After a gap of 137 days, petrol and diesel prices on Tuesday were increased by 80 paise a litre each, while domestic cooking gas prices were hiked by Rs 50 per cylinder. This is the first climb after the price has remained unmoved since November 4, 2021.
The hike is fallout from a spike in global oil prices, especially after Russia’s invasion of Ukraine. High global crude oil prices are a major concern for India as the country imports 85% of its oil demand.
Petrol prices in Delhi
Petrol in Delhi will now cost Rs 96.21 per litre as against Rs 95.41 previously, while diesel rates have gone up from Rs 86.67 per litre to Rs 87.47.
A 14.2-kg non-subsidised LPG cylinder will now cost Rs 949.50 in the national capital. While LPG rates were last amended on October 6, petrol and diesel prices have been on a freeze since November 4 ahead of the assembly elections in states like Uttar Pradesh and Punjab.
Prices have been on a freeze since then, despite the cost of raw materials spiralling upwards. International oil prices were around $81-82 a barrel in early November as against $114 now.
Sources said a 5 kg LPG cylinder will now cost Rs 349, while the 10 kg composite bottle will come for Rs 669. Meanwhile, the 19-kg commercial cylinder now costs Rs. 2003.50.
India relies on foreign purchases for roughly 85 percent of its oil needs, making it one of Asia’s most vulnerable countries to rising oil prices.
Fuel prices are rising due to Russia-Ukraine conflict.
International oil prices have been rising ever since Russia put its forces on the Ukraine border last month. They spiked after it invaded the central Asian nation on fears that oil and gas supplies from energy giant Russia could be disrupted, either by the conflict in Ukraine or retaliatory western sanctions.
Russia makes up for a third of Europe’s natural gas and about 10 percent of global oil production. About a third of Russian gas supplies to Europe usually travel through pipelines crossing Ukraine.
India purchases oil from Russia.
With the Ukraine war showing no signs of easing, India has had to make tough decisions on oil purchases so that its economy is not battered by high crude prices. With crude oil rates at $110 a barrel in the international market as of March 21, India has decided to procure more oil from Russia at discounted prices in order to cushion fuel prices within the country. The move has raised eyebrows in the West.
India imports roughly 80% of its total crude oil requirements.In the first 10 months of the current fiscal (April 2021 to January 2022), India imported 175.9 million tonnes of crude oil, worth $94.3 billion (roughly Rs 7.2 lakh crore), including $2 billion (Rs 15,200 crore) worth of oil from Russia. During the financial years 2020–21, India imported 196.5 million tonnes of crude oil. According to estimates, India purchases only about 2% of its total crude oil requirements from Russia.
Indian Oil Corporation, the country’s largest state-owned oil refiner and marketer, has reportedly purchased 3 million barrels of crude oil that Russia offered at a “steep discount” to the prevailing rates.
The purchase is said to be the first from Russia since Moscow embarked on its Ukraine invasion in February. The Russian invasion has angered the West, with the US and allies imposing sanctions on Moscow, both oil and non-oil. Countries such as the US, the UK, Australia, and Canada have placed sanctions on the import of Russian oil. Europe, the largest consumer of Russian oil and gas, has not placed any sanctions so far since it cannot afford to do so.
Russia is a major oil exporter.
Russia is the world’s third largest producer and exporter of oil, after the US and Saudi Arabia, catering to 10 percent of the global oil supply and 27 percent of the supplies to Europe. It also meets over 40 percent of Europe’s natural gas demand. In 2020, Russia exported fuel and oil worth $66 billion (Rs 5 lakh crore) to the European Union (EU) alone.
Russia is a major player among the 10 other non-OPEC (Organization of Petroleum Exporting Countries) nations who are referred to as the “OPEC+” and have a big influence in deciding the direction of global crude prices.
It is estimated that the ban on Russian oil by a few countries has impacted 3 million barrels per day (bpd) of its crude trade on a daily basis, out of the total 7 million bpd Moscow sells in the global market. This has made it imperative for Russia to look at alternative markets to push its crude supplies, and offer heavy discounts so that even traditional buyers like India are tempted to buy more of Russia’s crude at a cheaper rate.
No alternatives for India
Experts are of the view that India has no other alternative but to buy crude at a cheaper price from Russia. What does India do if it doesn’t buy Russian oil? China will buy more of it. Many countries in Europe are buying it too, “says R.S. Pandey, former petroleum secretary. “If Russian production of oil goes down, global oil prices will shoot up, which will hurt the world economy.” In a TV interview, Pandey said that India’s move was in the interest of its consumers, its own economy, and the world economy.
Moreover, there are no sanctions as such on Russian oil that India should be adhering to. Traditionally, India has gone along with sanctions imposed by the United Nations and not by a particular country or a group of countries, argue experts.
The decision not to ban Russian oil is consistent with India’s stance to maintain a neutral position as far as the Ukraine war is concerned. Also, imports from Russia account for just a fraction of India’s overall crude oil imports.
It is imperative for India to look at cheaper ways of buying crude as it cannot pass on all the hikes in international crude prices to consumers. Retail inflation, as measured by the Consumer Price Index, has already crossed the Reserve Bank of India’s targeted upper band for inflation, registering 6.1 per cent in February.
Crude oil prices rise.
Crude oil prices have risen in response to reports that the European Union may impose a ban on Russian crude imports.Brent crude futures were up 2.8% at $118.82 per barrel. Brent crude reached a high of $130 earlier in the month. On the other hand, US West Texas Intermediate (WTI) crude May futures were up 2.5% at $118.82 per barrel mark.
Rahul Gandhi takes a swipe at the government.
Congress leader Rahul Gandhi on Saturday took a swipe at the Modi government over the impending fuel price hike after assembly polls and asked people to get their petrol tanks filled as he said the “election offer” would end soon. He took to twitter to take a dig at the central government as campaigning for the last phase of assembly polls in five states ended on Saturday.
The Congress has been accusing the government of lying. He said that the entire wait was going on for the recently concluded elections in five states.