Iraq Oil Crisis And Its Repercussions In India

Iraq is again turned into a battle zone. The conflict this time has risen between the shia arabs and sunni’s of the country. The major reason for this is being cited as the lack of agreement of both the communities with the government. This was evident from the fact of the refusal of Iraqi sunni’s to participate in the Iraqi elections. The Islamic State in Iraq and Syria (ISIS), a rebellion group, has declared a war in the country. Furthermore, they have captured a third of Baiji refinery, Iraq’s largest oil refinery and has world’s second largest conventional oil reserve. Baiji refinery produces 300000 barrels per day, if the situation is not resolved at the earliest there will be large deficit of crude oil supply in global markets. Around 15000 workers and 100 foreign nationals were evacuated before the attack was launched. To suppress the rebellion the Federal Government of Iraq has sought the United State’s help in air combat and to deploy marines in the affected areas.
 
The significance of this crisis lies in the production of crude oil from Iraq. The nation has the fifth largest reserves of crude oil and second largest producer of crude oil in the OPEC. Despite all of this, it has fallen short of its targeted oil productions because of infrastructure and political constraints.

As per the US Energy Information Administration (figures in thousand barrels per day); Iraq has a refining capacity of 638. Total oil production of Iraq is 3057.69. Crude oil production of 3054.38 and it exports are 2235.41. Crude oil reserves are estimated to be 143 billion barrels and it produced 2.58 million barrels a day in May 2014.

Due to this war, the Brent crude has soared on supply concerns from Iraq and is at a three month high of USD 113.45/barrel (21st June, 2014) from USD 103.30/barrel (2nd April, 2014), up almost 10%,  in anticipation of a shortage of crude oil supply. However, 70% of the oil production is in the southern region as against 30% in the northern areas where the battle has commenced. So the extent to which the shortage will be is less than the market anticipation. 

India is one of the fourth largest importers of crude oil and is heavily depended on imports. India imports 80% of its crude oil requirement. It imports around 4 million barrels of crude oil per day. The increase in prices of crude basket will impact the import bill of the country and will be the first ever challenge to the new Modi led government. 

India imports 19 million metric tons of crude from Iran and a prolonged existence of the war in Iraq will lead to severe crisis for India’s crude oil requirement. As a consequence of which there will be a burden on the current account deficit which currently stands at USD 32.4 billion, 1.7% of GDP down from USD 87.7 billion (4.7% of GDP). Furthermore, oil marketing companies will have to pay more than they already do for the same barrel they now pay.  Because of this the government will be forced to pass on this cost to the consumer by increasing the prices of petrol.