Oilmin asks OMCs to prepare for any supply disruption from Iraq

As the crisis in Iraq gets deeper, the Indian government has intensified its efforts to ensure energy security.

Petroleum Minister Dharmendra Pradhan on Thursday told all oil marketing companies to prepare a contingency plan for short and medium terms. This includes diversification of crude oil supplies in order to minimise the impact of growing instability in the Middle East.

Aditya Gandhi, Director, Sapient Global Markets (India), said that Iraq is India's second-biggest supplier of crude and any disruption in supply will have an impact on Indian refiners and markets across the board. Discussions have already started with Saudi Arabia and Kuwait to try and secure alternate supplies, he said.

Overall, oil cartel OPEC's spare capacity is about 2 million barrels of oil per day, which is not enough to tie over significant shortfalls in supply.

"If the conflict in Iraq continues and supplies from South Iraq are disrupted, it looks like supplies from North Iraq through Turkey will increase and make their way to the global market. In fact, they already have two tankers on water that the Kurdistan Regional Government is offering at $56 per barrel. However, India will probably not engage with the Kurds and risk alienating the Iraq government," Gandhi said.

Market insiders say that this year, Indian oil marketing companies planned to import 19.4 million metric tonnes of crude oil. Of this, 18.7 million metric tonnes was for Indian Oil and Hindustan Petroleum.

"These two companies have already lifted 50 per cent of the contracted quantity. Crude supplies to India from Iraq come from the Basra oilfields, which are situated well away from the conflict zone in the north-eastern part of Iraq. Loading of ships, including by the two PSUs, from the Basra oil terminal, continues normally," an official spokesperson said.

The situation is under control so far, but if the trouble continues oil prices could shoot up, says an energy sector analyst. "Oil price rise and potentially below-par monsoon can stoke inflation and will be a cause of worry for the government," he said.

Pradhan, who returned from a five-day maiden tour to Moscow, reviewed the situation in Iraq with the senior leadership of the oil marketing companies. After the meeting, the minister said that there was very little possibility of a supply disruption and asked OMCs to maintain the supply of the products across the country.

India imports about 78 per cent of its oil needs and a Barclays report recent predicted that a $10 rise in crude oil prices can impact growth by half a percentage point.

On Thursday, the petroleum ministry's Petroleum Planning and Analysis Cell calculated that the crude oil price in Indian basket increased by 5 per cent to $111.25 per barrel from June 11, the day prices of petroleum products were last revised.