The developed world is struggling with soaring energy prices. Europe is experiencing a complete bloodbath at fuel stations. Until recently, the United States was going through the same. The proverbial ‘West’ saw its energy markets turn upside down as sanctions meant to punish Russia boomeranged rather dramatically. In June, Americans were forced to shell out over $5 for one gallon of gasoline. In India, gasoline prices are mired with separate Central and state taxes, which makes every litre of fuel rather expensive to global standards under normal circumstances. Abnormal times of the kind that have been seen in the past few months should have ideally seen oil prices in the country rising to record highs. That was hardly the case. As gasoline prices skyrocketed in the previous months across the world, and countries like Sri Lanka fell into a full-blown crisis due to the same, Indians paid no more than they usually do at the gas station. That merits an analysis, because India achieved what no other country in the world was able to. It froze fuel prices without bringing ruin upon its oil companies or economy.
Most developed nations have witnessed significant inflationary rise in gasoline prices by almost 40 per cent during July 2021 to August 2022. This year especially, gasoline prices saw exponential rise across the wealthiest of nations, and they were hardly able to contain the increments. India, on the other hand, maintained stability at fuel pumps. It did so with the help of several measures, including the imposition of a price freeze and increasing intake of discounted Russian fuel.
State-owned fuel retailers like Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) had stepped in to absorb the global crude price hike earlier this year, incurring tremendous losses but not allowing the inflated prices to be passed on to consumers. As the price of oil rose internationally, they were at one point losing Rs 20–25 on each litre of diesel and Rs 14–18 on each litre of gasoline. An oil price freeze was implemented on April 7 this year, following which oil companies began incurring losses as they compensated for the global price hikes without letting Indian consumers pay for the same.
The obvious question which many might ask is this: Global oil prices have fallen once again, so why has petroleum not become cheaper in India? Needless to say, there can be no free lunches in a mature economy like ours, especially with a government that is not a big fan of freebies. The Modi government paved the way for oil retailers to stop increasing oil prices while the global crude market was on fire in the past few months. They obliged and Indian consumers practically remained unscathed. However, these oil companies need to make up their rather significant losses — and they are doing so now.
In a sense, the government was able to insulate Indians from the major hike in oil prices as it gauged the fact that global prices would eventually fall, paving the way for state-owned oil entities to compensate themselves for the losses they incurred. Even today, the losses from earlier this year are being made up by state refiners without dramatically hiking fuel prices.
The fact that the Government of India, led by Prime Minister Narendra Modi, chose realpolitik instead of supremacist lectures laced with duplicitous morality from the West is what played a near magical role in protecting Indian consumers from the global oil price rally. There is no doubt about the fact that war in any part of the world is bad and brings about misery. Does India need to put its own strategic interests on the backburner to gain validation from the ‘democratic world’? Not really. India is its own master which has an independent foreign policy. A firm confidence in its own foreign policy is what helped India stand up to the West, look it in the eyes and say that a nation of 1.4 billion people will not be bogged down from pursuing its own interests.
Data from June this year shows oil imports from Russia rose 15.5 per cent while those from Iraq and Saudi Arabia dropped by 10.5 per cent and 13.5 per cent respectively, dragging the share of Middle Eastern oil to 56.5 per cent from 59.3 per cent. In July however, India’s crude oil imports from Russia fell for the first time since March along with its overall purchase, while supplies from Saudi Arabia rebounded for the first time in five months. However, Moscow still holds on as the third largest oil supplier to India. In fact, Iraq has been forced to offer discounts matching up to the Russians while selling oil to India. Russia, in a bid to maintain its position as a major oil supplier to India, has offered another slew of discounts to India — with the caveat that New Delhi must desist from joining the oil price cap regime being negotiated for global implementation. On this count too, India will take a measured decision based on its own interests. It has already asked the United States to allow sale of Iranian and Venezuelan oil globally, after which New Delhi might be inclined to join the price cap regime.
As of August, Russian crude oil costs $6 less per barrel than the average crude import price. Iraq, meanwhile, provided its own discounts in the last two months which, on average, cost $9 a barrel less than Russian oil. The competition among world oil exporters to grab a significant share of the Indian market, or to maintain their dominance in it is what has helped insulate Indian consumers from high energy prices. The Modi government has been pragmatic enough to keep all options on the table. India’s policy is rather straightforward, as explained by External Affairs Minister S Jaishankar. India does not go to the markets with the intention of buying ‘Russian crude’. Instead, it remains on the lookout for the ‘cheapest’ oil — which for some time this year, happened to be Russian. Then, Iraq began offering better discounts, and New Delhi once again turned to the Middle East. Now, if Russian oil is available at an even cheaper rate, India will source as much crude as it possibly can from Moscow.
The availability of significant discounts is what has helped state-owned oil refiners minimise their losses in what are turbulent times for the global oil market. Had the Government of India taken a “moral” decision to decouple from Russia for its war on Ukraine, it would be sacrificing its own interests at the altar of Western-exported morality, which by the way, is inherently hypocritical in nature. What India is witnessing is astute governance in action that has shielded Indian consumers from global energy inflation.
There is a lot of clamour when oil prices in India rise, rightfully so. A developing nation cannot afford high energy prices — it takes an unprecedented toll on the largest consumer base of the country. However, equally important is appreciating the nation’s leadership when it successfully steers us clear of global energy inflation. What India has achieved in the past few months is nothing short of magical, and is a reminder that national interests must always reign supreme. The world will fall in line when a country of our size and scale refuses to be bogged down. The key is consistency, and putting forth one’s views in a candid manner — as India has done over the past few months.
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