Effects of Iraqi crisis on oil price in India

By Vartika Savarna

iraq-oil-companyThe internal conflicts of Iraq have been going on for too long. The continuous struggle for power between the Shiites, Sunni Arabs and Kurds is now running out of hand. The Iraqi government and security forces are controlled by the Shiites. They have slowly but surely isolated the other religious groups from the government, thus forcing rebellions to rise against them. While the Sunni Arabs run the ISIS (Islamic State in Iraq and Syria), Sunni militias and form the Baathists, the Shiites too have in control the large Iraqi security force Shiites militias, and as well as those led by Muqtada-al-sadr, a powerful cleric and Grand Ayatollah Ali al-Husseini al-Sistani, the nation’s top Shiite cleric. Of late the Kurds too have aligned with the Shiites but such an alliance is not one that can be depended upon. In the present both stand against a common enemy, the Sunni Arabs but after getting over this enemy, they might turn against each other.

The Prime Minister of Iraq since 2006, Nouri al-Maliki has probably single handedly caused the dissatisfaction of the Sunnis and Kurds by systematically removing them from the Government and the armed forces. He is also said to be enjoying the support of his Iranian counterpart who leads a Shiite government in his country.

The Middle East Nations are the world supplier of petrol, Iraq being one of them. Infact Iraq is the second largest oil producer among the OPEC nations and hence the continuous wars and war-like situations over the last few deacdes has always had an impact on the world price of oil.

If we look at the trends over the years , the 1980 Iran-Iraq war, the 1990 Gulf war or the 2003 Iraq war each such political instability has been accompanied by soaring oil prices all over the world. A similar trend is again expected with the insurgents shutting the Baiji Refinery on June 18th,14. This refinery alone produced 170,000 barrels per day of petrol and other products and met the demands of Baghdadand other northern cities. A severe shortage is now being faced here. Continuous fighting and firing around the refineries have only affected them negatively. The exports have decreased, the infrastructure  destroyed, thus discouraging investers.

Iraq-crisis-No-38254Though most of the production takes place in southern Shia states which are strongly protected, hence dim chances of Sunni insurgents taking over them, still there are fears of sabotage and terrorism as it seldom happens during such instabilities. Even though the Kurds have been trying to make up for the loss in exports  by shipping off extra tankers, the companies are still unsure of buying them ever since the Iraqi Government announced it would sue anyone who buys what they consider illegal exports.

Also for stabilizing the world price of oil it is essential for the other OPEC nations to keep up their production but with Libyan and Syrian exports falling, the situation is becoming grim.

Today the Global oil demand-supply are almost equal both being approximately 92 million barrels per day. Any further decrease in supply will affect this equilibrium negatively because the demand cannot be changed in the short term. Even though as of now the supply hasn’t been affected greatly, still with the ongoing civil war in Iraq price of petrol has already started rising affecting among others the economy of India as well. The price of petrol rose to a nine-month high of $115 a barrel in June,14. It has been predicted that if the price of petrol goes anywhere near $120,the world would face another severe economic crisis. The US have further tried to immune themselves from this by not completely depending on OPEC nations. It imports as much oil from Canada as it does from the OPEC nations. However, it has been noted that for every $10 increase in petrol price per barrel, the global growth decreases by 0.2%.This will certainly do no good to India with the month-old NDA government still struggling with inflation. The value of our currency rupee had sharply fallen in the last few months of the UPA led government. Keeping this in mind if the world price of petrol rises it will either directly affect the citizens of India by creating a hole in their pocket or if the Government tries to subsidize the rates, it will cost heavily to the Government as well by hampering the growth in other fields.

Even though the whole world will meet the same fate from the pending economical crisis but right now the British seem to be benefitting from some of the big oil producing centres of the Kurdish regions under its control. The price of petrol has also increased in UK by pound 2.5 and can further increase by 2-4 pounds but pound is still a stronger currency than dollar in the given situation. Also the US does not have permission from Baghdad to export the Kurdish oil hence the British is fully exploring this opportunity.

The Modi Government has followed the UPA policy of petrol price hike. The price of petrol first rose by Rs.1.69 and diesel by 50 paise, then by Rs.2 and 56 paise respectively. Such irregularities are further caused to the detriorating dollar-rupee exchange rate. To protect the nation from such economical setback it is hence essential to look for alternate sources rather than depending so heavily on the OPEC nations. India too has a huge potential and with proper and more rigorous scientific exploration we should try tapping this potential. As of now we can try decreasing our demands though its not something that can be acheived in a short period of time. Some economists in India have claimed that the Iraqi crisis does not pose any serious threats and most of the hype created is actually baseless but the petrol price hikes over the last few weeks have been branded as the direct and immidiate effect of the civil wars of Iraq by all the major news sources.

References:

1.http:/mashable.com/2014/06/20/iraq-who-is-fighting/

  1. http://www.economist.com/news/finance-and-economics/21604611-war-iraq-has-lifted-oil-price-little-its-long-term-impact-will-be
  2. http://www.thisismoney.co.uk/money/news/article-2664568/Iraq-oil-crisis-set-4p-litre-price-petrol-City-fears-grow-escalating-Middle-East-conflict-hits-fuel-supplies.html
  3. http://www.telegraphindia.com/1140701/jsp/business/story_18569061.jsp

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