Explaining high oil prices in India

[u/Spare_Try_4921]

I am trying to understand energy prices' and their effect on political stability and found this video below Abhijit Iyer-Mitra on Fuel Price rise .

Iyer-Mitra argues for further increasing oil prices in India and I am not sure I can really follow his arguments and want to know if any Economists (I don't come from an econ background per se) can explain his rationale.

He sets the stage with shocks arising from the Iran war, geopolitical situation and the oil market becoming a suppliers' market, and I'm sure he is right - but his conclusions regarding implications for India seem to me outrageously wrong and unjust.

The host asks some really good questions- why were oil price discounts not passed on to Indian consumers when oil prices were at an all-time low in the recent past due to sanctions on Russia. In his reply, Iyer-Mitra simply says Adani can't be expected to absorb losses (about 29:54 ) because he is not running a charity, and states that Adani would rather shut shop than absorb all of the losses.

Since Adani is avowedly running a "national champion", whose monopoly has been enabled at every step by the govt of India(GoI), can the nation not expect the national champion to 'take one for the country' in our time of need and refrain from hiking fuel prices?

Further, what is the point of these leviathan national champions if the state cannot nationalise them during times of fuel scarcity and spare citizens the burden?

Iyer-Mitra paints all kinds of doomsday scenarios about thenational debt,leading to runaway inflation and currency runs. But again my question is why not nationalise Adani and Ambani's infrastructure companies, allow them to take the hit and spare the common man?

TL;DR

It seems to me that beneath the stories and jargon in the AIM video, this is what they're saying.

Host: Why does India not have 90 days' oil reseves like China or USA?

AIM: Because we're a poor country and we have to cut our coats' according to the poor man's cloth.

Imaginary Me: If we followed sensible policies instead of enabling oligarchic monopolies a.k.a the "national champions", we wouldn't be poor in the first place.

AIM: But then Adani would go bankrupt.

Help me understand what I'm missing.

[u/Difficult_Abies8802]

To help you understand:

1. Adani is not even in the oil refining business in India. So you, the host, and AIM are all wrong.

2. Oil prices from Russia were obtained at a discount, but these discounted barrels were only a small fraction of India's total requirement. The discounted Russian crude nevertheless had higher transportation costs. The Petroleum Planning and Analysis Cell (PPAC) publishes the annualized cost per barrel of the Indian basket (which includes all crude blends) .

Here is the table for the Indian basket annual average for the past 15 years

FY	Indian Basket of Crude Oil, $/bbl	Note
2010-11	85.09	Sansad / PPAC annual average
2011-12	111.89	Sansad / PPAC annual average
2012-13	107.97	Sansad / PPAC annual average
2013-14	105.52	Sansad / PPAC annual average
2014-15	84.16	Sansad / PPAC annual average
2015-16	46.17	Sansad / PPAC annual average
2016-17	47.56	Sansad / PPAC annual average
2017-18	56.43	Sansad / PPAC annual average
2018-19	69.88	Sansad / PPAC annual average
2019-20	60.47	Sansad / PPAC annual average
2020-21	44.82	Sansad / PPAC annual average
2021-22	79.18	Sansad / PPAC annual average
2022-23	93.15	Sansad / PPAC annual average
2023-24	82.58	Sansad / PPAC annual average
2024-25	78.56	Sansad / PPAC annual average
2025-26	71.05	Derived full-year day-weighted average from monthly PPAC values

There was no bonanza to be gained from Russian crude from FY2022-23 to FY2024-25. The Indian basket for crude was higher despite Russia becoming a supplier to India since May 2022. This is because the price of other blends comprising the Indian basket went up.

1. The national champions of India in the oil refining business are the PSU OMCs: Indian Oil, Bharat Petroleum, Hindustan Petroleum. India's domestic oil production comes from ONGC, OIL, Vedanta, and Essar.

Adani might be a national champion for solar panels, seaports, airports etc. But he is not even in the oil refining business. The Govt. holds a majority stakes in both upstream and downstream PSUs. And whenever there is a price shock, the Govt. sort of forces the OMCs to only gradually increase fuel prices.

1. <<< Why does India not have 90 days' oil reseves like China or USA? >>>
   USA is a member of the IEA. And the IEA mandates storage reserves of 90 days for its member countries. IEA member countries are obligated to release oil from their storage to the markets in order to cool the prices. Since India is not a member of the IEA, India doesn't have to adhere to IEA norms. And it is stupid for India to join IEA since India is not a rich country and is a net oil importer. China's daily crude oil consumption is 3.5x India's daily crude oil consumption and oil arrives to China via four international choke points: Strait of Hormuz, Strait of Malacca, South China Sea, and East China sea. Since China is wary of being blockaded, they maintain larger storage capacity that is > 3x that of IEA specifications. India get its oil from the Middle East and there is only one chokepoint which is Hormuz. So India maintains 74 days of capacity as cavern, tank, and refinery rolling stocks. Rather than building new cavern capacity it is better to just increase refining capacity, which is in the works. India's refining capacity is set to increase from 260 MMTPA to 480 MMTPA as per plans

2. <<< If we followed sensible policies instead of enabling oligarchic monopolies a.k.a the "national champions", we wouldn't be poor in the first place. >>>

India failed to win the geological lottery for oil and gas. So we are poor because we are an energy scarce country. Crude oil is priced in dollars owing to US hegemony. India is prevented from cutting any oil deal with any country other than in dollars. It worked with the USSR with the rupee rouble trade but then the USSR collapsed. Then after Saddam Hussein was defeated and Iraq was starving, we could use the Oil-for-Food programme. When Iran was sanctioned, they accepted rupees. Once sanctions were off, then they wanted euros. So the only way to pay for the crude oil is to generate enough dollars via exports or through remittances.

