Saturday’s drone attack on Saudi Arabia’s largest crude oil processing facility may see petrol and diesel prices shoot up to Rs 4 per litre over the next fortnight. However, the overall impact on Indian interests is likely to be muted unless the disruption lasts for longer than three months. Kotak Institutional Securities analysts say Indian oil refiners may have to increase retail fuel prices Rs 5-6 per litre over the next fortnight if crude oil price rises by $10 a barrel.

While crude prices have moderated after opening a whopping 20 per cent higher on Monday, Brent crude is still trading 10 per cent higher ($66.25 per barrel) than pre-attack levels.  However, an extended delay in restoring the 5.7 million barrels a day shortfall could see crude prices shoot up to $75-80 per barrel, warns Goldman Sachs and S&P Global Platts, especially since tensions in the region could escalate.

“A geopolitical risk premium will return to the oil price,” said Alan Gelder, V-P, Wood Mackenzie. This could disturb India’s fiscal math, with every $1 increase in crude oil prices adding $2 billion to its import expenditure.

India’s oil import bill during FY19 was $111.9 billion, compared to just $87.8 billion the previous year.
“Depending on how long (the crude price rise) persists, it will have some impact on the current account deficit and further perhaps on the fiscal deficit if it lasts longer,” RBI Governor Shaktikanta Das said in a TV interview on Monday.

But, industry representatives and oil ministry officials both downplayed the impact. “Saudi Aramco officials informed Indian refiners that there would be no shortage of supplies to them,” an oil ministry spokesperson said. Indian refiners say they have enough stock to tide over short-term supply disruptions.

“Refiners generally keep a 3-month stock of inventory precisely for these kinds of disruptions,” said Gaurav Moda, energy lead, Accenture India.  According to Moda of Accenture India, the impact in terms of available crude volumes for Indian refiners is minimal, since the attacked facility processed heavy crude into light crude.

“Most Indian refiners can process both and actually prefer heavy crude because it enables them to derive more petrochemical products,” Moda noted. According to industry sources, Saudi oil officials have already begun talks with Indian importers to tweak the mix of heavy and light crude supply in favour of the former.

“Even retail petrol and diesel prices, which are linked to international benchmarks, should not see a sharp rise in a purely market-driven scenario, since refiners will make up for the impact by making more from petrochemicals,” Moda observed.