, Edited by Explained Desk |
March 8, 2021 12:25:49 pm
Security concerns around Saudi Arabia’s oil fields have pushed the price of Brent crude to above the $70 per barrel mark, the first time since the pandemic broke. We take a look at how this happened and how it impacts India.
Why are crude oil prices spiking?
Saudi Arabia, one of the largest producers of crude oil, on Sunday announced that Ras Tanura, the world’s largest crude oil exporting facility, was attacked by a drone from the sea with a missile landing close to a residential complex near the storage facility. While the attack by Houthi rebels did not impact oil supplies with Saudi Arabia reporting no property damage from the attack, the price of Brent crude which has already been on an upswing since October, rose further to $70.7 per barrel on the back of concerns about the security of the country’s crude oil supplies.
How does this impact India?
If prices persist at over $70 per barrel, Indian consumers who are already facing record prices for auto fuels will likely have to face another round of hikes in the price of petrol and diesel. The retail selling price of petrol and diesel in India is determined based on the international prices of the products as well as state and central taxes.
Oil marketing companies have hiked the price of petrol and diesel by about Rs 10 per litre and Rs 11 per litre respectively since the beginning of November with the price of petrol crossing the Rs 100 per litre mark in some parts of India as a result of crude oil prices rising from about $40 per barrel to about $66 per barrel at the end of February.
While OMC’s have kept prices unchanged for nine days, the longest streak this year which has seen 26 price hikes in just over three months, OMCs will likely have to resume price hikes if crude oil prices remain elevated.
How does India compare with other countries?
While consumers around the world are facing the impact of crude oil prices recovering to pre-Covid levels, Indian consumers are also bearing the brunt of elevated taxes leading to record high prices.
The Central government had in 2020 increase taxes on petrol by Rs 13 per litre and on diesel by Rs 16 per litre to boost revenues during the Covid-19 related lockdown. Several states had also increase state sales taxes during the period pushing prices up further.
While some states including Rajasthan, West Bengal, Meghalaya and Assam have cut state taxes to reduce the burden of rising prices on consumers, the centre has not yet indicated that it will cut excise duties on the two fuels. Central and state taxes currently account for around 162 per cent of the base price of petrol and 125 per cent of the base price of diesel in the national capital.