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Why the US-Iran peace deal doesn’t solve India’s energy vulnerabilities

The expected softening of international crude oil prices in the coming months should not again lull the government into policy inertia or inaction.

The news of the United States and Iran getting closer to a deal to end the West Asia hostilities, which intensified from February 28 this year, has had a calming effect on the markets, raising hopes of the reopening of the Strait of Hormuz, through which a fifth of global trade in oil takes place. This optimism is understandable.

Prices of crude oil have declined. Stock prices have bounced back. Hopefully, the agreement will be signed by June 19 and talks over the following two months will give a final workable shape to the agreement. The global energy situation will still take a few more months to return to relative stability or even to the point that prevailed before the hostilities began. But the crisis is not getting worse and it indeed appears to be getting over.

In India, the rupee has gained against the dollar. Bond yields have come down a bit. The steps taken by the Union government and the Reserve Bank of India recently have raised prospects of an increased flow of foreign exchange through overseas deposits and foreign investment in bonds. These steps should address concerns over a widening deficit in the balance of payments even as the tasks of managing the resultant liquidity rise through open-market operations or an increase in cash reserve ratio could become more urgent. The Indian Basket crude oil prices, something which impacts the processing cost of India’s oil refineries, is on the decline after staying in the range of $106-114 a barrel in March, April and May. This was a sharp increase from the average price of $63 in January and $69 in February. The Indian Basket crude oil price has declined to $83 a barrel after the US-Iran peace deal news broke this Monday.

Underrecoveries of India’s state-controlled........

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