- By now, the global community must be quite adept at comprehending the implications of the disturbances bogging Middle East/West Asia and, in general, the Gulf area on the increasing oil and gas requirements. As the economy of all countries advances, the dependency on petroleum products, especially oil and gas, continues to increase with the advancements witnessed on the back of several cutting-edge technologies. The major petroleum products produced from these regions are not lost on the global community. Thus, the ongoing conflicts in the region will always evoke strong emotions across the world. The latest tension between the US/Israel, and Iran has already spiralled out of control, spreading to several neighbouring countries in the region.
PC: Business Today
- There are indications that several countries are already on tenterhooks with the uncertainty hanging over the latest conflict. The moot point to ponder over here is what the Indian leadership should do if a long war pushes crude uncomfortably high. To begin with, the Union Government must hold retail fuel prices steady to curb inflation. Let’s fervently hope history doesn’t repeat itself. In July 2008, Iran tested Shahab-3, a missile with a 2000km range that could hit Israel. Within days, oil touched $147 a barrel, a level it has never seen since. As of the fourth day of the Tehran tumult, it was still around $80, which is below the average for 2024. If Trump can end this war in 4-5 weeks, as he’s claimed, we shouldn’t lose sleep over it. How so?
PC: News9live
- One, because our oil marketing companies (OMCs) have huge cash reserves. Their pump prices remained high while crude fell over the last couple of years. In fact, it slipped about 20% to $60 just last year. Two, inflation has been low as well. In Feb, it was at 2.75%, well within RBI’s 4% comfort range. Three, India has many crude suppliers now. It also has fuel stocks to last over two months. Also, the Union Government may ask refiners to prioritise domestic needs over exports during the war. While we are comfortable, efforts must be afoot to prepare for the worst, including the $147 scenario. That’s because the economy runs on oil. Costly oil not only makes our commute dearer but also pushes up freight costs. Since oil’s needed to make things like milk pouches, food wrappers, and synthetic yarn, many goods also become costlier.
PC: PSU Connect
- That’s why rising oil prices can stoke inflation, upsetting the math of economic growth. The year started with expectations of oil sliding to $50 by June amid a glut. Economic Survey saw no fear of inflationary pressure from oil. Growth projections were based on this assumption. But previous studies have shown that a 10% rise in crude can increase inflation in India by 20 basis points. Rising prices are a tax on consumers, who have less money to spend as a result. That saps demand overall. So, GOI and OMCs must do everything to prevent price shock. OMCs have the means to do so for a few months. Once the war is over, crude will hopefully continue sliding towards $50, giving them a chance to recoup any loss quickly. In conclusion, we should be prepared.
