Transport Minister Nitin Gadkari says the country is facing a lot of “economic crisis” due to crude oil imports and need to reduce imports and increase exports. The United States’ sanctions on Iran include a complete halt of oil exports. The US also warned that anyone doing business…
Transport Minister Nitin Gadkari says the country is facing a lot of “economic crisis” due to crude oil imports and need to reduce imports and increase exports.
Background
The United States’ sanctions on Iran include a complete halt of oil exports. The US also warned that anyone doing business with Iran will be liable to sanctions themselves. As Iran is one of the largest oil exporters in the world, a complete halt in Iranian oil supply will lead to a shock in the oil supplies as well as a sharp rise in oil prices.
OPEC has been trying to produce more oil to cover for Iran’s share in the global oil supply but has been unable to keep the prices down.
Iran is one of the largest suppliers of oil to India. In 2011, the US$12 billion annual oil trade between India and Iran was impacted by extensive economic sanctions against Iran, forcing the Indian oil ministry to pay off the debt through a banking system through Turkey. The sanctions were a result of Iran’s nuclear programme, which has been a source of concern for the international community.
India is the second-largest buyer of Iranian oil and has imported an average of 577,000 barrels a day or about 27% of the Middle Eastern country’s exports.
Analysis
Union minister Nitin Gadkari Thursday said the country is facing a lot of “economic crisis” due to crude oil imports and need to reduce imports and increase exports.
India is the third largest importer of crude oil and rising international oil prices are inflating domestic transport fuel costs in a strong demand environment. Brent, the benchmark for more than half the world’s oil, is trading at a four-year high of over USD 84 per barrel.
It is time for the country to find out import substitute products and we have great potential for the use of ethanol, methanol, CNG and electric transportation system as solutions, Gadkari said after inaugurating the ‘IndiaChem – 2018’ conference organised by Ficci.
“India is presently ahead in innovation, entrepreneurship, technology, research and development. There is a huge potential in Indian petrochemical sector, but we need import substitutes, pollution-free, cost-effective and indigenous ways to go ahead,” he added.
While blaming OPEC countries for the current increase in oil prices, he said, “One day they will find there is no market for crude oil.”
The minister added that the government had taken a decision to increase the production of ethanol, which is important for the country. “As this is the time for India to find solutions for import substitutes, the chemical industry must work towards finding the solutions curb imports of crude oil at rising prices,” he said.
The minister also announced the government’s plans to start a pilot project in Mumbai, Navi Mumbai, Pune and Guwahati to run electric buses on methanol derived from coal.
Gadkari urged the Indian chemical industry to see if agriculture material can be used to make chemicals. “We have the technology to produce methane and agri waste to produce ethanol,” he said.
Globally, the chemical industry is estimated at USD 4.7 trillion in 2017 it is also driven by demand from end-use industries. Indian chemical industry is estimated to be valued at USD 163 billion in 2017 and contributes 3.4 per cent to the global chemical industry.
Commenting on the opportunities in the sector, P Raghavendra Rao, secretary, department of chemicals and petrochemicals, said, “It is the right time to invest in Indian chemical and petrochemical industry due to vast opportunities that sector offers”.
In the last seven years, production of total major chemicals and petrochemicals has grown 6.2 per cent and the same is projected to grow by 9.3 per cent by FY 2025. There are opportunities in sectors such as speciality chemicals, pharma, biotech.”
Assessment
Our assessment is that the rising oil prices will have a massive impact on India’s foreign exchange reserves as well as its economic performance. The oil prices being under $70 per barrel enabled India to grow at a brisk pace for close to five consecutive years but the recent Iranian sanctions have led to a surge in oil prices. We believe that India will import oil from its other suppliers at a higher price to cover for the lack of Iranian oil supply. We also believe that the government of India may finally push for more renewable energy solutions considering the country’s massive demand for energy.
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