World

Attack on Saudi oil assets is bad news for India’s economy

While experts have ruled out a disruption in supply, crude price is likely to shoot up

Photo courtesy: Social media.
Photo courtesy: Social media. 

The drone attacks on Aramco’s Abqaiq oil refinery and Khusair oilfield in Saudi Arabia could not have come at a worse time for India, the world’s third-largest oil importer. Just to understand the enormity of the impact of this action, the sites the 10 armed drones allegedly struck were responsible for five to six per cent of the world’s total oil supply.

It is reported that almost 50 per cent of the Gulf Kingdom’s oil producing capacity has been momentarily knocked out by the military strikes and it could take Aramco weeks before production level is restored.

Globally, experts expect crude oil prices to rise by 10 to 15 per cent because of these attacks. The Brent Crude has already climbed 10 per cent in less than a day. A sudden increase in global oil prices will affect India’s oil import bill and its trade deficit. Every dollar rise in the price of crude oil raises New Delhi’s import bill by Rs 10,700 crore every year.

Published: 16 Sep 2019, 7:01 PM IST

So, at a time when the economy is showing signs of a low demand-led slowdown and the government is cramped for fiscal space, a five or 10 dollar increase in crude prices will see India’s import bill rise by Rs 50000 crore or Rs 1 lakh crore.

What makes matters worse is that Saudi Arabia is the second largest supplier of oil and cooking gas to India and India has significantly reduced crude import from Iran, faced with threats of American sanctions. Incidentally, India spent $111.9 billion on oil imports in 2018-19.

The Indian economy is already experiencing a major slowdown. Quarter one growth in the current fiscal year has slumped to five per cent. Growth of eight core industries dropped to 2.1 per cent in July.

Published: 16 Sep 2019, 7:01 PM IST

The eight core sector industries - coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity - had expanded by 7.3 per cent in July, 2018. Unemployment has risen to a 45-year-old high. High bank NPA’s and the debt crisis in the non-banking financial companies (NBFCs) have completely strangled the investment climate.

And to make matters worse, consumption has lessened, dealing a body blow to man-power intensive sectors like automobiles and real estate. FMCG companies are struggling to find takers for even Rs-5 biscuit packs in rural India which has been hit by low farm income growth for over five years now.

Published: 16 Sep 2019, 7:01 PM IST

In such a climate, the rise in price of crude will lead to higher retail prices. Once diesel price rises significantly, it will push up transportation prices. If that happens, Indians are likely to experience just not a spike in retail prices of nearly all goods but also pay more for services.

Houthi rebels in Yemen have claimed that they struck the Saudi assets with ten armed drones. However, the US has said that Iran is behind the attacks. Houthis have previously attacked Saudi Arabia with cruise missiles. The Iran-backed Houthi rebels have engaged in a civil war in Yemen since 2015 against the Saudi-backed Abdrabbuh Mansur Hadi-led Yemeni government.

Published: 16 Sep 2019, 7:01 PM IST

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Published: 16 Sep 2019, 7:01 PM IST