How the continuing Iraq crisis will impact India's economy

by Amit Bhandari The unrest in Iraq caused by the seizure of major cities in the country by the militant group Islamic State of Iraq and Syria (ISIS) will impact India financially but will not translate into a shortage of petroleum products. Crude oil prices have risen in response to the ongoing unrest. The price of the Indian crude oil basket was $110.54/barrel on 13 June, 2014 – up from $106.88/barrel at the beginning of the month. India imports close to 2 million barrels/day of crude oil – so a rise in prices will lead to a higher import bill. [caption id=“attachment_1574207” align=“alignleft” width=“380”]  AFP[/caption] The bulk of Iraq’s oil production comes from three oil fields – north Rumaila and south Rumaila in the southern part, and Kirkuk in the north. The southern fields account for approximately three-fourths of the country’s total oil production. Exports from Kirkuk have been halted since March after the infrastructure was sabotaged. Presently, the ISIS is strong in northern Iraq, so there is no immediate risk to oil exports from the southern fields. India’s state- owned oil marketing companies, Bharat Petroleum Corporation Limited (BPCL) Hindustan Petroleum Corporation Limited (HPCL), and Indian Oil Corporation Limited (IOCL) sustain huge losses on the sale of retail fuels such as diesel, petrol, LPG and kerosene because the selling price is less than the cost. The government provides subsidies to make up for their losses. A higher oil price will mean increased losses and a bigger subsidy bill for the government. However, the impact will not result in a shortage of petroleum products. India’s oil imports are processed to produce fuels such as diesel, petrol, LPG and kerosene – far in excess of what is consumed domestically. Therefore, it is highly unlikely that there will be a shortage of petroleum products in the Indian market. Amit Bhandari is the energy and environment fellow at Gateway House: Indian Council on Global Relations