ARAMCO ASSURES INDIA EVEN AS OIL PRICES SURGE ON SAUDI ATTACKS
Tensions in the Gulf add to economic worries even as Saudi Aramco assures India it will honour supply contracts in spite of production cuts
NEW DELHI/LONDON: With drone attacks on Saudi Aramco’s facilities causing a massive disruption in global oil supply, India prepared to stem the price surge even as Saudi Aramco assured India that it will honour its supply contracts despite the production cuts, Indian officials said.
Oil prices initially surged more than 20%, with Brent crude posting its biggest intraday gain since the 1990-1991 Gulf crisis, before pulling back as various nations, led by US President Donald Trump, said they would tap emergency supplies. Trump said that the US was “locked and loaded” for a potential response.
India, meanwhile, condemned the attacks. “We reiterate our resolve to oppose terrorism in all its forms and manifestations,” a government statement said.
NEWDELHI/MUMBAI: A record gain in crude oil prices could further aggravate India’s fiscal situation and make it tougher for the government and the central bank to effectively combat a slowdown in economic growth.
With drone attacks on Saudi Aramco’s facilities causing the biggest-ever disruption in oil suppliers, India is preparing to stem the impact of the price surge. Saudi Aramco has, however, assured India that it will honour its supply contracts despite the production cuts, Indian government officials said on condition of anonymity.
International benchmark Brent crude futures soared as much as 19.5% to $71.95 per barrel. Some traders are speculating that oil prices may cross the $100 mark again. Crude prices hit a record $147 per barrel in July 2008.
The surge in oil prices comes at a time when the Narendra Modi government is trying to boost the economy after gross domestic product (GDP) growth slumped to the slowest in more than six years. An increase in inflation stoked by higher fuel prices will also leave less space for the Reserve Bank of India (RBI) to cut interest rates to combat the slowdown.
“India’s crude imports averaged 4.5 million barrels per day over the first seven months of this year, of which close to 20% were imported from Saudi Arabia. As such, India is vulnerable to prolonged lower crude supplies from Saudi Arabia even though the country has some SPRs (strategic petroleum reserves) and commercial crude stocks as cushions in the short term,” Jy Lim, an oil market analyst at S&P Global Platts, said in an emailed statement.
India imports more than 80% of its oil requirements and around 18% of natural gas.
Every dollar increase in the price of oil raises the import bill by ₹10,700 crore on an annualized basis. India spent $111.9 billion on oil imports in 2018-19.
“Of the cargo contracted from Saudi Aramco for September, we have already received a major part. We have been told that they will be using other ports to ship the balance, though the grades may vary,” an Indian government official, one of those cited earlier, said on condition of anonymity.
“Saudi Aramco updated us that our oil cargo was successfully loaded the day before. We are waiting for that to arrive and also watching the situation,” said R Ramachandran, director (refineries) at state-run Bharat Petroleum Corp. Ltd. The company has booked successive cargoes of 2 million tonnes on September 17 and September 22 from Saudi Aramco.
“In case of an extended disruption, the two comparable events are the Iranian Revolution of 1979 and Iraq’s invasion of Kuwait in 1990. India suffered in both cases. In the case of the Gulf War, there was added impact of Indian workers returning home, worsening India’s balance of payments,” said Amit Bhandari, fellow (energy and environment studies) at Mumbai-based think tank Gateway House. The geopolitical event has raised fears of a rise in fuel prices in India, which in turn may stir demand for return of state control on fuel pricing.
Meanwhile, in a separate development, Saudi Arabia officials are discussing delaying Aramco’s initial public offering as attacks on the company’s oil facilities have drastically reduced their output, the Wall Street Journal reported on Monday, citing people familiar with the matter.