The US-Israeli war on Iran continues, with Iranian cities being bombed regularly and Iran retaliating intermittently with missiles that should not have been launched if American President Donald Trump’s claim of having obliterated Iran’s missile launch capability were true.

Iranian missiles have been getting past Israel’s Iron Dome missile defence system and doing damage to assorted Israeli towns.

Trump claims the war is nearing its end, that Iranians have given him a valuable gift, about which no one else knows anything, but he has also been moving US marines and paratroopers to West Asia. He has so far refused to clarify what his war aims are, giving him lots of room to waffle about what he considers a win.

Iran bombed Qatar’s Ras Laffan liquefied natural gas facility in retaliation for Israeli attacks on Iran’s own South Pars gas field. Iran and Qatar tap, from different points, the same geological formation containing one of the world’s largest reserves of natural gas. Damage to the Ras Laffan LNG trains ensures that even after the war stops, it would be months before LNG supplies normalise.

Bad News For India Inc

This is bad news for India’s industries that use gas as fuel or feedstock. While fertiliser manufacture is a priority sector for India, the government has reduced the allocation of natural gas, used by the industry as feedstock for producing urea, even for fertiliser units, forcing some of them to shut operations and bring forward scheduled maintenance operations.

Fertiliser supplies from the Persian Gulf account for close to 40% of the world’s traded urea, and that has ground to a halt. The region also accounts for a fair bit of sulphur exports, used in the manufacture of phosphatic fertilisers. The war will result in fertiliser prices going up globally. India would be a loser, as food prices stand to rise.

GCC countries are also major exporters of aluminium — produced from bauxite using massive amounts of energy and sodium hydroxide — and helium, used as a cooling agent in chip manufacture, besides of plastics. Prices are slated to go up, in short, of energy, aluminium, semiconductors, plastics, fertilisers and food. Once the war ends and reconstruction begins, the demand for steel can be expected to go up, too, as also of construction equipment.

Divine Inspiration?

Minutes ahead of President Trump announcing an extension of his 48-hour deadline for Iran to open the Strait of Hormuz on Monday, some $500 million worth of oil futures were sold. Oil prices crashed from $112 a barrel to $99 a barrel the moment Trump announced the extension of his deadline. Whoever shorted the futures made a ton of money.

Of course, this could have been sheer coincidence or divine inspiration. Another possibility is insider trading, the tip-off coming from very high up in the Trump hierarchy. Nor is this the only whiff of unfair practices in the markets from the politically well-connected.

Days earlier, the head of the enforcement wing of the Securities and Exchange Commission had resigned, following differences with the SEC head, a Trump appointee, over investigating suspicious trades by those close to the President.

False Bravado On The Fuel Front

The government has assured the people that India has adequate supplies of petrofuels and that rumours of shortage are groundless. This is true to a large extent but not fully. India does face a shortage of LPG and natural gas.

India imports about 60% of its LPG requirement, and the bulk of it comes through the Strait of Hormuz, which is closed. India is self-sufficient in natural gas up to 50% of its requirement, while the rest has to be imported, mostly from Qatar.

LPG can be imported from other countries — Argentina has started supplying small quantities, for example — and domestic production increased, by reducing the production of petrol at our oil refineries.

But the scope for substituting stalled imports from the Persian Gulf is limited, and the allocation of LPG to the commercial sector, including hospitality, meaning eateries, stands sharply curtailed. Many have shut down, unable to find substitutes, and laid off workers.

The urban poor who live in slums and unregulated rental housing fail to get proper gas connections from oil marketing companies. They buy 5 kg cylinders filled with commercial LPG. Curtailed supplies of commercial LPG hurt them. Migrant workers have started trooping back home, unable to cook.

Election Optics vs Reality

The government has not asked companies to resume work-from-home. This is rational from the point of view of impending elections — which government would want to give the Opposition a chance to accuse it of not being able to manage fuel supplies?

However, economic logic suggests that conserving energy early on is the best insurance against the damage that inevitably rising energy prices would impose.

India has more than enough refining capacity to meet all domestic demand for petrol, diesel and aviation turbine fuel, which is nothing but a refined form of kerosene, provided the crude comes in.

Crude oil has relatively elastic supplies, unlike natural gas. Natural gas has to be liquefied — cooled under high pressure — before being exported in special tankers that can maintain the high pressure and ultra-low temperature.

Even though the US and Russia have plenty of natural gas they can sell, they do not have spare liquefaction capacity. And that capacity cannot be created in a hurry. For the existing supplies, Japan, South Korea, and Taiwan would compete aggressively, apart from China and Europe.

Cut Travel, Save Energy Imports

If Qatar’s crippled LNG facility takes six months or more to be brought back to full production, India must be prepared for a shortage and high price of LNG. It would be prudent for India to divert allocation of natural gas to fertiliser production from Compressed Natural Gas for mobility.

The implications for the economy of higher fertiliser and food prices are graver than the inevitable protest from car and autorikshaw drivers who fuel up on CNG at present.

Internal combustion engines that work on CNG can work on petrol as well. They will have to pay more for their fuel, that is all. It is for the government to explain the shortage of gas, urea and other fallout of Trump’s war on the world.

Minimising commutes and travel is one way to cushion the impact of higher fuel prices. That is why working from home is a desirable option right now. The lower the consumption of fuels now, before the government is willing to raise prices at the pump, the lower the energy import burden on the economy for the year as a whole.