BRACE FOR A PRICE HIKE

about 2 months ago
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There was a time when the mere talk of US imposing sanctions on Iranian oil imports led to the Indian crude price soaring sky high.

The U.S. on Monday announced that it would be cancelling the waivers from sanctions it had granted eight countries, including India, allowing them to import oil from Iran. Following the revocation of this waiver, any country violating the ban would face U.S. sanctions.

Obviously, the Govt brushed aside all such worries of rising oil prices, saying that India has already put in place a robust plan for adequate supply of crude oil to Indian refineries. The Petroleum Minister said that India would be getting additional supplies from other major oil producing countries and the Indian refineries are fully prepared to meet the national demand for petrol, diesel and other petro products. With the country going full-on on election mode, such sweeping statements do not really give any relief. Rating agency ICRA said that stopping oil imports from Iran could cost Indian refineries as much as Rs.2500 crore.

India might have made arrangements but the fact remains that the share of India’s oil consumption is now at 80% and this is expected to soar to 90%. Thus for India, it has become very imperative to pay attention to all geopolitical developments and even the slightest disruption could send our balance of trade awry.

India is really caught in a bind here as far as geopolitical relations are considered. We have good relations with Iran as well as Iraq. We get oil at much better rates and there is a system of ‘barter’ exchange too. India is friends with both Iran as well as USA but right now, because USA is the more powerful friend, we will have to abandon the ‘weaker’ friend. UPA has had to do the exact same thing earlier and now BJP too is forced to do this; this is how the world works.

But for India, the hard truth is that post 23rd May, we are sure to see a sharp rise in oil prices. We might not see any disruption in the supply of crude but we are sure to feel the pinch on the pockets as oil marketing companies (OMCs) will have no option but to hike prices.

Currently, the OMCs are not able to pass on the sharp rise in crude oil price to the consumers due to obvious political constraints. But within the next one month, the OMCs will indeed reach a stage where they will not be able to absorb any more. Thus a price hike after the elections seems inevitable.

Yes, on paper, pricing of petrol and diesel is fully deregulated but as we said, its only on paper. The PSUs – IOC, HPCL and BPCL control 90% of India’s fuel retail market and the Govt wields an indirect control.

So irrespective of who comes to power on 23rd May, the new Govt will be powerless to control the spiraling price of international crude oil. And in turn, the oil prices in India. Brace yourselves as the summer will only get hot, hotter and hottest!

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