Russia-Ukraine crisis underscores need for India to relook its energy policy

US President Joe Biden's announcement of a ban on purchase of Russian oil and gas may not have come as a surprise but has surely added fuel to the fire of the international oil market. Prices have crossed 130 dollars per barrel and the trend looks firmer by the day. The significant aspect is that it will not materially affect crude oil availability in the US as less than five per cent of the country's energy needs are met from Russia. Besides, efforts are being made to find alternative sources such as Venezuela even though the US had earlier imposed sanctions on it.

The move to ban oil purchases may have been taken by the Biden administration but the repercussions are being felt globally. What is worse is that the impact is not being felt just by Russia but also by emerging economies like India and others which depend largely on imported oil for their energy requirements. This country will naturally face the prospect of paying vastly more for oil from abroad but it has the advantage of adequate foreign exchange reserves to provide a cushion in the short run. Currently, India has the fourth highest such reserves at 635 billion dollars. It would not be prudent, however, to draw on these reserves in the medium or long term. Instead, it must be hoped that the surge in oil prices will be tempered over the next few months as both producing and consuming countries ponder over the long term ramifications of pricing energy at such stratospheric levels.

Currently there are limited options before the government to meet the impending energy crisis. It needs, however, to weigh all of them carefully in the country's self-interest. Finance Minister Nirmala Sitharaman has already commented that alternative sources are being considered for buying oil. This could be a reference to the reported offer from Russia to sell oil at heavily discounted rates to this country. The proposal is of mutual benefit at a time when global prices are nearly double of the rates assumed for the purposes of budgetary calculations. As against a presumption that oil prices would range around $70 to $75 per barrel in the next fiscal, these are now ruling as earlier mentioned, at over $130 per barrel. In this backdrop, it would make sense to accept the Russian offer though this is bound to upset western countries especially the US In fact, some bankers are reported to have opposed the idea as it would draw the ire of western countries. These fears are not unfounded as the sanction proposals are snowballing rapidly in a bid to get Russia to withdraw its aggression against Ukraine.

At the same time, it must be recognized that European countries have imposed sanctions in a selective fashion. Russian oil and gas supplies continue to flow to Europe which draws as much as 40 per cent of its energy needs from that country. The banking sanctions are also not applicable on payments for the oil and gas supplies. In fact, there is now a worry that Russia may close the tap on these supplies creating an energy crisis for Europe. Top leaders in that country have also been warning that sanctions may lead to prices touching peaks of 300 dollars per barrel in the near future. In this backdrop, it would be in the country's interest to go ahead with imports from Russia to offset the high prices from other sources.

One must also remember that Russia is the largest oil exporter and the third largest oil producer in the world. It exports over 7 million barrels of crude oil and petroleum products per day. In case Russian oil is to exit world markets, it would be extremely difficult to find alternatives for such huge quantities of this fossil fuel. Even if sanctions on Iran are lifted, as it looks they may be in the near future, it will not be possible to provide enough crude oil to compensate for the loss of Russian oil.

Even as the country is in the midst of this crisis, it is the right time for policymakers to review India's long term energy plans and make course corrections. The heavy dependence on oil purchases from abroad makes this country highly vulnerable in such emergencies. Ways must be found to surmount this problem. One path is to give a greater push to renewable energy. On this score, there is no doubt that the present government has taken several initiatives to ramp up renewable energy capacities. It also must be conceded that targets for creating non-fossil fuel energy capacity especially solar power have been reached well ahead of their original time line. The push for electric vehicles which has annoyed domestic car manufacturers is equally a positive step towards reducing consumption of costly fossil fuels.

Another issue that needs to be urgently reviewed is the drive to carry out more intensive oil exploration in prospective onshore and offshore locations. Till now, the numerous bidding rounds for oil and gas exploration and production in selected locations have not attracted oil majors. It is time that more tangible incentives are offered to lure foreign companies which have the experience and expertise to locate new oil sources within the country.