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India is the Third largest Importer of oil in the world. Over 80% of our oil required is imported.Due to this, our economic growth depends on oil prices being stable and relatively low.By 2025 the Modi government aims to make India a $5 Trillion economy.


Rank Country US $ Bn Tonnes per day (Million)
1 China 239.2 1264
2 United States 163.1 1044
3 India 114.5 630
4 Japan 80.6 409
5 South Korea 80.4 410


Top 10 Oil Consumers across the Globe:


India’s Net Oil Imports:

In the days following the attack on 14th September the price of oil went up by over 13 % from $60 to $68 (15Th September) in a day and touched a record high of $69.3 on the 17th to $63 as on 19Th September. It is estimated to cross $80 per barrel. If this stands true, then India’s $5 Trillion dream economy is at stake. In the United States, the Fed has already cut interest rates by 25 basis points and the Indian Sensex has fallen by over 1000 points in reaction to this volatility and to combat the global economic slowdown. This is just the beginning and the world’s economies are still trying to gauge where Oil Is headed next. The United States has released its surplus reserves and Saudi Arabia estimates that it will be back on track soon. India has oil reserves to combat the volatility for 12 days and to face the crisis.


The effective management of the surplus global reserves and the efficiency in India’s response will determine where we are headed next.



What Happened?


On Saturday,14Th September 2019 10 unmanned drones attacked the world’s biggest crude-processing facility in Abqaiq and oil fields in Khurais, triggering huge fires. These fired have put nearly 60% of Saudi Arabia’s oil at stake and 6% of the global supply.

In the next few weeks, oil prices are going to be volatile and India being the third largest importer in the world is going to be impacted greatly.

Iran is a major exporter of crude oil to India after Saudi Arabia and Iraq. Iran’s oil exports to India surpassed that of Saudi Arabia’s and the country emerged as the second-biggest oil supplier to India in the month of May 2018.

India, which imports over 80% of its oil, is attracted to Iran’s crude largely due to geographic proximity that can save on shipping costs, as well as the favourable financial terms offered by Iran, including the longest credit period among all of India’s suppliers, a Bloomberg report said. Iran has supplied about 18.4 million tonnes of crude oil from April 2017 to January 2018.

The United States told all countries including which includes India, to restrict crude oil imports from Iran by 4 November, 2018. According to a PTI report, the countries carrying out any transaction with Tehran (capital of Iran) beyond the said timeline are likely to face sanctions as would be “zero” waivers to any country.

These attacks have placed India in a difficult situation which is going to require delicate but effective handling as our economic growth depends on it.


Who’s responsible for the attacks?


The Houthi rebels claimed responsibility for the attacks and described the attacks as a “Right to retaliate the air strikes and the targeting of their civilians.” The United States suspects that Iran backed these attacks which Iran has denied. If the United States manages to prove that the Houthi rebels were given the means to attack these oil reserves by Iran since they are alleged to be supported by Iran, there will be severe repercussions for Iran. This will give rise to a conflict in the middle east and possibly war among the nations backing the two sides; Iran and the United States.


What led to the Attacks?


To understand the events that led to a massive potential for global conflict, we need to understand who the Houthi’s are and why have USA and Iran always been at opposite ends.


The Houthis are Zaydi Shiites. Shiite Muslims are the minority community in Islam and Zaydis are a minority of Shiites, they have a significantly different doctrine and set of beliefs from the Shiites who dominate in Iran, Iraq, and other places. The Houthis are currently residing in Yemen. The conflict between the Houthis and Saudi Arabia is in majority due to the fact that Yemen’s dictator Saleh which the Houthis supported for over 30 years aligned himself with the United States and Saudi Arabia(against whom he had fought in 1994) against Al-Qaida despite their hatred.


Due to Saleh’s alignment with the West and his corruption in the 1990s The Houthis came out as a Zaydi opposition and charged Saleh with heavy corruption and criticized Saudi Arabia and America for backing the dictator.


Following The American invasion of Iraq in 2003 the Houthi movement gained significant momentum. This was a crucial turning point despite the cause being largely unrecognized outside Yemen it significant to the region.

Then Iran came out as a source of support for the Houthis and since they shared a common enemy in Saudi Arabia it gave them a means to escalate tensions.


After 2003, Saleh initiated a series of military movements to destroy the Houthis. In 2004, Saleh’s forces killed Hussein al Houthi. The Yemeni army and air force was used to suppress the rebellion in the far north of Yemen. The Saudis joined with Saleh in these campaigns. The Houthis won against both Saleh and the Saudi army. In 2011 the Arab Spring drove Saleh out of power. He was replaced by Abdrabbuh Mansour Hadi at the command of the Saudis. The Houthis were against the process and Hadi and they started conspiring against him and aligned themselves with Saleh.


