India's Oil Crisis and Its Economic Implications

Understanding Oil Price Indicators

 The Indian Basket crude oil price is crucial for assessing the impact of an oil crisis on Indian refiners and the government’s finances, rather than the Brent crude oil price. As of March 19, the Indian Basket was priced at $150 per barrel, while Brent crude ranged between $105 and $108 per barrel. 

Composition and Impact

• The Indian Basket is made up of: 
  • 79% sour grade oil (Oman and Dubai)
  • 21% sweet grade oil (Brent)
• This composition causes notable price variations, emphasizing the severity of the crisis for India.

Historical Oil Price Trends

 During the financial year, the average Indian Basket crude oil price was $71 per barrel, slightly less than the $78.56 per barrel average of the previous year (2024-25). The Modi government has witnessed relatively modest crude oil prices compared to the previous administration. 

• From 2014-2026, crude oil prices under Modi’s tenure varied between $46 and $93 per barrel.
• In contrast, the Manmohan Singh government dealt with prices ranging from $105 to $112 per barrel.

Concerns Over Domestic Oil Production

 Despite favorable oil prices, India’s dependence on imports has increased, raising questions about policy effectiveness. 

• India's domestic crude oil output fell from 35.9 million tonnes in 2014-15 to 26.49 million tonnes in 2024-25.
• Crude oil imports increased from 189 million tonnes in 2014-15 to 243 million tonnes in 2024-25.
• Import dependence grew from 84% to 90% over the same period.

Policy Efforts and Challenges

 Initiatives like the Hydrocarbon Exploration and Licensing Policy (2016) have not achieved desired outcomes in boosting domestic production. 

• India's imports of petroleum products doubled from 21.3 million tonnes in 2014-15 to 51 million tonnes in 2024-25.
• Domestic LPG production grew slowly, with imports increasing to meet demand.

Recommendations

 The government should leverage the current crisis to reform oil exploration policies, enhance self-reliance, and boost domestic production significantly. 

• Create a detailed action plan for reforming oil exploration policies.
• Encourage domestic manufacturing of petroleum products to reduce import dependence.
• Re-evaluate pricing policies to ensure companies can operate without excessive subsidies.

Disclaimer: Personal views expressed do not reflect the opinion of Business Standard.