India needs to curb oil consumption; Its time to ration domestic oil drain

By Nantoo Banerjee

India’s continuous hesitancy to curb the retail oil consumption pattern despite a worldwide surge in fuel prices is inexplicable, if not unacceptable. The government, the biggest benefactor of large domestic fuel use by way of imposition of levies close to 50 percent of the retail oil prices, is not prepared to ration fuel consumption despite the fact that the country is nearly 90 percent crude oil import dependent. Last Friday, India’s state-run fuel retailers raised petrol and diesel prices for the first time in four years by a little over three rupees per litre to recoup some of the losses incurred by oil marketing companies due to higher global crude oil prices. The country is one of the last major economies to raise retail fuel prices following the disruption to shipping through the Strait of Hormuz by the war started by US-Israeli attacks on Iran. Most of the countries have already raised domestic oil prices. Others have adjusted local fuel subsidies to control the retail cost.

Following the Iran-US conflict, nations worldwide—particularly in South Asia and Southeast Asia— have been forced to constrain and ration domestic oil consumption due to severe supply disruptions and skyrocketing prices. The government of tiny Sri Lanka has implemented strict fuel rationing via the National Fuel Pass QR system, limiting the amount of petrol per vehicle, and declared Wednesdays as public holidays to cut down on commuting. To dial back on fuel usage, Pakistan has instituted a four-day work week, closed schools for two weeks, and mandated a 50 percent reduction in fuel allowances for government vehicles. Indonesia has implemented strict limitations on subsidized fuel sales and mandated a work-from-home policy for civil servants to counter soaring energy prices. Egypt has cut fuel allocations for all government vehicles by 30 percent. It has also slowed down large-scale public projects that consume high amounts of fuel and diesel. The Vietnam government mandated a forced, accelerated switch to ethanol-blended gasoline to lower domestic reliance on pure fossil fuels.

The countries witnessing very high retail oil price increases include Myanmar (101 percent), Cambodia (68 percent), the Philippines (54.2 percent), Vietnam (over 50 percent), and Pakistan (42 percent). Comparatively moderate petrol price increases are seen in the United States where petrol pump prices rose by around 36 percent as against Australia (29 percent), Canada (28 percent), and the UK (20 percent). Diesel drivers bore the brunt of the European energy squeeze, with average cumulative pump prices increasing by 20 percent region-wide.

While Spain recorded the largest diesel price increase within the EU at 27 percent, fuel costs in Germany increased by nearly 19 percent. In China, price hikes were capped at around 28 percent by government controls and refinery adjustments. In India, where oil prices are already very high due to central and state levies, retailers made modest increases in prices of petrol and diesel at around 3.2 percent to 3.4 percent. Saudi Arabia kept retail prices steady without any increase due to direct state subsidy structures.

While most of the major oil importing countries have enforced restrictions on petroleum oil consumption for the general public, India, the world’s third largest importer of crude oil after China and the US, maintains no mandatory rationing or government-enforced restrictions on petroleum oil consumption for somewhat unknown reasons. India holds only around 4.6 to 4.9 billion barrels of proven crude oil reserves. As a result, India imports over 85 percent of its crude oil needs and maintains strategic petroleum reserves for emergency supply protections. Oil imports by China and the US are basically intended to protect their massive internal oil reserves.

The US holds approximately 83 billion barrels of proven crude oil reserves. China’s reserves are estimated at over 28 billion barrels. This ranks China 13th globally and accounts for about 1.6 percent of the world’s total proven oil reserves. China and the US are the primary drivers of global crude oil demand, though their import needs are shaped by different economic and domestic production factors. China, the world’s second-largest economy and a primary manufacturing hub, requires immense energy supplies to sustain industrial output and growing domestic consumption. The country regularly imports upward of 11 million barrels per day. India meets around 85 percent of its oil demand through imports to keep pace with its rapid urbanization, industrial growth, and vast transportation networks.

While several Asian countries with or without domestic petroleum reserves and production have various restrictions to curtail oil consumption, the government of India merely promotes voluntary fuel conservation and enforces specific legal storage limits for individuals. The government is weighing austerity and energy-saving measures to curb oil consumption by the citizens through public appeals. Driven by escalating geopolitical conflicts in West Asia and surging global prices, these voluntary and official cutbacks aim to protect foreign exchange reserves and minimize the national trade deficit.

Government ministries and departments have been instructed to identify immediate avenues to restrict unnecessary fuel consumption and minimize foreign travel for officials. The government is urging citizens to revive work-from-home (WFH) models, participate in carpooling, increase their reliance on public transit, and conduct more virtual meetings. It has issued advisories for state governments to implement temporary extensions on industrial boiler certificates in power plants to optimize energy efficiency and operations.

Interestingly, the Reserve Bank of India is actively championing the need to curb oil consumption. Faced with a “crude oil shock” from the West Asia conflict and the rupee touching record lows (past Rs.95 per dollar), the central bank has stepped in to manage foreign exchange reserves and combat imported inflation. The RBI is tackling this challenge through both macroeconomic interventions and direct appeals to the public. To reduce the immediate drain on forex reserves, the RBI has instructed state-owned oil refiners to curb spot dollar purchases and instead utilize special credit lines for their import needs. The RBI Monetary Policy Committee has maintained a “lower for longer” stance but stands ready to raise interest rates if energy shocks lead to entrenched inflation.

To preserve the country’s current foreign exchange reserves, the central bank and the government are pushing for reduced reliance on fossil fuels through work-from-home mandates, higher use of public transport, and accelerated electric vehicle (EV) adoption. Beyond immediate crisis management, the central bank continues to support a long-term transition away from fossil fuels. Through the RBI’s Green Deposit Framework, banks channel capital directly into renewable energy and green transportation to enhance India’s structural energy security. It seems the country prefers indirect actions and creation of strong public awareness of the need for cutting fuel consumption to imposing higher taxes on petrol and diesel or rationing to cut fuel consumption. (IPA Service)