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Economy

Crude hits $125, India’s Fuel Cost Soars

In response to EU sanctions from July 1, Iran has already stopped providing oil to Britain and France. Yesterday, there were rumours of it stopping supplies to Greece, but both Greece and Iran say everything is normal. Yet, given

a) 50% of Greece’s oil imports are from Iran, and at very favourable terms. Replacing with Saudi crude is difficult since the Saudis ask for cash upfront in exchange.

b) Other countries in the EU might be able to replace Iranian imports.

c) EU countries are desperate to save Greece under any cost.

Iran, then, can use Greece as a lever. Introduce a greater damage in Greece, so that other countries feel hurt badly enough to end sanctions.

Meanwhile, in the crude market, Brent hits $125, and India’s fuel costs rise:

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This is among the highest prices of the Indian import basket in rupees. This has gone up over 10% in the last two months. We haven’t seen retail fuel prices go up by much. Who’s absorbing the loss?

Us, the taxpayers.

Currently, the difference is an “oil pool deficit”, where fuel retailers like BPCL, HPCL and IOC lose money on diesel, kerosene and domestic LPG, in exchange for an implicit promise by the government to make it up. This deficit reached nearly 100,000 crores as of December – and obviously has gone up substantially since then.

The “under-recovery” is not Rs. 465 cr. per day. I expect diesel, petrol and LPG prices to go up immediately after the UP elections.