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Can an oil importing India be energy secure?

Politicians in resource deficit nations are often fascinated by autarky. So fascinated, their rhetoric and discourse blur the lines between independence, security and self-sufficiency. This tendency, of course, is not entirely misplaced: political traditions and cultures in nations are molded by historical realities that are not easy to forget.

The discourse on energy security is one such victim of ideas that have origins in old wounds. At the heart of such concerns is the sourcing of oil. Every President of the United States since the 1973 oil crisis - from Nixon to Obama - has had "energy independence" and "self-sufficiency" of energy in general and oil in particular on their agenda.

The fear is that conventional warfare, Cold War-style hostilities and political turbulence could lead to shortfalls in domestic supply, crippling the economy and defense capabilities at worst, and leading to long queues at fuel stations and road rage at best. While the OPEC oil embargo on the United States in 1973 led to the latter, it presented to politicians the possibilities of the former. This oil crisis and resulting discourse has provided a template to several nations to actively pursue their own energy independence policies.

In India's case, the dream of oil independence is just that – a dream. As of 2013-14, India's import dependence was 83%, up from 75% in 2005-06. A study titled Energy Security Outlook (2015) projects that under a reference case scenario, the import dependence of crude oil will rise to 91%, while under an ambitious energy security scenario, it will still remain as high as 77% in 2031-32.

But as things go, dreams sell. In 2005, in an address to the nation, President Dr. APJ Abdul Kalam emphasized on the need for "total energy independence". Former Prime Minister Dr. Manmohan Singh also flagged import dependence as a concern. As recently as in March, Prime Minister Modi said that India should celebrate its 75th year of Independence in 2022 by reducing crude oil imports by 10%. In his words, it would be a fitting tribute to "those who sacrificed their lives for our freedom". He added that import dependence could be further reduced to 50% in 2030.

Faced with the reality of India's reliance on the Middle East for oil, and the impact of oil imports on the current account balances, it is reasonable to expect the government to push for greater domestic oil production. However, the unrealistic import dependence targets indicate that energy security is perceived to rest on the shoulders of energy independence. This belief is misplaced, and at worst, a distraction in the pursuit of energy security itself.

The definition of energy security, as adopted by the Government of India, refers to it as that state where citizens can be supplied energy "at competitive prices at all times and with a prescribed confidence level considering shocks and disruptions that can be reasonably expected". The key, therefore, is affordable and consistent supply of energy, both of which can be ensured in the case of oil, even if India continues to largely import it.

Over the decades, international policy action and market responses have ensured that the global crude oil production is far more diversified and trade is far more efficient, leading to a loss of political power by the OPEC cartel. Today, collusive behavior by producers, international conflict, piracy and other events lead to fluctuations of oil prices, rather than the physical disruptions of oil supplies. Indian industry officials confirm that the international supplies to India were not impacted in the past many years in spite of the various wars, political volatility and sanctions seen in the Middle East region.

Further, while subsidies on diesel and petrol have ended (at least for the moment), industry officials claim that their prices will not rise substantially even if international crude oil prices rise well over $110 a barrel. The government has responded to falling prices by increasing taxes, which can be rolled back if necessary.

Additionally, the impact of crude oil imports on current account balances can be cushioned by increasing exports of petroleum products (and other means). India currently is a net exporter of most petroleum products, and the government understands the need to maintain this position in the future.

Therefore, instead of playing up unrealistic reductions in import dependence and taking credit for falling oil prices, the political class should educate the citizenry on the costs of consuming fossil fuels, on market based prices (which rise, just as they fall), on diversification of imports, on increasing energy efficiency, and on increasing oil storage capacity.

The government, for its part, is already undertaking these measures to varying degrees. For instance, India has more than doubled its imports of crude oil from South America and reduced demand from the Middle East. It has also begun filling its petroleum reserves, although the existing capacity only accounts for 13 days of supply, as compared to 90 days recommended by OECD. One other aspect of energy security that ought to find its way into political discourse is energy efficiency and public transport: cars use over four times as much energy as buses do, and over 20 times as much energy as trains do (per passenger per kilometer). The promotion of public transport ought to be a key political promise during election cycles.

India's political class would do well to stop striving for simplistic answers to complex problems. Unrealistic targets today can be perceived as promises not kept tomorrow; accolades for falling prices today can lead to criticism for rising prices tomorrow.

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