India is facing an oil crunch as Iran and US tensions increase. But why is India suffering in this war? What can be the possible impacts on the Indian economy? Read and find out below.
Imagine a situation in which you are witnessing a terrible fight between your favorite ‘friend cum neighbor’ and your wife. This neighbor has been a good friend of yours who makes you feel comfortable almost every time and also offers you support and help whenever required. On the other hand, you can’t live without your wife even if you don’t like certain qualities of hers. Whom would you support?
Leave aside the fight for a moment. There will be collateral damage done and you will be the one who would suffer. Isn’t it? This is exactly what is going on at the moment with India as US and Iran are battling it out. If you’re thinking what does India have to do with the war between US and Iran? Just remember that you might be using some vehicle to commute which runs on petrol/diesel. And you’re not the only one doing so!
Imagine that your aforementioned friend owns a grocery store and provides you groceries at discounted prices. He also cooperates in case there’s a delay in payment from your end. In all, things are going all well. But, after the fight what would change?
Unless you overtly support your ‘neighbor cum friend’, you’ll have to spend more on your groceries and you’ll also miss out special discounts etc. There’s no way that you would upset your wife by supporting your friend (even if you want to). That’s exactly what India is losing out on with Iran as the war is going on. Because, 10 percent of India’s total crude oil is imported Iran.
10 percent is huge in case of imports. And that’s not it! Iran also provides additional benefits such as accepting payment in rupees (instead of dollars). Crude oil is a major import for India and Iran is a major partner in this case. A war will make oil costlier for India and that’s already started to happen.
Since the tension has started between Iran and US on a contentious level, oil prices have gone up. Of course they were expected to go up in such a situation but, as the conditions are getting worse and the situation is getting tense, India needs to be prepared for worse.
Prices of petrol and diesel have gone up approximately by 5 percent since Iranian military general has been killed. The worse part is that prices have gone up constantly and no respite seems visible in near future (as neither Iran nor US seem to back out). In fact Iran is looking to intensify its retaliation.
With a slowing economy and declining GDP growth rate, this is a hard blow for India. But, calling it a crisis situation already would be bit too harsh. Other countries might step in to grab this opportunity and supply oil to India but, will that help? It might, or it might not, because it’s about supply and demand and other countries may try to get the better of the deal.
What can India do?
India can explicitly neither support Iran nor US. But, the crude oil prices are constantly going up and the suffering because of it has already started. A distant and almost impossible solution to this situation could be promoting usage of electric vehicles. But, that’s a long term thing whereas we need something that can be implemented immediately.
As they say, ‘sometimes doing nothing is the best thing to do’. Probably India can wait and watch for the moment. If the situation improves with time, India will gain out of it. As, it will not have to negotiate with other oil producing countries and establish a new deal altogether. But, if not, then it will suffer the most because, afterwards other countries will sort of ‘auction’ their oil produce and India might have to pay a lot more to fulfill its demand.
Hope you liked this information. Comment below with your opinions/suggestions. Should you wish to stay updated and would like to receive relevant financial news and analysis straight in your inbox, subscribe Smart Mornings.