Iraq conflict: oil continues to flow, but exports hit

The ongoing political conflict in Iraq has not impacted oil supplies to India from West Asia, which remains a key supplier. In fact, Indian refiners do not see any immediate impact of the crisis on crude oil sourcing and pricing. However, merchandise exporters from India fear that the continued unrest in Iraq could lead to payment issues and a drop in shipments.

Refiners Indian Oil Corporation and Essar Oil are large purchasers of Iraqi oil. Geographical proximity and the type of crude required by the refineries are the main reasons for West Asia being a favoured buying point.

But the oil industry and the Government are also aware of the risks attached to being over-dependent on the region. Almost 80 per cent of India’s crude oil requirement is met through imports. In 2013-14, about 13 per cent of the 189.24 million tonnes of oil imports came from Iraq.

Of late, refiners have been diversifying their crude basket and are looking at Latin America and Africa. But more needs to be done, as immediate replacements may not be available.

However, the conflict has already taken a toll on exports, with shipments to Iraq dropping 34 per cent to $186.74 million in the first quarter of the fiscal. While items such as engineering products have been affected more, exporters fear that if the unrest continues longer it could disrupt shipments and payments could get stuck.

Oil companies say there are no supply constraints at present, as the unrest has not spread to the oil-producing regions of Iraq. Besides, the global market has already factored in the price implications. The fact that global crude prices have softened after breaching the $110/barrel mark is indicator enough, a private sector player said.

Engineering exports to Iraq plunged 54 per cent to $9.14 million in May 2014 from $20 million a year ago.

“The war in Iraq has clearly affected exports from our sector,” said Anupam Shah, Chairman of the Engineering Export Promotion Council.

According to the Federation of Indian Export Organisations, if tensions escalate and sanctions are imposed on Iraq, payments could also get affected.