The Saudis chose to go to war to support Hadi and forbid the Houthi-Saleh uprising from getting complete control of the country. They forged a coalition to back them including the United Arab Emirates, Bahrain, and other traditional Saudi allies.

Obama backed the Saudi war. In the choice between the Saudi ally and the Houthis, the president took the side of a 70-year old alliance with the Saudis. U.S. and U.K. support was necessary for the Royal Saudi Air Force (RSAF), which was armoured with American and British air crafts. The RSAF has dropped tons of American and British weaponry on Yemen since.


Not long after this Saleh broke his acknowledged alliance with the Houthis and was killed days later. The Houthis won the battle for Sanaa but isolated themselves from the rest of Yemeni politics and political parties. Riyadh called them Iranian puppets, but many Yemenis saw them as patriots fighting the country’s traditional enemy Saudi Arabia and America.


Despite the fact that the Houthis have claimed responsibility for the attack and have cited past tensions as the cause, the United states believes that it is Iran. To strengthen their claim,the officials told US media that the pictures show impacts pursuant with the attack approaching from the direction of Iran or Iraq, instead of coming from Yemen to the south. Iraq refused and said that its territory was not used for an attack on the kingdom. US officials said a strike from there would be a violation of Iraq’s sovereignty.


All these allegations have escalated tensions and in all of this the entire world is going to get affected because this region houses one of the planet’s greatest natural resources. The economic motivation behind these attacks, despite the religious propagation cannot be ignored.

Oil being one of the core infrastructural needs, no country can live without it. US was wise enough to identify it, and in 1973, they created a concept called “petrodollar”. A deal was made between Saudi Arabia and USA, as per which any country willing to purchase oil from Saudi Arabia must pay in no other currency than US dollar. In return US offered Saudi Arabia weapons and military protection to their oil fields. This deal further got extended and by 1975, all of the OPEC nations (these nations comprise of more than 81 per cent of world’s crude oil reserves) agreed to sell their oil only in exchange of US dollars.

The entire world needs oil and the tensions in the regions which supplies the largest amount of oil has led to serious oil price volatility and speculations suggest that this is just the beginning. Oil prices could touch $100 per barrel and despite the release of surplus oil reserves by countries like the United States and Saudi Arabia claiming that they will be back to capacity soon, oil prices are going to rise in the near future.


India is going to be in a precarious position during this time and given our oil import dependency, things are going to get worse with every $ increase in the price of oil.


The Reliance Aramco Perspective:


On 12th August Reliance Industries Limited announce in their 42nd AGM that the Saudi oil giant Aramco will acquire 20% of RIL’s oil-to-chemicals business at an enterprise value of $75 billion. However after the attack on Aramco’s oil fields, the question that arises is  what will happen to the deal.

Also, Saudi Aramco is also planning to come up with an IPO soon. They plan to value the company at $2 trillion. What is going to happen after the attacks? Will they come out with the IPO now, or will the IPO process get stalled?

India’s largest Petroleum business is planning to shake hands with the World’s largest petrochemical giant. Aramco’s strategic Investment in Reliance and its estimated $2Trillion IPO (almost as much as India’s GDP and greater than the combined Market Cap of BSE)is going to be a game changer for the petrochemical business. These attacks have not only harmed economies but also put the future actions of the 2 companies in question.

With all of these threads opening up, the biggest question that arises is what is the effect of all of this on India?

For that we need to know where does India stand in comparison to the rest of the world?

India is a developing nation situated in the Asia Pacific region. It is the region with the lowest reserves and the largest imports.



The Oil Reserves Available VS The Oil Production VS The Oil Consumption per region

The global reserves discovered for oil have grown by over 51% in the last 2 decades. However, the Asia Pacific region’s reserves have depleted in their contributing proportion.


The overall production of the Asia Pacific region is 8.1% of the global production with the largest producer being China.

Converse to the production in the Asia Pacific region the consumption is 35.9 % of the global consumption leaving a massive discrepancy between the overall region’s production and consumption.

In comparison to the higher producing regions, the Asia Pacific region is troubled by larger populations which in turn drive this region’s consumption upward. The 3 Highest Consumers of Oil in the Asia Pacific region are China, India and Japan as shown below.

Combining their low reserves and production with their massive demand makes these the  regions highly dependent on oil Imports and vulnerable to the price of Oil. Any Volatility in the price of oil, directly impacts these countries making their economies highly exposed to any shocks witnessed in the crude oil market like the recent drone strikes, the sanctions placed on Iran by the United States and OPEC’s decision to cut down supply in lieu of falling crude oil prices. India is one of these countries. Being the third largest oil importer in the world, its oil price dependency factor is pretty high. The entire country’s budget health depends on oil prices remaining low.


