The Washington stamp on your fuel budget

Trump

By Soma Banerjee @somaet
Executive Director – Energy & Infrastructure, @FollowCII @CIIEnergy

Strange yet true. Would you ever imagine that President Trump’s decision on a nuclear deal with Iran struck in 2015 could end up impacting your fuel budgets in 2018? Consumers of refined oil products like motor fuel and cooking fuels around the world including back home in India will be subjected to a distant decision taken at the White House by President Trump in a few hours from now. Such is the geopolitics of commodity oil.

US President Donald Trump

Read: Reuters: Trump to unveil Iran decision Tuesday; Europeans move his way

Analysts and political pundits have been speculating that the US president is likely to walk away from the nuclear deal with Iran and even re-impose sanctions that will adversely impact exports of oil from Iran, one of the larger oil exporting countries. This has led to the rally in oil prices over the past few days, giving a sweet spot to OPEC. US Shale is playing a leveller, pumping as much oil and gas into the world and dousing the flare-up in prices to some extent. How long, is the question, and at what price, is what every large consuming and importer country like India and China is tracking.

The price of oil for an import dependent country like India can disturb the macroeconomic math very easily. According to data compiled by the Thompson Reuters Oil Research and Forecast, India, Iran was the third biggest oil supplier to India in 2017, replacing Venezuela. Iraq was the largest source followed by Saudi Arabia. India’s imports from Iran in 2017 totalled about 471,000 bpd, marginally lower than a year ago.

While a higher oil import bill (thanks to heightened prices) will expand India’s current account deficit, any reduction on levies on petrol and diesel will impact the fiscal calculations as a large part of the indirect tax revenues are generated from oil and refined products. A larger subsidy bill on subsidised products like cooking gas (LPG) and kerosene may also increase as prices of refined products soar. Oil marketing companies are already feeling the pinch as margins have been squeezed.

The government may have to step in to come to the rescue of the common people if prices breach a certain level. Whatever be the game plan, policymakers and consumers of fuel in India and across the world may need to brace for a tighter condition as President Trump opens his cards on Iran.