Oil import bill likely to spiral
www.hinduonnet.com By Sushma Ramachandran
NEW DELHI Feb. 23. With prospects of a war on Iraq continuing to loom large, the country is set to face a spiralling oil import bill as the hardening trend continues in international markets. What could be worse is supply disruptions, though the oil companies are confident that the current level of stocks will weather a brief sharp conflict.
The fact is, however, that the country still does not have a system of strategic oil storages though the plan to set these up is now finally under way. In case of a war taking place in the next few months, it is clear that the country's oil requirements will have to be met from the existing stocks in refineries and in the pipeline. This may not prove much of a problem for about three to four weeks, but a longer conflict could pose difficulties, especially since supplies from West Asian countries are likely to become problematic.
As far as the oil import bill is concerned, there may not be any immediate difficulty since foreign currency reserves are at an extremely comfortable level. But war can lead to volatilities in movement of capital. The situation thus has to be carefully monitored, especially in view of reports that NRI funds have been parked in a big way in this country. These issues will have to be factored in by the Finance Minister, Jaswant Singh, while making his budget calculations. A high oil import bill is bound to add to concerns over containing the fiscal deficit in both the current and next fiscals.
Presently international prices are ruling at about $32.50 per barrel of the benchmark Brent crude, but there are fears this could spurt to nearly $ 40 per barrel in case a war erupts. The hardening trend in world oil markets has been continuing for the last few months not just on fears of an Iraq war but also because of lower supplies due to an oil strike in Venezuela. Besides, demand for heating this winter has risen in Europe and the U.S. leading to further pressure on prices.
Even for 2002-03, the oil import bill is likely to reach $ 18 billion, largely because of the recent spurt in world prices rather than due to higher imports. Fortunately India does not have much of a demand for imports of oil products like diesel and kerosene owing to refining capacity having risen sharply in the last two years. It does need crude oil imports, however, as domestic production has plateaued around 30 million tonnes per annum, while consumption is rising steadily despite economic growth expected to remain at about five per cent this year.
Even efforts to improve domestic availability will take several years to fructify owing to past delay in finalising contracts under the new exploration licensing programme (NELP). Though award of these contracts has been tied up fairly rapidly over the last two years, it will take some time for the results to be seen. One positive development has been the huge gas discovery made by Reliance Industries off the west coast of Andhra Pradesh but even this will take several years to come into commercial production. Other efforts to tie up oil equity abroad are also fairly longterm projects.
As a result, policy-makers here are hoping that any war in West Asia is swiftly concluded as the country is well prepared to meet any short-term crisis.