New Delhi: As the crisis in Iraq has put a cloud on supply from India's second-biggest source of crude oil, the government issued directions to state-run refineries on to prepare a contingency plan.
Oil supply has not been disrupted and the country has adequate stocks, but offi cials and industry execu tives are worried as the price of Brent crude oil, the most widely used inter national benchmark, has soared to a nine-month high of nearly $115 per barrel, government and industry officials said.
Petroleum Ministry officials will meet officials of Indian Oil, Bharat Petroleum, Hindustan Petroleum and Mangalore Refinery & Petrochemicals on Friday to finalise the contingency plans.
The government wants to make sure there is no disruption in oil supply, which can severely unsettle economic activity.
A senior executive in Indian Oil Corp said the company has prepared its backup plan but does not expect the effects of Iraq crisis to spill over to India.
He said Indian refiners will be hit only if disruptions in Iraq continue for a longer time and the insurgents move towards the southern part of that country, which accounts for about 70% of crude production.
Indian crude oil imports, which include grades that are cheaper than Brent, became costlier by about $4 a barrel to $110 per barrel in the past few weeks. Weakness of rupee has aggravated the situation and increased government subsidies to oil firms.
Iraq, the OPEC's second largest crude oil producer, was to provide 19.4 million tonnes crude out of the 97 million tonnes imports planned for 2014-15. It supplied 25 million in 2013-14, taking care of 13.2 per cent of India's total imports.
However, a prolonged battle would significantly increase crude prices, resulting in a higher trade deficit and a consequent depreciation of the rupee against other currencies; raise the prices of deregulated products such as petrol, aviation fuel etc; and drive up government subsidies for controlled products, it said.
A one-rupee depreciation against the dollar raises the annual under-recovery by about Rs 7,900 crore while a dollar increase in crude price raises it by about Rs 4,400 crore.
A prolonged battle would therefore increase the under-recoveries and hence the budgetary provision for fuel subsidy, it said.