The news of Iran detaining a Shipping Corporation of India vessel carrying crude oil from Iraq to India a few days back raises some serious questions.

Although Iran has downplayed the incident, oil industry veterans have put it under the ‘rarest of rare’ categories.

The incident underscores how crucial it is for India to make alternative plans for transportation of its imported crude. It is time the country expanded its energy basket and cut dependence on West Asian oil. Existing policies will also have to be tweaked to minimise dependence on crude oil itself, as the country imports 80 per cent of its requirement. And, of this over 60 per cent comes from West Asia. In fact, in the April-June quarter of the current fiscal 65 per cent of its imported crude came just from the Gulf nations (see graph).


Tensions between Iran and Iraq are nothing new. The US and the European Union sanctions have put many curbs on Iran’s crude oil export. Once a major supplier to India, Iran has lost that position today, with Iraq emerging as the key beneficiary.

Since India imports crude from diverse regions, such as West Asia, Africa, Asia, South and North America, Eurasia, and Europe through oil tankers plying on key sea lanes, political turmoil and unrest in any of the regions can cause supply disruptions.

It is time the country started diversifying its supply sources. Simultaneously, India needs to aggressively look at international pipeline projects.

The Standing Committee on Petroleum and Natural Gas has stressed the crying need for an alternative plan for crude oil transportation. In a report on the long-term purchase policy and strategic storage of crude oil, the panel has asked the Petroleum and Natural Gas Ministry to keep a watch on the geopolitical situation along these sea routes , and keep alternative plans ready in case of disruptions. India also needs to look at other regions for supply. In 2012-13, the crude oil purchase plan of domestic oil refiners showed a heavy dependence on West Asia, almost 79 per cent, against five per cent from West Africa and seven per cent from other countries. Industry observers say dependence on West Asia has to be curtailed. China has already started doing so, and the US is on its way. .

Indian refineries must, however, be upgraded to process any variety of crudes — from the dirtiest, dense variety to the sweetest. India’s refining sector is dominated by public sector undertakings, which are always facing financial constraints to make required investments for these upgrades.

This incident should be a wake-up call. India’s energy mix, which is predominantly skewed towards crude oil for its energy requirements, needs to undergo a change. The country needs to look at gas, which is always trading at a discount to crude oil. It is also a cleaner burning fuel. The Standing Committee had urged India to take advantage of developments in the shale gas arena and promote the use of natural gas.

(This article was published on August 18, 2013)
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