However, Importing countries are not the only ones that suffer when the price of oil changes. The welfare of Oil exporting countries directly depend on high the price of oil is making the act of balancing the price of oil a delicate global issue. In the past, countries like Venezuela (6th Largest member of OPEC) were thrown into massive turmoil when oil prices regained sustainable levels and fell down to $30-50 levels from $100. When the oil price per barrel crossed $100, the country enjoyed increased spending on public. When it crashed to $ 30 levels, the country faced unprecedented levels of hyper inflation and today their economy stands destroyed with the people fleeing to other countries to seek refuge, political instability and their domestic currency loosing value.

With the massive oil producing regions in power for controlling oil supplies, any decisions that lead to holding back, cutting down or depleting supplies negatively Impacts the top 3 oil consuming economies in the Asia Pacific region.Since the Demand for oil is generally dependant on economic growth, the factors affecting the global Supply of oil become a concerning element for countries importing oil as the supply of oil in turn governs demand which ultimately simulates economic growth further; making the interdependence of economic growth, demand and supply a cyclical order.

Geopolitical Issues like the drone strike impact oil supplies greatly. If history were to repeat itself, oil is headed on a steep upward trajectory and will require extremely effective counter measures to stop its escalation.

Crude oil prices react to a variety of geopolitical and economic events that impact supply



Ultimately countries who want to simulate economic growth need massive amounts of oil which in turn increase the demand of oil and since our country imports oil, the higher price resulting from the high demand negatively impacts economic growth. Due to this interdependence , the supply of oil becomes an extremely important factor. The factors determining the supply of oil are a crucial element in understanding the challenges the Indian economy faces in its dream of reaching a GDP of $5 trillion.

Given the recent volatility in the price of oil due to the Drone strike, the Indian economy is now at a cross roads. It will need to pick between fiscal health and the level of growth it aims to achieve. If the government picks economic growth, it will have to import oil. Given the fact that the oil prices are moving upwards, our fiscal deficit will widen, currency will depreciate which will ultimately lead to higher inflation and higher interest rates.



Effects of Rising crude oil prices on the Indian Economy:


As the world’s third largest importer of oil, India is among the most vulnerable to rising energy costs. It imports more than 80% of its oil requirements.Every dollar increase in the price of oil raises the import bill as shown below:


Projected oil import figures

*Provisional Crude oil Imported in the year 2018-2019 according to PPAC (Petroleum Planning and Analysis Cell)


226642 1000 MT of crude
111956 $ million paid
783427 Rs Crore paid
1 Mt 7.33 barrels
1661285.86 1000 barrels
Assuming our consumption is constant at 226642 ‘000 mt or 1661285.86 ‘ 000 barrels p
$ per barrel
USD/INR Rate 70 75 80 85 90
70 814030 872175 930320 988465 1046610
75 872175 934473 996772 1059070 1121368
80 930320 996772 1063223 1129674 1196126








#Amounts in Rs. Crores unless states otherwise

Jeena Scriptech Research


As shown above, if crude oil prices will touch $70pb, then our import bill goes up to Rs. 814030 crores (USD/INR @ 70) from Rs. 783427 crores. I.e it will go up by Rs. 30,600 crores. However, the USD/INR rate has already crossed Rs70. If it reaches Rs 75 then our import bill goes up even further in terms of rupees.


Hence, we get hammered from both sides. Rising oil prices and our currency depreciating .


We witnessed this double effect in 2010-2014 period when oil prices made historical highs of over $100 per barrel, our currency depreciated and our Current Account Deficit spiraled.





  1. Impact on Fiscal Deficit:

India imports 1.5 billion barrels of crude oil each year . This comes up to around 86% of its annual crude oil requirement. So, the surge in crude oil prices could increase India’s expenditure, since any rise in crude oil prices are subsidized by the central government,  thus adversely affecting India’s fiscal deficit. Since the government is forced to subsidize fuel for companies in order for the public to receive it at lower prices, the impact of rising crude oil prices is mostly absorbed by the fiscal spending. Since most fuel has been de-regulated, the impact may not be as substantial.

  1. Impact on Rupee (Currency Rate):

Since oil barrels are quoted against the dollar, every time the price of oil rises, the rupee depreciates in order to adjust for the increase in demand for dollars.

This impact was seen in the 2010- 2014 period when oil prices were recording historical highs and the Indian rupee depreciated from around Rs 45/$ to around Rs 66/$ when the oil prices went from around $80 per barrel to over $110 per barrel.

Despite the fact that the oil prices have fallen since, the rupee has continued to remain in the over Rs. 60/$ range.

  1. Impact on Current Account Deficit:

India’s dependency on crude oil imports has only been increasing over the past few years. The dependency rose from 77.3% in FY2014 to 83.7% in FY2018. The rise in crude oil price has a big impact on the Indian Current Account Deficit (CAD). CAD is a measure of India’s

trade where the value of goods and services imported exceeds the value of goods and services exported. CAD essentially indicates how much India owes the world in foreign currency.An increase in CAD just means that our fiscal deficit will also grow and our currency is at a greater risk of depreciation.

