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Iraq has been destabilised by the violent annexations of northern cities Mosul, Tikrit, and most recently, the oil-rich city of Kirkuk by the militant group Islamic State in Iraq and Syria (ISIS).

Amit Bhandari, Energy and Environment Fellow at Gateway House answers your questions on how the crisis is likely to impact India’s crude oil imports from Iraq

Why is Iraq important for India?

The unrest in Iraq impacts India as we are the world’s fourth largest consumer of crude oil with imports accounting for the bulk of our consumption. Iraq has the world’s fifth largest reserves of petroleum and is the sixth largest exporter of crude oil. India is a big market for Iraq’s oil – during 2012, 19% of Iraq’s crude oil exports were to India – approximately 456,000 barrels/day or 22.8 million tonnes. That is about one-eighth of India’s total petroleum imports.

Can Iraq’s petroleum production be hit by the unrest?

The majority of Iraq’s oil production comes from three oil fields – North Rumiala & South Rumaila in southern Iraq and Kirkuk in the north. The southern oil fields account for approximately three-fourth of Iraq’s total oil production. Exports from northern Iraq (Kirkuk) had already halted in March because of sabotage of infrastructure. The extremist group ISIS is strong in northern Iraq, so there is no immediate risk to Iraq’s oil production/exports from the southern fields

How will Iraq’s unrest impact India?

The impact will mostly be financial. Crude oil prices have risen in response to the unrest in Iraq. The price of the Indian crude oil basket was $110.54/barrel on 13 June, 2014 – up from $106.88/barrel at the beginning of the month. India imports close to 2 million barrels/day of crude oil – so a higher price means a higher import bill. If the unrest in Iraq spreads further, it may push up oil prices further.
India’s state owned oil marketing companies (BPCL, HPCL, IOCL) sustain huge losses on sale of retail fuels (diesel, petrol, LPG and kerosene) because the selling price is less than costs. The government provides subsidies to make up for their losses. Higher oil price will mean increased losses and a bigger subsidy bill for the government.