Speculations override the facts and fundamentals when it comes to crude oil. The latest example of this is the ongoing events in Syria. The crude prices have soared in the recent past on account of chances of US launching a military attack on Syria. And irrespective of whether that comes true or not, the damage is already happening.
India being mostly dependent on crude oil imports is one of the worst hit victims in the entire case. It is not just 80% reliance on crude oil imports that threatens the energy security of the nation. But as rupee touches fresh lows against the dollar, the timing could not be worse. Since the crude oil imports are quoted in dollars, rising crude prices along with falling rupee are inflating the import bill. Further, as the fuel market is not completely deregulated in India, there is further blow on the fiscal health of the nation. Even the phased hike in diesel prices is unlikely to come to the rescue. This is because diesel remains a widely consumed fuel for some of the key sectors of Indian economy. A hike in diesel prices will only result in inflation which will be further detrimental to the Indian economy. And as an article in Firstpost suggests, the ripple effect is likely to involve gold - Indians' most preferred bet against inflation. It is unlikely that the recent measures taken by the Government to curb the gold imports will quench the appetite for gold. Instead, all this will foster gold smuggling. It doesn't take too much analysis to understand that all this is likely to pull rupee even lower. And we are likely to get stuck in a vicious cycle of low growth, inflation and twin deficits.
To conclude, the Syrian crisis has stakeholders with opposite interests -some who will benefit from the war and others who will lose. And India for sure belongs to the latter group. Things might not have been so bad had the Government put in efforts to make the country self reliant in its energy needs. But for now, we can only hope that the situation will not become worse and that a military action will be averted.