

  1. About India’s challenge with increasing oil prices
  2. Finance Minister on Handling the strain
  3. About Organization of the Petroleum Exporting Countries (OPEC)
  4. Way Forward Options for India

Click Here to learn why crude oil prices are rising and what is the impact on India.

About India’s challenge with increasing oil prices

  • Stressing that inflation was a major challenge for the economy, India’s Petroleum and Natural Gas Minister said that India had already exhausted strategic petroleum reserves it had built up in 2020 by taking advantage of lower oil prices.
  • Indian Minister also indicated that India would opt for whichever option provided competitive prices within its ‘global diplomatic framework’, including Iran if the economic sanctions imposed on it by the U.S. were lifted.
  • The Minister exuded confidence that the demand for petroleum products would return to pre-pandemic levels by the end of 2021.
  • The Organization of Petroleum Exporting Countries and its allies (OPEC+) are expected to discuss a possible easing of supply cuts, amid a rebound in global demand, on July 1 2021.

Finance Minister on Handling the strain

  • The Petroleum and Natural Gas Ministry was asked to expedite monetisation of assets as a step to ramp up capex. [Capital expenditures (CAPEX) are major purchases a company makes that are designed to be used over the long term – i.e., for purchases of significant goods or services that will be used to improve a company’s performance in the future.]
  • While the Budget has provided an outlay of ₹5.54 lakh crore for FY22, the finance minister said public sector enterprises need to complement it with their own steps to ramp up capex.
  • The finance minister also asked the Ministry of Housing and Urban Affairs to try to front-load capital spending and facilitate private investment by providing support and removing bottlenecks.

About Organization of the Petroleum Exporting Countries (OPEC)

  • The Organization of the Petroleum Exporting Countries is an intergovernmental organization of 14 nations, founded in 1960 in Baghdad by the first five members (Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela), and headquartered since 1965 in Vienna, Austria.
  • As of 2018, the 14 member countries accounted for an estimated 44 percent of global oil production and almost 82% of the world’s “proven” oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so-called “Seven Sisters” grouping of multinational oil companies.
  • The stated mission of the organization is to “coordinate and unify the petroleum policies of its member countries and ensure the stabilization of oil markets, in order to secure an efficient, economic and regular supply of petroleum to consumers, a steady income to producers, and a fair return on capital for those investing in the petroleum industry.”

Way Forward Options for India

  • India needs pricing flexibility as well as the certainty of supply even during times when production falls due to any reason. Besides, choice of time of supply and flexibility on quantity (ability to reduce or increase) is what India should be looking at.
  • Indian refiners can look to reduce the quantity they buy through term contracts and instead buy more from the spot or current market.
  • Buying from the spot market would ensure that India can take advantage of any fall in prices on any day and book quantities. It’s like the stock market where shares can be brought on a day or time when the prices are low.
  • State-owned refineries have also been asked to coordinate buying and also explore joint strategy with private refiners such as Reliance Industries and Nayara Energy.

-Source: The Hindu

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September 2022
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