  1. Impact on Inflation and Interest rates:

Oil is a very important commodity and it is required to meet domestic fuel needs.

With a rise in oil prices, there is a rise in manufacturing costs as fuel gets more expensive and the cost of transporting and processing raw materials and finished goods increases. This is known as cost push inflation. In order to curb this inflation the government increases the interest rates. With a rise in interest rates, the demand will fall as goods will become even more costly, helping the government manage inflation. According to a study conducted by the RBI an increase of $10/barrel in crude oil prices could raise inflation by around 49 basis points (0.49%).

In Conclusion , we can say that the rise in oil prices will adversely affect the Indian economy. India being a developing nation, needs oil for almost all of it’s operations and with such high imports a low oil price is optimum for the fast paced economic growth we aim to achieve. The highly volatile oil prices are not good for developing nations aiming for healthy and sustainable economic growth


One way to combat the dependency of economic growth on crude oil is to come up with alternative sources of energy. These alternatives should be produced in India driving down our energy imports and making access to fuel cheaper.


Alternatives to crude oil:


The primary substitutes for oil and gas energy include nuclear power, solar power, ethanol, and wind power. The use of fossil fuels in global and domestic energy markets is marginally higher than them, but there is significant public momentum to increase their usage due to the environmental impact of using fossil fuels

Fossil fuels are account for more than 80% of total energy intake. Alternative forms of energy till now, have proven to be uneconomical substitutes; they are less efficient and more expensive than petroleum. However more and more resources are being dedicated to change this and the processes for producing more renewable energy are getting more efficient.

Nuclear Power:

According to NASA, nuclear power is the most efficient substitute to fossil fuels for future energy intake. Compared to the non-renewable resources, nuclear power produces minimal harmful climate effects.

Significantly, nuclear power is much more cheaper than other forms of energy, such as solar, wind, or hydro power. However, governments have put a stop to nuclear increase for decades because of the fears for public safety and other political reasons.

Solar and Wind Power:

Solar and wind power are two favourite renewable energy sources. Some of us believe that these substitutes offer a clean break from the fossil fuels.

However, the Institute for Energy Research disagrees to the previous statement. Most present-day solar and wind plants need continuous backup power sources. These sources are usually electricity generated from a coal plant, in case it gets cloudy, or the winds die down. And they are very expensive as well.

These renewable sources of energy are really expensive to set up and often have a lot of shortcomings. The government has been trying to reduce our dependence on oil imports and make use of other sources of energy. Solar and Wind power constitute of 8-10% of the global energy use, however, specific policy frameworks need to be used, such as tax-funded government subsidies and grants, to increase the use of these alternatives.

In conclusion:

The worldwide dependency on non renewable fuels like crude oil has massive environmental and economic impacts. This trend is beginning to change and the global headwinds are seeking new horizons. The world is beginning to move towards a more sustainable future with lesser environmental harm. The future is going to prefer Electric Vehicles over the ones that run on Petrol, Diesel or Gas. The process of converting wind, water and sunlight to power and renewable energy are going to get more efficient and cheaper. Processing Nuclear energy is going to get safer and the world’s economies are going to stop being so affected by the changes in Crude Oil. Crude oil may not matter in the future as much as it does right now.

Meanwhile in India today, the equity markets are extremely volatile and raise the following questions in our mind:

  1. Which industries & companies will benefit the most with oil prices sky rocketing?
  2. How much pressure can the Modi bear and is it equipped to handle the prospective economic situation?
  3. Will the current economic slowdown increase due to this crisis?
  4. Will Reliance ask for a higher valuation, because of the risk of Aramco being attacked again? Or will Aramco completely call off the deal to protect itself first?


Additional Data :

Brent West Texas Intermediate
Extraction Location Extracted from oil fields in the North Sea. Extracted from the oil fields in the US.
Geopolitical Brent oil traders should be on the watch for tensions rising in the Middle-East, which is one of the biggest global producers of crude oil. Geopolitical tension can cause the market to speculate on an immediate or developing lack of oil supply, leading to sharp movements in the price. WTI oil traders, similarly, will be monitoring the supply and demand factors in the U.S.
Content Composition Sulphur : 0.24%

API Gravity : 39.6

Sulphur : 0.37%

API Gravity : 38

Trade Brent futures contracts are traded on the Intercontinental Exchange (ICE) WTI futures contracts are traded on the New York Mercantile Exchange (NYMEX)
Prices and Benchmark $67.10 per barrel $62.10 per barrel




Saudi Arabia Budget Surplus/Deficit since

Source: Ciec Data


Worlds Top Oil Exporters

Source: Ente Nazionale Idrocarburi(ENI)- World Oil report 2019





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