Rough consolation: Let us not lose sleep over India's increasing oil dependence

Such a high import dependency would disappoint policymakers who have sought to increase our energy self-reliance. To this end, in 2014-15 the government had set a target of reducing our oil dependence to 67% by 2022.

Since the import share was 77% in 2013-2014, a reduction of 10 percentage points may have seemed an achievable goal at the time. But the share of imported oil in Indian consumption has moved in the opposite direction over the last decade.

As a result, our economy is exposed to global price shocks in addition to the risk of supply interruptions. Rising oil prices typically widen India's trade and current account deficits, absorbing even more foreign exchange, weakening the rupee and fueling domestic inflation. Previous big episodes have been scary.

It was an oil crisis caused by the 1990-91 Gulf War that left India deprived of US dollars and turned us away from our post-1947 “mixed economy” model.

Since we needed hard currency to supply oil, we learned the hard way that globalization is a must. When oil prices hit $147 a barrel in mid-2008, we suffered another economic blow, albeit a much milder one.

Significant changes have taken place since then. The Russia-Ukraine war is now in its third year, and the West is imposing tough sanctions on Russia, an oil producer. The Gaza war that began last October threatens to engulf major oil fields in West Asia and hostilities between Israel and Iran are on hold.

Nevertheless, the oil market remained relatively calm for the most part. Despite recent Israeli airstrikes on Iranian military targets, Brent crude traded below $72 a barrel on Monday, down 5%, perhaps in relief that Tel Aviv did not attack Iran's oil infrastructure and Tehran downplayed the damage has.

The commodity has traded below $80 for much of this month even as the West Asian theater of war has expanded to include Lebanon. A key reason could be a price cap on US shale oil production, which appears to be rising above $75 in response to price signals.

By and large, global supplies appear to be stable as Iranian and Russian oil have found buyers and American shale frackers have weakened the hold that the Opec+ oil cartel once had on prices.

India has received tanker shipments from Russia and wants to import oil from countries as far away as Brazil. And all of this at a price that doesn't pinch. Even if this were the case, our foreign exchange reserves of $688 billion provide a buffer.

All these factors have increased India's energy security. Of course it's better to be self-sufficient, but our own oil production has not been able to keep up with rapidly increasing demand and it will take time for renewable alternatives to make an impact.

All in all, reducing our dependence on imports does not seem feasible. As long as the oil flows in smoothly, it shouldn't worry us. According to trade theory, we should focus on what we produce best and buy from others what they offer cheaper.

For decades, this logic applied poorly to oil, whose market was distorted by a cartel that kept prices artificially high by controlling much of the world's production. It made sense to pump local oil, even if it proved to be a costly endeavor.

Although OPEC+ is not powerless and wars can still have devastating consequences, the arguments for investing in oil fields at home are now much less convincing – unless we find a clear cost advantage in global comparison.