Crude Oil Hits 100$, How Will It Affect India?
Fuel prices are on an all-time high, since the year 2014. With the ongoing Ukraine–Russia conflict, the price of crude oil has gone above $100 per barrel, close to $120 in March 2022. The growing tension between Russia and Ukraine has the potential to disrupt oil production in Russia, which is among the largest oil producers worldwide. Although fuel prices seem to keep rising, the US Energy Information Administration has predicted that the prices will continue to improve and average at $87 per barrel by the second quarter of 2022.
What’s Been Going On
As you know, Russia is one of the world’s biggest crude oil producers. Countries like the US and UK threatened to impose sanctions on Russia if it were to invade Ukraine. These sanctions can disrupt the oil supply from Russia. Since 2020, the world’s oil consumption has exceeded the supply, making it an expensive commodity. Unfortunately, the Ukraine–Russia war has the power to inflate oil prices further. If Russian oil imports get banned, crude oil prices can increase up to $300 a barrel, which will be devastating.
How This Affects the Indian Economy
Increasing crude oil rates can greatly impact India. The Economic Survey conducted in January by Finance Minister Nirmala Sitharaman projected an 8%-8.5% GDP growth in April 2022. However, this is under the assumption that crude oil prices remain $70 to $75 per barrel throughout the fiscal year. However, the price has inflated to almost two times the price predicted by the government.
Apart from this, India imports up to 85% of crude oil, which is then processed in local refineries. The imports are a mixture of sweet grade crude oil, from Dubai and Oman, and sour grade or Brent dated. In the financial year 2021-2022, India imported $85.54 billion worth of crude oil. Rising crude oil prices will not only increase the import bill but lead to a higher trade deficit. If the fuel prices continue to rise, the imports and the trade imbalance will continue to increase.
How This Affects You
Inflated fuel prices have the power to further influence other industries and sectors. It can make everything that runs on fuel more expensive such as transportation and freight. This can further increase the import bill and widen the trade deficit.
With an effect on transport and freight, fuel price inflation indirectly affects manufacturing costs. This impacts the consumer price index and increases the cost of household products, groceries, vegetables, and other goods.
The transport sector includes the airline and railway industries. The airline industry will continue to bear the brunt of aviation turbine fuel price inflation. Railways will also have to bear operation costs.
Power units that work on crude oil will also be affected. In the household, LPG rates can go up further. If the excise duty on petrol and diesel goes down, rising crude oil prices could negatively impact the Centre’s trade deficit.
The Bottom Line
Fuel prices have always had an exponential impact on inflation. In these uncertain times, consumers may have to bear the consequences of it. Unfortunately, the war is still ongoing and the fuel prices seem to be rising further.
