It is no secret that the war waged by the US-Israel combine against Iran has begun assuming a larger pinching character. With other countries in West Asia also being dragged into it in some way, its ambit has expanded significantly and rapidly. And,
more than anything else, it has impacted the oil business, which has been a traditional mainstay of the region and has its own significant positioning in the global economic equilibrium.
India too has begun to bear the brunt of this war, which seems to have taken a prolonged trajectory. If Trump had this feeling that subduing Iran would not be too tough an exercise, he has been proved wrong, and its economic ramifications include disturbing equations for several countries, including India. In fact, India, a major consumer of oil & gas, is now in an alert mode, with reported shortages in the supply of LPG cylinders at various locations. Though the government has been maintaining a brave face, its recent decision to raise the prices of premium category diesel (industrial) is a pointer that concerns about a possible large-scale shortage of life driving commodities could be real. That is, if the situation worsens further in the Gulf. Iran allowing oil & gas tankers meant for India to pass through the critical Strait of Hormuz could hardly be seen as a cushion. You never know, in an intensifying war scenario, when this kind of cushion will be eliminated.
Simply put, while India has been consolidating its global economic ranking (now the fourth largest by GDP value) over the past decade, the current war has exposed its vulnerability in no uncertain terms. A fast-growing economy, which is adding to its oil & gas guzzling capacity consistently (the third largest consumer in the world), has somewhere failed to take into account that it also needs to shore up its fossil fuel production, as they are far from becoming irrelevant. Under Prime Minister Modi, since 2014, the country has diligently worked to develop a more comprehensive energy mix portfolio. And, there has been more focus on pillars like renewables to meet the future energy demand. But, in the process, the government has not given enough push to spruce up domestic production of oil & gas, which should have been a robust simultaneous endeavour. We have always been talking of India having huge potential in oil & gas reserves, but our domestic production has been plateauing for quite some time, and there are no indications of a sudden spike in them. As a result, our import dependence (as much as 90 per cent of the total demand) is consistently growing and could leave us helpless in an irregular situation (where we fail to have a command over demand and supply equations), like what we may have begun to witness today.
There are a couple of things which the decision makers must not forget, even as they plan and set afoot initiatives to strengthen non-fossil verticals. Oil & gas still have a considerable duration of utility on this planet, to keep the economic wheel moving. And, therefore, more needs to be done to infuse a new wave of vibrancy in this sector. As we are aspiring to become a developed country in the next two decades, there are enough global templates to draw examples of how large economies should approach this imperative. Take the example of the US. It was a net importer of oil and gas around the beginning of this century. But, by aggressively backing shale gas production (private companies have played a critical role here), it turned the tables within a decade and today is a top energy producer and LNG exporter. India, too, has committed to tapping shale gas and identified spots. But we haven’t heard any significant progress on this front.
Another example is that of China. The world’s second-largest economy is only slightly better than India when it comes to import dependency for oil and gas (as much as 70 per cent). But, even as it has unleashed epic-scale alternative energy plans in the last couple of decades, it did not lose sight of its need to have a long-term secured supply line of oil & gas. And, for that, it has not only invested aggressively in domestic reserves, but also acquired overseas oil assets in Africa and elsewhere. We were quite late in taking this route, and the required aggression has not been visible; therefore, the results do not match the scale, which can provide us some relief. Simply put, the challenges posed by the current war deserve to be taken more seriously, and we must not further delay in shoring up our domestic production with more liberal policies to energise the exploration sector.