Why India need not worry about High Crude Prices

As crude oil prices reach its highest in one month at $101.85 per barrel, after Iran recently reduced its oil exports to several countries in Europe, many consumers begin to worry about a similar increase in retail costs. India, at least, has little to fear from such a possibility due to its limited use of crude oil and strengthening currency in the global markets. The crude basket of India is a combination of different grades of oil, not just the light sweet crude commonly priced on TV.

Almost 70% of the imports of the country consist of sour crude which mostly comes from the western part of Asia. A Brent sweet crude oil price increase will not considerably affect the imports of India. But, Middle East instability especially in the Persian Gulf may dictate a different scenario.

At the same time, the Indian rupee has gradually – but steadily – strengthened versus the Greenback. During the previous month, it has increased by 4.72%. In case its growth continues due to its positive international trade balance, it will shield the effect of higher crude oil prices because the currency valuation will offset some of the rise in dollar-priced oil.

Ironically, imports of oil are the largest influence on the appreciation of rupee because refiners must purchase dollars to afford crude. Iif Iranian oil disruptions truly occur, a key factor behind the increase in oil prices after expressing that it will stop its exports in six countries of Europe, Saudi Arabia has committed to raise its crude exports to India.

Politically, the main fuels in India are LPG (Liquefied Petroleum Gas), diesel and kerosene. A majority of the country’s industry, transportation and agriculture depends on diesel.  Kerosene and LPG are commonly used as a fuel for cooking and lighting. Prices of such fuels are largely government-controlled via subsidies due to their importance in the majority of the population, and the political problem that would result from a price increase.

Finally, in the bigger picture, Iran will most likely not take further action than what it is currently doing. While many countries, especially the United States, do not want open conflict versus Iran, it seems that the tensions are likely to be resolved by peaceful interventions. In addition, any action from Israel’s military will also bring together the countries of the Middle East against it.