A Dynamic India is pursuing its own foreign policy. The conflict in Ukraine led to conditions favoring India’s refining and chemicals industries. The conflicts in the Middle East, West Africa, and elsewhere will lead to a different set of conditions. Who benefits?
Indian enterprises, and the Indian economy, has benefited from conflicts in other places. Conflicts cause great harms while conditions create benefits for some. EkaLore looks at the benefits for India from conflicts.
Indian refining industries have benefited since early 2022 after a period of initial shocks. Downstream production of chemicals, fuels, and further products has been highly profitable for Indian refining. For the foreseeable mid-term, these conditions will persist providing Indian enterprises with continued crude oil at costs advantageous to global trade in VGO and downstream fuels.
New refining capacity (3 mtpa), brought online by Hindustan Petroleum Corp (HPCL), will ramp up fuel production. Existing capacity will see 1.5 mtpa added in the next six months with an additional 0.9 capacity added in mid-2024. The new production will likely benefit domestic energy prices as HPCL will reduce buys of fuels from 4 other refiners to meet demand in western India and Andhra Pradesh. This will create greater supplies elsewhere in India. HPCL will also begin ramping a 5 mtpa LNG terminal, currently under construction, later this year. The expanded supplies should reduce government allocation and balancing issues.
Expanded capacities will bring additional fuel supplies to wide markets. The most optimistic estimates for Indian electrification and grid growth are unlikely to reduce transportation energy requirements in the next few years. The benefits of additional domestic fuel capacity will cushion any issues arising from other conflicts. In the near-to-mid-term this reduces demands for imports requiring convertible currency transactions.
New conflicts also change trade flows. Food imports into Africa thru Egypt have been substantially disrupted since early 2022. Indian food imports, from the USA, have grown at a 9.2% (adjusted rate) for the last ten years thru 2022. If domestic growth continues for 2023 (ending March 2024) then India will benefit from higher food production. This again reduces import demands that would require convertible currency transactions.
Extended conflicts can result in longer term benefits for India. Crude oil, LNG, and other traded energy require participation of India as the third largest global importer. The likely mid-term energy production advantages, from sanctions, are supportive of Indian facilities utilization and earnings streams. Sensitive government market allocation of fuels has a likely good outcome considering the combined leverage onto Indian produced fuels. Food supplies, vulnerable to effects from the El Nino weather systems and human conflicts, will still be reacting to rapid prices changes in external markets.
Standing back and looking at these facts it seems likely the Indian governments market targets for macroeconomic growth will benefit. The level of prices set for energy (fuels) and food will concern the Indian governments (Federal and local) initiatives to hold down inflation even as banking regulatory guidance continues to change. Market reforms and rationalizing of government regulatory schemes have some time and space to deploy because of benefits from global crisis.
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