Bad news for oil-importing nations

The recent European Union proposal to ban the import of Iranian crude is bad news for all oil-importing nations, including India. As if that is not bad enough, the United States Senate just approved sanctions on the Central Bank of Iran, a move intended to shrink Iran’s oil exports and deprive the country of cash that might be channelled into its nuclear or missile programmes. As if on cue, Brent crossed the psychological barrier of $100 a barrel as soon as the EU ban was proposed and is cruising well above that limit. With the American sanctions, the global crude price is firmly set on a northward spiral.While the proposed embargo is only on the EU that collectively buys 8,65,000 barrels a day, the fact that EU Energy Commissioner Günther Oettinger has sought the support of Russia and others points to a larger scheme to isolate Iran and starve it of all oil revenues from its entire export which, according to the U.S. Energy Information Administration, stands at around 2.2 mbd (million barrels a day). Iran’s total production of around 3.5 mbd makes it the third largest producer after Russia and Saudi Arabia.Price spike might not be the only concern for India although it is a very aggravating one. In 2010-11, the POL (petroleum, oil, lubricants) import bill was $106 billion but in 2011-12, it is bound to be much higher, even without the threat of the ban. The Indian basket is a composite index comprising Dated Brent, Dubai and Oman sour crudes and, therefore, usually costs a good $10 more per barrel than what our European and American counterparts pay for their imports. The Indian basket already soared to $118 dollars in April 2011 and has been hovering around $110 dollars ever since. Now, with Brent crossing the Rubicon, the Indian basket could soar into the stratosphere. In fact, most analysts predict that oil will firmly remain above the $100-mark henceforth. For emerging economies with galloping oil consumption, that is a grim prospect ??? one that could slow dow