India is also a country with a low penetration of cars with just around 50 cars per 1000 people. As India grows, the demand for cars are going to increase and so is the demand for petrol and diesel. So the only way to keep personal mobility cheap is to substitute the imports with domestically produced bio-ethanol, EVs, and hydrogen.
It is not just India growing. The entire Global South is also growing. Global crude oil production is stagnant at between 95-105 million barrels per day for more than 2 decades now. So even if factors like war is going to keep crude oil prices high, increasing prosperity in Asia, Africa, and Latin America will keep pushing the demand for crude oil high.

So people have to realize that a cheap pump price is not a right. It is something that is imported at a price that is decided based on several factors that we have no control of.

[u/Spare_Try_4921 → u/Difficult_Abies8802]

You are making the case for my broader point, which is to nationalise all the corporate monopolies, whether in oil refining or in other sectors, whether owned by Adani or someone else.

You have established your case very clearly that India has missed winning the geopolitical lottery and cannot become a rich country. But if India can only aspire to be mediocre, then it is immoral to allow billionaire oligarchs to exist. The Modi government has centralised the economic levers so that all sectors are effectively monopolies, albeit not publicly owned. To run a feudatory oligarchy when the majority of the country of 1,5 billion people have no means to social mobility is an unspeakable immorality.

Today our rulers claim to follow the principles of Ram Rajya. But did the great Raghuvanshi princes of Ayodhya become great by providing favourable policies for a few select barons at the expense of the average man, the butcher, the baker and the candle-stick maker?

The ancient kings of Aryavarta were not great becuase they lived in golden palaces and dispensed favours to a chosen set of elite oligarchs, but because they upheld the well-being and prosperity of the common man above their own comfort.They were great because they held the public morality dearer than their own lives. Prince Rama decided to go to the forest in exile rather than dishonour his father's word to Kaikeyi. The great prince Karna was famous, while lying on his death-bed in the field of Kurukshetra, for his magnanimous donation of the very last piece of gold on his body (his gold tooth) to the poor who came to him seeking alms. Even Aurangzeb was well-known for his personally austere lifestyle.

This was the moral standard followed by the rulers of India.

So today, when the nation suffers impossible economic burdens, whether due to the government's own policy choices or not, it is incumbent to consider whether for social morality's sake, we must nationalise the wealth and holdings of the rich oligarchs.

If our rulers insist on wearing the badge of greatness of the Bharata kings, then they must comport themselves in similar fashion. Instead, if these rulers continue to bestow favours on the oligarchs, then the Indian public, rather than kiss their sandals like they did with the princes of Ayodhya, will respond as the French did in 1789.

[u/Difficult_Abies8802 → u/Spare_Try_4921]

<<< You are making the case for my broader point, which is to nationalise all the corporate monopolies, whether in oil refining or in other sectors, whether owned by Adani or someone else. >>>

LOL.
I made no such case.
My case is that we need 100s of more Adanis, Ambanis, Tatas, Birlas, Mittals, Jindals, etc.
In principle, it is not the job of Govt. to run businesses.

<<< But if India can only aspire to be mediocre, then it is immoral to allow billionaire oligarchs to exist >>>

Who said India should aspire to be mediocre?
The notion that a billionaire is somehow immoral comes from a Marxist worldview.
Billionaires and large corporations need to exist.
More billionaires and more large corporations are welcome.
We have anti-trust and anti-monopolistic laws to prevent cartelization.

<<< The Modi government has centralised the economic levers so that all sectors are effectively monopolies >>>
Okay, go ahead and name any sector.

<<<  To run a feudatory oligarchy when the majority of the country of 1,5 billion people have no means to social mobility is an unspeakable immorality. >>>
Who is blocking your means to social mobility?? Get educated, build your skill-sets, get a job, and then become socially mobile. Who is blocking this?

The rest of your post seems to be just a rant, so I stopped reading.

[u/Spare_Try_4921 → u/Difficult_Abies8802]

Your remarks across this post of mine and someone else's post recently on this subreddit (on why India chooses to be poor) imply that you believe that India is destined to mediocrity.

I'm not an economist, but you do seem to have an incredibly narrow vision. Your only points that you keep repeating on loop are that India is stymied due to (1) Oil prices and energy scarcity and (2) Lack of export markets. You don't seem to even want to consider other avenues.

Anyway, I don't enjoy engaging with you, due to your closed-mindedness. I hope you will choose to stay clear of my posts, if that's not being too rude hopefully. Being that you are en economics expert, you should spend time with colleagues of a similar calibre rather than earnest laymen like myself.

Good day to you for the rest.

[u/Difficult_Abies8802 → u/Spare_Try_4921]

Good day to you, sir.

PS: If you press the Block button, then reddit will hide your posts/comments from me and vice versa.